##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2003
or

[    ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934


For the transition period from  to .

Commission file number 0-21018

TUFCO TECHNOLOGIES, INC.




(Exact name of registrant as specified in its charter)


|                                                                                           |  |                                     
|------------------------------------------------------------------------------------------ |  | ------------------------------------
|Delaware                                                                                   |  | 39-1723477                          
|                                                                                           |  |                                     
|(State or other jurisdiction
of incorporation or organization)                             |  | (I.R.S. Employer Identification No.)
|                                                                                           |  |                                     
|PO Box 23500, Green Bay, WI                                                                |  | 54305                               
|                                                                                           |  |                                     
|(Address of principal executive offices)Registrants telephone number, including area code |  | (Zip Code)920-336-0054              



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

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

Common Stock, par value $0.01 per share




(Title of Class)


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 Regulations S-K is not contained herein, and will not be contained, to
the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [      ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [      ] No [  X  ]

The aggregate market value of the Common Stock of Tufco Technologies, Inc.
held by non-affiliates, as of March 31, 2003, was approximately $11,431,999.
Such aggregate market value was computed by reference to the closing price of
the Common Stock as reported on the NASDAQ National Market on March 31, 2003.
For purposes of making this calculation only, the registrant has defined
affiliates as including all directors and beneficial owners of more than ten
percent of the Common Stock of the Company. The number of shares of the
registrants Common Stock outstanding as of December 18, 2003 was 4,582,344.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive proxy statement for its Annual Meeting
of Stockholders to be held in 2004 are incorporated by reference into Part III
of this Report.





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TABLE OF CONTENTS



|                                                                      |                                                                                                |  |  |  |  |  |  | 
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                               
|                                                                      | ITEM 1 - BUSINESS                                                                             
|                                                                      | ITEM 2 - PROPERTIES                                                                           
|                                                                      | ITEM 3 - LEGAL PROCEEDINGS                                                                    
|                                                                      | ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                                                              
|                                                                      | ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                                                      | ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA                                                 
|                                                                      | ITEM 7 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                      | ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                                      | ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                                      | ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|                                                                      | ITEM 9A - CONTROLS AND PROCEDURES                                                             
|PART III                                                             
|                                                                      | ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                                      | ITEM 11 - EXECUTIVE COMPENSATION                                                              
|                                                                      | ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                                      | ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                                      | ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES                                              
|PART IV                                                              
|                                                                      | ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|SIGNATURES                                                           
|INDEPENDENT AUDITORS REPORT                                         
|CONSOLIDATED BALANCE SHEETS                                          
|CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY                      
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           
|EX-10.19 2003 Non-Qualified Stock Option Plan                        
|EX-14.1 Code of Ethics                                               
|EX-21.1 Subsidiaries of the Company                                  
|EX-23.1 Consent of Deloitte & Touche LLP                             
|EX-31.1 Certification Pursuant to Rule 13a-14(a)                     
|EX-31.2 Certification Pursuant to Rule 13a-14(a)                     
|EX-32.1 Certification Pursuant to 18 USC Sec. 1350                   
|EX-32.2 Certification Pursuant to 18 USC Sec. 1350                   



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PART I




ITEM 1 - BUSINESS

General

Tufco Technologies, Inc. (Tufco or the Company) provides diversified
contract manufacturing and specialty printing services and manufactures and
distributes business imaging paper products. Since 1992 and until its
organizational restructuring on February 7, 1997, the Company operated as three
wholly owned subsidiaries, Tufco Industries, Inc., Executive Converting
Corporation (ECC) and Hamco Industries, Inc. (Hamco). On January 28, 1994,
the Company completed an initial public offering in which the Company issued
and sold 900,000 shares of its Common Stock, par value $0.01 per share (Common
Stock), and certain stockholders of the Company sold 50,000 shares of Common
Stock. Contemporaneously with the closing of the Companys public offering,
the Company acquired, through ECC, substantially all of the assets of Executive
Roll Manufacturing, Inc., d/b/a Executive Converting Corporation for $7.5
million in cash and 127,778 shares of Common Stock. On August 23, 1995, the
Company acquired, through Hamco, substantially all of the assets of Hamco, Inc.
for approximately $12.9 million net in cash. On February 7, 1997, the Company
reorganized its corporate structure to better serve its business needs. Through
this restructuring, the net assets of Tufco Industries, Inc., ECC and Hamco
were transferred to Tufco, L.P., a Delaware limited partnership, in which Tufco
Tech, Inc. was the sole managing general partner and was wholly owned by the
Company. On November 13, 1997, the Company purchased all of the outstanding
common stock of Foremost Manufacturing Company, Inc. for $5.9 million in cash
and 25,907 shares of Common Stock.

On March 31, 2003, the Company sold the assets and business of the Paint
Sundries segment for approximately $12.2 million in cash to Trimaco, LLC and
its affiliate. The sale included all Paint Sundries segment assets, including
the stock of Foremost Manufacturing, Inc. and the Companys Manning, South
Carolina manufacturing facility. Concurrently with the sale of the Paint
Sundries segment, the Company reorganized its corporate structure by merging
certain of its wholly-owned subsidiaries with and into the Company, with the
Company as the surviving entity, and merging the Companys wholly-owned
subsidiary Tufco Tech, Inc. with and into Tufco LLC, a newly-formed
wholly-owned subsidiary, with Tufco LLC as the surviving entity. As a result
of this reorganization, Tufco LLC became the sole managing general partner of
Tufco, L.P.

Tufco offers a wide array of contract manufacturing services including
flexographic printing, wet and dry wipe converting, calendering and thermal
bond laminations, hot melt adhesive laminating, folding, customized on-site
blending, integrated downstream packaging and on-site quality and
microbiological process management. Tufco also manufactures a wide range of
printed and unprinted business imaging paper products for a variety of business
needs.

The Company was incorporated in the state of Delaware in 1992 to acquire
Tufco Industries, Inc. Although the Company was organized in 1992, the
business conducted by Tufco Industries, Inc. has been in continuous operation
since 1974. The Company has become a leading provider of contract manufacturing
and specialty printing services, and supplier of value-added custom paper
products. The Companys principal executive offices are located at PO Box
23500, Green Bay, WI 54305-3500, and its telephone number is (920) 336-0054.

Products and Services

The Company markets its products and services through two market segments:
Contract Manufacturing services and Business Imaging paper products. Tufco
conducts operations from two manufacturing and distribution locations in Green
Bay, Wisconsin, and Newton, North Carolina. Until

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September 2002, the Company had a manufacturing and distribution facility in
Dallas, Texas. In fiscal 2002, certain assets and business from this operation
were transferred to the Newton, North Carolina facility.

Contract Manufacturing

Tufco has contract manufacturing capability at two locations: Green Bay,
Wisconsin, and Newton, North Carolina.

The Companys products and services at its Green Bay, Wisconsin facility
include flexographic printing, wet and dry wipe converting, calendering and
thermal bond laminations, hot melt adhesive laminating, folding, customized
on-site blending, integrated downstream packaging, and on-site quality and
microbiological process management. The facility custom converts a wide array
of materials, including polyethylene films, nonwoven materials (coated and
uncoated), paper and tissue. Products include disposable wet and dry wipes for
home care and personal/baby/medical care, flexible packaging options,
disposable table covers, ream wrap and house wrap. The Company has invested in
equipment to perform thermal lamination to bond various material substrates up
to 120 inches wide, such as reinforced nonwovens material and breathable
moisture barrier wraps. Machinery and equipment at the Green Bay, Wisconsin
facility have the capability, developed by the Companys in-house engineers and
technical personnel, to combine or modify various substrates through the use of
precise temperature and pressure control.

In December 2002, the Company invested in wet wipe converting equipment
with the flexibility to convert a variety of nonwovens and pulp based
substrates and began commercial operations in May 2003. Capabilities include a
wide array of folding options, count versatility ranging from five (5) to
eighty (80) wipes per package, and integrated flow wrapping and finished
packaging design.

The Companys Green Bay, Wisconsin facility also offers value-added
specialty printing and related graphic arts pre-press services. The Company
specializes in 8-color, high quality, wide web flexographic printing and
focuses on specialty printing products such as paper and poly table covers,
gift wrap and flexible packaging. In March 2000, the Company made its first
capital investment in a state-of-the-art 8-color flexographic printing press
capable of printing solvent and water-based inks, a 62 print width at speeds
up to 1,500 feet per minute and offering repeat sizes ranging form 15-3/4 to
47-1/4. A second $3.2 million sister 8-color
press was leased in April
2003, and brought on line for production in June, 2003.

Down stream converting equipment folds and packages finished printed goods
such as poly and paper table covers into finished product. In addition,
materials can be printed roll-to-roll at the Company and then sent out for
converting.

The Company uses the customers preliminary artwork and outsources all
preparatory processes for camera-ready art, layout, and other related services,
and then internally mounts the plates.

The Green Bay presses use flexographic processes and can print on a wide
range of media from lightweight tissue or nonwoven to heavyweight paperboard,
films and foils.

Business Imaging

The Companys Newton, North Carolina facility has capabilities which
include precision slitting, rewinding, specialty packaging, folding,
perforating, and trimming of paper rolls in a large variety of sizes which
include variables in width, diameter, core size, single or multi-ply, and
color. All of the rolls can be printed on one side or both, providing the
customer with advertising, promotional or security features. These capabilities
are directed toward converting fine paper materials including specialty and
fine printing papers, thermal papers, inkjet papers, polyester films, and
coated products.

The Companys Newton, North Carolina facility also produces a full range
of papers for use in bank proof or automated teller machines, including
fan-fold forms, and printed rolls of various sizes and types. Additionally, the
Company produces an extensive selection of standard and customized guest checks
for use

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in the restaurant industry, and the Companys Newton facility owns equipment
which enables the Company to produce a wide variety of multi-part business
forms.

The Company also produces and distributes from its Newton facility a wide
variety of printed and unprinted paper products used in business imaging
equipment in market segments including architectural and engineering design,
high speed data processing, point of sale, automatic teller machines and a
variety of office equipment. The Companys products include roll products
ranging in length from 150 feet to 3,500 feet and in widths from 1 inch to 54
inches. The Companys products are available in a wide range of paper grades
including a variety of weights of bond paper, thermal imaging papers, fine
vellums and films and multi-part forms.

Manufacturing and Operations

With regard to its contract manufacturing operations, the Company either
utilizes product specifications provided by its customers or teams with its
customers to develop specifications which meet customer requirements.
Generally, the product begins with base materials such as nonwovens, papers, or
polyethylene films. In most cases the customers of the Contract Manufacturing
segment provide the base material used in the product. The Company applies one
or more of its custom converting or specialty printing services that it has
developed over a period of years through its distinctive technical knowledge to
add value to these materials. In producing and distributing its line of
Business Imaging Products, the Company works closely with various Original
Equipment Manufacturers (OEMs) to develop products which meet or exceed the
requirements of the imaging equipment. The Company then produces and stocks a
full line of paper products to meet the needs of the users of the imaging
equipment.

The Companys growth has been supported by capital investment in new
facilities and machinery and equipment. During the past three years, the
Company spent over $4.5 million on capital expenditures. Through the Companys
expenditures on new equipment, it has increased both its manufacturing capacity
and the range of its capabilities. Principal capital improvements include
equipment which has expanded the Companys custom folding, dry and wet wipes
converting and packaging capabilities, and presses which have enabled the
Company to print on a variety of substrates. The Company has also expanded and
modernized its roll-to-roll winding capacity. The Company announced on
December 4, 2003 the undertaking of a capital equipment expansion program which
includes doubling the capacity for wet wipes production, a new flat pack
folder, and a rebuild of an existing quarter folder. With these additions, the
Company believes it has sufficient capacity to meet its growth expectations.
The Company also plans to combine microbiological and chemical lab capabilities
with the addition of equipment and building modifications.

The Companys equipment can produce a wide range of sizes of production
output to meet unique customer specifications. The Companys printing presses
perform flexographic processes and print from one to eight colors on webs as
wide as 64 inches. Its fine printing paper and paperboard converting equipment
includes state-of-the-art rewinders, folders, and equipment that performs
extensive packaging functions.

Tufco has received numerous safety awards at both its Newton, North
Carolina and Green Bay, Wisconsin plants. At Newton, the workforce has gone
over 3-1/2 years without a lost time accident. Tufcos Green Bay plant has
recorded more than 1.35 million consecutive hours without a lost time injury.
The Tufco-Green Bay plant is ISO 9001:2000 certified and has been recertified
three consecutive years with no findings.

Sales and Marketing

Tufco markets its products and services nationally through its 20
full-time sales and customer service employees and 51 manufacturers
representatives and distributors. The Companys sales and service personnel are
compensated with a base salary plus an incentive bonus. The Company generally
utilizes referrals and its industry reputation to attract customers. It also
advertises on a limited basis in industry periodicals and through cooperative
advertising arrangements with its suppliers and customers.

Prior to fiscal 1999, customers generally purchased the Companys goods
and services under project-specific purchase orders rather than long-term
contracts. Beginning in fiscal 1999, management shifted its

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strategic focus in contract manufacturing away from serving as a temporary
manufacturer for the customers outsourced overflow needs towards longer-term
cooperative manufacturing projects which usually include multi-year contracts.

The Companys sales volume by fiscal quarter is subject to a limited
amount of seasonal fluctuation. Generally, Tufcos sales volume and operating
income are at their lowest levels in the first and second fiscal quarters and
are generally higher in the third and fourth fiscal quarters; however, the
Company believes that such seasonal fluctuations are diminishing as the Company
shifts its emphasis to longer-term manufacturing agreements.

The Companys customer base consists of approximately 350 companies,
including large consumer products companies and dealers and distributors of
business imaging papers. Sales to such customers are made pursuant to project
specific purchase orders as well as contract service agreements with terms of
18 months to three years. Sales under such contract service agreements are
typically derived from customer directed purchase orders based on unit volume
projections supplied by the customers and demand generated by the customers
consumer base. As a result, there can be no assurance that sales to such
customers will continue in the future at current levels. Sales are generally
made on a credit basis within limits set by the Companys executive management.
The Company generally requires payment to be made within 30 days following
shipment of goods or completion of services. In fiscal 2003, products produced
under contracts with a Contract Manufacturing customer that is a Fortune 500
company accounted for more than 33% of consolidated sales. During fiscal 2003, the
Company announced that this customer had decided to take certain products from
the Company for manufacture at their own facility in 2004, leaving other
existing products under contract with the Company. Those products
removed accounted for approximately 20% of fiscal 2003 revenues. On December 4, 2003 the
Company announced it had signed significant contracts with new and existing
customers for both printing and contract manufacturing which the Company
expects, on an annualized basis, should offset the loss of revenue and
operating profits caused by this removal. See Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and
Capital Resources.

Competition

In order to continue growth based on an outstanding service reputation,
the Company has established and continues to provide customers with innovative,
full service solutions. The Company believes the primary areas of competition
for its goods and services are quality, production capacity and capability,
prompt and consistent delivery, service, flexibility, continuing relationships
and price. The Company offers key competitive advantages such as customized
contract manufacturing options all under one roof, dedicated customer service
and support personnel, outstanding product quality, speed to market,
uncompromised security and confidentiality, ISO 9001:2000 quality
certification, in-house microbiological management, technical expertise and
lower overall costs.

Competitors for the Companys Contract Manufacturings products and
services vary based upon the products and services offered. In the Companys
contract manufacturing services, the Company believes that relatively few
competitors offer a wider range of services or can provide them from a single
source. With respect to the Companys specialty printing and converting
services and fine paper converting products, the competition consists primarily
of numerous small regional companies. Management believes that the Companys
capabilities in Contract Manufacturing and specialty printing give it the
flexibility, diversity, and capacity to compete effectively on a national basis
with large companies and locally with smaller regional companies. The Company
does not believe foreign competition is significant at this time in the
contract manufacturing and specialty printing lines. In the wet wipe market,
the Company has built a strong reputation with nationally recognized consumer
and industrial products market leaders. The Company strongly abides by
stringent security and confidentiality practices and provides turn-key
solutions to introduce new and innovative products that respond to consumer
demands for applications that are easy to use, disposable, convenient and cost
effective.
     The Company operates highly technical manufacturing processes to meet a
variety of customer needs. By virtue of being a customized contract
manufacturer, the Company continually engineers and

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proposes systems to customers and potential customers to solve their
manufacturing needs in new product rollouts. The Company offers full, value
added services such as on-site microbiology assessment and management, and wet
wipe, lotion and concentrate testing services and equipment that allow the
Company to maintain and assure high product integrity. In the products made at
Newton, North Carolina, raw materials are generally inexpensive and readily
available, and converting equipment is generally easily purchased. As a result,
competition for engineering and transaction papers customers is relatively very
strong, primarily from small regional suppliers and a few large national
companies.

Historically, the Company has been subject to surges and declines in sales
due to the short-term nature of its converting projects with large integrated
paper products companies. Since the Company began emphasizing longer-term
contractual arrangements, management believes that it is now better able to
anticipate fluctuations in sales. However, customer volume needs in contract
manufacturing arrangements are ultimately controlled by the Companys
customers, and a certain amount of short-term fluctuation is expected.

Product Development and Quality Control

The Company works with its customers to develop new products and
applications. The Company believes that a key factor is its willingness and
distinctive technical competency to help customers experiment with a variety of
substrates to develop materials with different attributes such as strength,
flexibility, absorbency, breathability, moisture-resistance, and appearance. As
a result, the Company has been able to develop certain laminated substrates at
lower costs than if the customers developed these products themselves.
Customers may request certain physical tests during trial runs that are
performed by the Companys quality control personnel, often with the customer
on site. After completing the development process, the Company prices a new
product or service and designs an ongoing program that provides information to
the customer such as quality checks, inventory reports, materials data, and
production reports.

The Company maintains three quality control laboratories that are able to
constantly monitor production using statistical process controls (SPC) to
observe and measure quality effectiveness of its production processes, such as
temperature, speed, tension, and pressure. The Companys rigid standards and
use of SPC have allowed it to qualify for the GMP (Good Manufacturing
Practices) designation from several customers, a quality control standard that
these companies require before they will use a company for outsourcing. In
addition, several of the Companys customers perform periodic audits at the
Companys Green Bay, Wisconsin facility to ensure that adequate quality control
practices are in place at all times. In fiscal 2000, the Company achieved ISO
certification for its Green Bay, Wisconsin facility. ISO is the standard issued
by the International Organization of Standardization to promote the development
of international standards and facilitate the exchange of goods and services
worldwide. In fiscal 2001 the Green Bay, Wisconsin facility achieved ISO
9001:2000. During fiscal 2003, the Company was ISO recertified for the second
consecutive year with zero negative findings or comments by the examiner, a
record achieved by a very small percentage of candidate companies.

Raw Materials and Suppliers

The Company is not dependent on any particular supplier or group of
affiliated suppliers for raw materials or for equipment needs. The Company
believes that it has excellent relationships with its primary suppliers, and
the Company has not experienced difficulties in obtaining raw materials during
the last five years. The Companys raw materials fall into four general
groups: various paper stocks, inks for specialty printing, nonwoven materials,
and polyethylene films. There are numerous suppliers of all of these
materials. To ensure quality control and consistency of its raw material
supply, the Newton, North Carolina facility continues to receive fine paper
stock primarily from five major paper companies instead of a greater number of
companies.

The Companys primary raw materials, base paper and nonwoven, are subject
to periodic price fluctuations. In the past, the Company has been generally
successful in eventually passing most of the price increases on to its
customers, but management cannot guarantee that the Company will be able to do
this in the future.

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Environmental Matters

The Company is subject to various federal, state, and local environmental
laws and regulations concerning emissions into the air, discharges into
waterways, and the generation, handling, and disposal of waste materials. These
laws and regulations are constantly evolving, and it is impossible to predict
accurately the effect they may have upon the capital expenditures, earnings,
and competitive position of the Company in the future. The Company believes it
is in complete compliance with all environmental regulations and is current on
all applicable permitting and reporting requirements with federal, state and
local jurisdictions. The Company has continuous air emissions monitoring
systems and effluent monitoring procedures regulated by the EPA and maintains a
strong, active relationship with the controlling agencies and a principle based
commitment to stewardship in the community.

The Companys past expenditures relating to environmental compliance have
not had a material effect on the Company. Further growth in the Companys
production capacity with a resulting increase in discharges and emissions may
require additional capital expenditures for environmental control equipment in
the future. No assurance can be given that future changes to environmental laws
or their application will not have a material adverse effect on the Companys
business or results of operations.

Each manufacturing line is unique and can generate various types of waste.
The Company takes into account all considerations for environmental impact on
all waste streams that occur. The Company follows a strict waste minimization
plan to reduce, recycle or eliminate waste from all of our manufacturing
processes. All processes are reviewed during initial start-up or annually to
make sure that the Company is in compliance with all applicable federal, state
and local laws and regulations.

Employees

At September 30, 2003, the Company had 296 employees, of whom 212 were
employed at its Green Bay, Wisconsin facility and 84 at its Newton, North
Carolina facility. The Company has a non-union workforce and believes that its
relationship with its employees is good.

Working Capital

Information regarding the Companys working capital position and practices
is set forth in Item 7 of this Report under the caption Liquidity and Capital
Resources.

Financial information for the Contract Manufacturing services and the
Business Imaging paper products segment is set forth in Note 13 to the
Consolidated Financial Statements included in Item 8 of this Report.




ITEM 2 - PROPERTIES

The Companys main production and distribution facilities for contract
manufacturing and specialty printing are located in Green Bay, Wisconsin. The
243,800 square foot facility (of which approximately 20,700 square feet are
used for offices for the facility and the Companys corporate headquarters) was
built in stages from 1980 to 2000 and is owned by the Company. The Company has
approximately seven additional acres on which to expand in the future.

The Company leases 42,600 square feet of space in a facility contiguous to
its Green Bay, Wisconsin facility, which is currently used for certain contract
manufacturing, warehousing, and distribution operations. This facility is
leased from a partnership of which Samuel Bero, a director of the Company, is
one of several partners. The lease for this facility expires March 2008. The
Company has an option to renew this lease for an additional five years.

The Company also owns a 120,000 square foot facility in Newton, North
Carolina, and leases an additional 10,000 square feet for raw materials and
finished goods used in the production and distribution of copying, production,
transaction papers products and in the printing of custom forms. The lease is
for a six-

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month period, renewable in March and September each year. This space was
required due to the consolidation of the Dallas Business Imaging and
Engineering into the Newton facility.

The Company believes that all of its facilities are in good condition and
suited for their present purpose. The Company believes that the property and
equipment currently used and planned for acquisition is sufficient for its
current and anticipated short-term needs, but that the expansion of the
Companys business or the offering of new services could require the Company to
obtain additional equipment or facilities.




ITEM 3 - LEGAL PROCEEDINGS

The Company is involved in various legal proceedings in the ordinary
course of its business, none of which are anticipated to have a material
adverse effect on the Companys financial statements.




ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

THE EXECUTIVE OFFICERS OF THE COMPANY

|                    |  |     |    |                            |  |                                                
|------------------- |  | --- | -- | -------------------------- |  | -----------------------------------------------
|Name                |  | Age |    | Positions With the Company
|                    |  |     |    |                           
|Louis LeCalsey, III |  |     | 64 |                            |  | Director, President and Chief Executive Officer
|Michael B. Wheeler  |  |     | 58 |                            |  | Vice President/Chief Financial Officer         
|Madge J. Joplin     |  |     | 56 |                            |  | Vice President                                 
|Michele M. Corrigan |  |     | 35 |                            |  | Vice President, Sales and Marketing            
|Robert J. Simon     |  |     | 45 |                            |  | Chairman of the Board of Directors             



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Executive officers of the Company are elected by the Board of Directors
and serve at the discretion of the Board. There are no family relationships
between any executive officers of the Company.

Executive Officers

Louis LeCalsey, IIIMr. LeCalsey assumed the positions of President and
Chief Executive Officer of Tufco in October 1996. Previously he was President
of Tufco Industries, Inc. since April 1996. Prior to that he served as Vice
President of Worldwide Logistics for Scott Paper Company, the culmination of a
23-year career with Scott in various leadership positions. Mr. LeCalsey serves
as a director for TriMark USA, Inc. and Independent Printing Company, Inc., as
well as a member of the Advisory Group for Bradford Equities Fund L.P.

Michael B. Wheeler,CPAMr. Wheeler has been with Tufco as Vice President
and Chief Financial Officer since March 27, 2002. From 1999 to 2001, Mr.
Wheeler consulted for several companies as a senior financial consultant.
Prior to that, Mr. Wheeler was with Stone Container Corporation for twenty-five
years serving as Vice President and Treasurer from 1983 to 1998.

Madge J. JoplinMrs. Joplin assumed the position of Vice President for
the Business Imaging segment of Tufco in 1998. She began her career in 1965
with Hamco, Inc. and served in various positions until Hamco was acquired by
Tufco in 1995. While with Hamco, Mrs. Joplins more recent positions included
Comptroller, Vice President of Operations and Chief Operating Officer.

Michele
M. Corrigan Mrs. Corrigan assumed the position of Vice
President, Sales & Marketing for the Contract Manufacturing business segment in
1999. She began her career with Tufco in 1996 as a Marketing Manager in the
Sales Department. Prior to joining Tufco, Mrs. Corrigan was in sales and
marketing for Bay West Paper from 1989 until 1996.

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Robert J. SimonMr. Simon has been Chairman of the Board of Directors of
Tufco since February 1992. Mr. Simon has been a Senior Managing Director of
Bradford Ventures, Ltd., a private investment firm, since 1992 and a General
Partner of Bradford Associates since 1989, having started at the firm in 1984.
Mr. Simon is either Chairman of the Board or a director of Wolverine Brass,
Parmarco Technologies, Inc., TriMark USA, Inc., Overseas Equity Investors Ltd.,
Overseas Callander Fund, Ltd., Portuguese Baking Company and Independent
Printing Company, Inc. as well as several other privately held companies.




PART II




ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Since the Companys initial public offering of Common Stock on January 28,
1994 at $9.00 per share, the Common Stock of Tufco has been traded on the
NASDAQ National Market under the trading symbol TFCO. The following table
sets forth the range of high and low closing prices for the Common Stock, as
reported on the NASDAQ National Market for the periods indicated:

|             |                                  |  |      |       |     |  |       |       |  |  |   |       | 
|------------ | -------------------------------- |  | ---- | ----- | --- |  | ----- | ----- |  |  | - | ----- | 
|             |                                  |  | High |       | Low |  | Close
|             |                                  |  |      |       |     |  |      
|Fiscal 2002: |                                  |  |      |       |     |  |       |       |  |  |   |      
|             | Quarter ended December 31, 2001  |  | $    | 8.000 |     |  | $     | 5.900 |  |  | $ | 6.890 | 
|             | Quarter ended March 31, 2002     |  | $    | 7.990 |     |  | $     | 5.250 |  |  | $ | 5.990 | 
|             | Quarter ended June 30, 2002      |  | $    | 6.910 |     |  | $     | 5.100 |  |  | $ | 6.750 | 
|             | Quarter ended September 30, 2002 |  | $    | 6.750 |     |  | $     | 4.110 |  |  | $ | 4.920 | 
|Fiscal 2003: |                                  |  |      |       |     |  |       |       |  |  |   |      
|             | Quarter ended December 31, 2002  |  | $    | 5.170 |     |  | $     | 3.900 |  |  | $ | 4.470 | 
|             | Quarter ended March 31, 2003     |  | $    | 6.990 |     |  | $     | 4.120 |  |  | $ | 6.330 | 
|             | Quarter ended June 30, 2003      |  | $    | 8.000 |     |  | $     | 6.000 |  |  | $ | 6.500 | 
|             | Quarter ended September 30, 2003 |  | $    | 6.900 |     |  | $     | 5.150 |  |  | $ | 6.440 | 

As of December 18, 2003, there were approximately 103 holders of record of
the Common Stock. On December 18, 2003, the last reported sale price of the
Common Stock as reported on the NASDAQ National Market was $7.00 per share.

The Company has never paid dividends on its Common Stock. The Companys
revolving credit agreement contains certain restrictive covenants, including
requirements to maintain certain levels of cash flow and restriction on the
payment of dividends. The Company does not intend to pay any cash dividends in
the foreseeable future.

Equity Compensation Plan Information

The following table sets forth information concerning the equity compensation
plans of the Company as of September 30, 2003.

8



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##### Table of Contents



|                                                              |  |                         |         |                      |  |                           |      |                      |  |     |         | 
|------------------------------------------------------------- |  | ----------------------- | ------- | -------------------- |  | ------------------------- | ---- | -------------------- |  | --- | ------- | 
|                                                              |  |                         |         |                      |  |                           |      |                      |  | (C)
|                                                              |  | (A)                     |         |                      |  |                           |      | Number of Securities
|                                                              |  | Number of               |         | (B)                  |  | Remaining Available for  
|                                                              |  | Securities to be Issued |         | Weighted Average     |  | Future Issuance under    
|                                                              |  | Upon Exercise of        |         | Exercise Price of    |  | Equity Compensation Plans
|                                                              |  | Outstanding Options,    |         | Outstanding Options, |  | (Excluding Securities    
|Plan Category                                                 |  | Warrants and Rights     |         | Warrants and Rights  |  | Reflected in Column (A)) 
|                                                              |  |                         |         |                      |  |                          
|Equity compensation plans approved
by security holders(1)     |  |                         | 453,700 |                      |  | $                         | 7.51 |                      |  |     | 300,000 | 
|                                                             
|Equity compensation plans not approved
by security holders(2) |  |                         |        |                      |  |                           |     |                      |  |     |        | 



|(1) |  | Plans represent the 1992 Non-Qualified Stock Option Plan, which expired
April 2002, the 2003 Non-Qualified Stock
Option Plan and the 1993 Non-Employee Director Stock Option Plan, which
expires March 2004
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | There are no equity compensation plans not approved by security holders.                                                                                                                                   

9



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##### Table of Contents






ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) (1)

|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |       | 
|-------------------------------------- | -------------------------------------------------------- | --------------------------------- | --- | ------------------------- | ----- | ---- | ---- | ------ | ----- | ---- | ----- | ------ | ----- |  | --- | ------ | ----- |  | ----- | ------ | ----- | 
|                                       |                                                          |                                   |     | Years Ended September 30,
|                                       |                                                          |                                   |     |                          
|                                       |                                                          |                                   |     | 2003                      |       | 2002 |      | 2001   |       | 2000 |       | 1999  
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |       
|Statement of Operations Data:          |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |       
|                                       | Net sales                                                |                                   | $   | 55,207                    |       |      | $    | 50,434 |       |      | $     | 60,017 |       |  | $   | 59,570 |       |  | $     | 52,893 |      
|                                       | Cost of sales                                            |                                   |     | 47,465                    |       |      |      | 43,981 |       |      |       | 51,515 |       |  |     | 49,409 |       |  |       | 42,238 |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       | Gross profit                                             |                                   |     | 7,742                     |       |      |      | 6,453  |       |      |       | 8,502  |       |  |     | 10,161 |       |  |       | 10,655 |      
|                                       | Selling, general, and
administrative expenses            |                                   |     | 4,885                     |       |      |      | 3,962  |       |      |       | 3,811  |       |  |     | 3,694  |       |  |       | 5,878  |      
|                                       | Amortization of goodwill (2)                             |                                   |     |                          |       |      |      |       |       |      |       | 381    |       |  |     | 381    |       |  |       | 381    |      
|                                       | Facility restructuring cost                              |                                   |     |                          |       |      |      | 233    |       |      |       |       |       |  |     |       |       |  |       |       |      
|                                       | Facility closing cost                                    |                                   |     |                          |       |      |      | 435    |       |      |       |       |       |  |     | 831    |       |  |       |       |      
|                                       | Employee severance cost                                  |                                   |     | 333                       |       |      |      | 209    |       |      |       | 10     |       |  |     | 660    |       |  |       |       |      
|                                       | Asset write-downs                                        |                                   |     |                          |       |      |      | 548    |       |      |       |       |       |  |     | 74     |       |  |       |       |      
|                                       | (Gain) loss on asset sales (3)                           |                                   |     | 109                       |       |      |      | (10    | )     |      |       | (147   | )     |  |     | (327   | )     |  |       | (1,048 | )    
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       | Operating income                                         |                                   |     | 2,415                     |       |      |      | 1,076  |       |      |       | 4,447  |       |  |     | 4,847  |       |  |       | 5,443  |      
|                                       | Interest expense                                         |                                   |     | (202                      | )     |      |      | (461   | )     |      |       | (960   | )     |  |     | (974   | )     |  |       | (1,086 | )    
|                                       | Interest income and other income (expense)               |                                   |     | (49                       | )     |      |      | 24     |       |      |       | 277    |       |  |     | 35     |       |  |       | 36     |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       | Income from continuing operations before
income taxes    |                                   |     | 2,164                     |       |      |      | 639    |       |      |       | 3,764  |       |  |     | 3,908  |       |  |       | 4,393  |      
|                                       | Income tax expense                                       |                                   |     | 916                       |       |      |      | 281    |       |      |       | 1,514  |       |  |     | 1,762  |       |  |       | 2,188  |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       |                                                          | Income from continuing operations |     |                           | 1,248 |      |      |        | 358   |      |       |        | 2,250 |  |     |        | 2,146 |  |       |        | 2,205 | 
|Loss from discontinued operations:     |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |       
|                                       | Loss from operations of discontinued segment,
net of tax |                                   |     | (225                      | )     |      |      | (1,111 | )     |      |       | (825   | )     |  |     | (1,619 | )     |  |       | 773    |      
|                                       | Loss from sale of discontinued operations,
net of tax    |                                   |     | (244                      | )     |      |      |       |       |      |       |       |       |  |     |       |       |  |       |       |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|Income (loss) before accounting change |                                                          |                                   | 779 |                           |       |      | (753 | )      |       |      | 1,425 |        |       |  | 527 |        |       |  | 2,978 |       
|                                       | Cumulative effect of accounting change                   |                                   |     |                          |       |      |      | (4,652 | )     |      |       |       |       |  |     |       |       |  |       |       |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       | Net income (loss)                                        |                                   | $   | 779                       |       |      | $    | (5,405 | )     |      | $     | 1,425  |       |  | $   | 527    |       |  | $     | 2,978  |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|Basic Earnings (Loss) Per Share:       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |       
|                                       | Income from continuing operations                        |                                   | $   | 0.27                      |       |      | $    | 0.08   |       |      | $     | 0.49   |       |  | $   | 0.48   |       |  | $     | 0.50   |      
|                                       | Loss from operations of discontinued segment             |                                   |     | (0.05                     | )     |      |      | (0.24  | )     |      |       | (0.18  | )     |  |     | (0.36  | )     |  |       | 0.17   |      
|                                       | Loss from sale of discontinued operations                |                                   |     | (0.05                     | )     |      |      |       |       |      |       |       |       |  |     |       |       |  |       |       |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       |                                                          | Income before accounting change   |     |                           | 0.17  |      |      |        | (0.16 | )    |       |        | 0.31  |  |     |        | 0.12  |  |       |        | 0.67  | 
|                                       | Cumulative effect of accounting change                   |                                   |     |                          |       |      |      | (1.01  | )     |      |       |       |       |  |     |       |       |  |       |       |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       | Net income (loss)                                        |                                   | $   | 0.17                      |       |      | $    | (1.17  | )     |      | $     | 0.31   |       |  | $   | 0.12   |       |  | $     | 0.67   |      
|Diluted Earnings (Loss) Per Share:     |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |       
|                                       | Income from continuing operations                        |                                   | $   | 0.27                      |       |      | $    | 0.08   |       |      | $     | 0.48   |       |  | $   | 0.46   |       |  | $     | 0.50   |      
|                                       | Loss from operations of discontinued segment             |                                   |     | (0.05                     | )     |      | $    | (0.24  | )     |      |       | (0.18  | )     |  |     | (0.35  | )     |  |       | 0.17   |      
|                                       | Loss from sale of discontinued operation                 |                                   |     | (0.05                     | )     |      |      |       |       |      |       |       |       |  |     |       |       |  |       |       |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       |                                                          | Income before accounting change   |     |                           | 0.17  |      |      |        | (0.16 | )    |       |        | 0.31  |  |     |        | 0.11  |  |       |        | 0.67  | 
|                                       | Cumulative effect of accounting change                   |                                   |     |                          |       |      |      | (1.01  | )     |      |       |       |       |  |     |       |       |  |       |       |      
|                                       |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       | Net income (loss)                                        |                                   | $   | 0.17                      |       |      | $    | (1.17  | )     |      | $     | 0.31   |       |  | $   | 0.11   |       |  | $     | 0.67   |      
|                                       | Weighted average common
shares outstanding:              |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |        |      
|                                       |                                                          | Basic                             |     |                           | 4,616 |      |      |        | 4,628 |      |       |        | 4,614 |  |     |        | 4,499 |  |       |        | 4,419 | 
|                                       |                                                          | Diluted                           |     |                           | 4,626 |      |      |        | 4,631 |      |       |        | 4,642 |  |     |        | 4,622 |  |       |        | 4,475 | 
|Other Data:                            |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |       
|                                       | Depreciation and amortization (4)                        |                                   | $   | 2,812                     |       |      | $    | 2,928  |       |      | $     | 3,301  |       |  | $   | 3,125  |       |  | $     | 2,693  |      
|                                       | Capital expenditures                                     |                                   | $   | 2,373                     |       |      | $    | 1,099  |       |      | $     | 1,037  |       |  | $   | 6,705  |       |  | $     | 3,051  |      
|Balance Sheet Data (at September 30):  |                                                          |                                   |     |                           |       |      |      |        |       |      |       |        |       |  |     |        |       |  |       |       
|                                       | Working capital                                          |                                   | $   | 12,035                    |       |      | $    | 11,303 |       |      | $     | 6,692  |       |  | $   | 11,952 |       |  | $     | 13,934 |      
|                                       | Total assets                                             |                                   |     | 38,026                    |       |      |      | 47,167 |       |      |       | 58,944 |       |  |     | 62,133 |       |  |       | 59,081 |      
|                                       | Totalcurrent and longterm debt                         |                                   |     | 750                       |       |      |      | 6,157  |       |      |       | 12,460 |       |  |     | 13,107 |       |  |       | 14,530 |      
|                                       | Stockholders equity                                     |                                   |     | 33,487                    |       |      |      | 32,808 |       |      |       | 38,054 |       |  |     | 36,579 |       |  |       | 35,246 |      

(Footnotes 1-4 on next page)

10



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##### Table of Contents





|1) |  | Reflects the sale of the Paint Sundries segment on March 31, 2003
effective for financial purposes as of February 28, 2003. See Footnote 14
 Discontinued Operations to the Companys Consolidated Financial
Statements attached as an Appendix to this Report.                                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Amortization of goodwill was not recorded for fiscal 2003 and 2002 as
the result of implementation of Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets in
which the Company no longer records goodwill amortization expense.
Goodwill amortization expense was $0.4 million in fiscal 2001, 2000 and
1999. Had goodwill not been amortized for the years ended September 30,
2001, 2000 and 1999, basic and diluted earnings per share would have
been $0.05 higher for each year.
|  
|3) |  | In June 1999, the Company sold its
assets related
to its Away-From-Home segment products and services, and has ceased
selling into this market segment.                                                                                                                                                                                                                                                                                                                                                                             
|  
|4) |  | Includes depreciation and amortization of goodwill and other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                






ITEM 7 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Forward Looking Statements



Managements discussion and analysis of financial condition and results of
operations, including managements discussion of the Companys 2003 fiscal year
in comparison to fiscal 2002 contains forward-looking statements regarding
current expectations, risks and uncertainties for fiscal 2004 and beyond. The
actual results could differ materially from those discussed here. As well as
those factors discussed in the section entitled Business in this Report,
other factors that could cause or contribute to such differences include, among
other items, the general economic and business conditions affecting the
contract manufacturing, specialty printing services, imaging paper products,
significant changes in the cost of base paper stock, competition in the
Companys product areas, or an inability of management to successfully reduce
operating expenses in relation to net sales without damaging the long-term
direction of the Company. Therefore, the selected financial data for the
periods presented may not be indicative of the Companys future financial
condition or results of operations.


General



Tufco performs contract manufacturing and specialty printing services and
manufactures and distributes business imaging paper products. The Companys
strategy is to provide services and manufacture and distribute products in
niche markets, relying on close customer contact and high levels of quality and
service. The Company works closely with its contract manufacturing clients to
develop products or perform services which meet or exceed the customers
quality standards, and then uses the Companys operating efficiencies and
technical expertise to supplement or replace its customers own production and
distribution functions.




The Companys technical proficiencies include folding, packaging, coating,
slitting and rewinding, sheeting, multi-color flexographic printing and
laminating.


Results of Operations



The following discussion relates to the financial statements of the
Company for the fiscal year ended September 30, 2003 (current year or fiscal
2003), in comparison to the fiscal year ended September 30, 2002 (prior year
or fiscal 2002), as well as the fiscal year ended September 30, 2001 (fiscal
2001).


11



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##### Table of Contents



Results of Operations (continued)

The following table sets forth, for the fiscal years ended September 30
(i) the percentage relationship of certain items from the Companys statements
of operations to net sales and (ii) the year-to-year changes in these items:

|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |     | 
|--------------------------------------------------------------------------- | ---------------- |  | ----------------------- | --- | ------------------- |  | ----- | --- | ---- |  | ----- | --- |  |  | ------- | --- | ------- |  | ----- | --- | 
|                                                                            |                  |  | Percentage of Net Sales |     | Year-to-Year Change
|                                                                            |                  |  |                         |     |                    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  | 2003 to |     | 2002 to
|                                                                            |                  |  | 2003                    |     | 2002                |  | 2001  |     | 2002 |  | 2001 
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |      
|Net sales                                                                   |                  |  | 100.0                   | %   |                     |  | 100.0 | %   |      |  | 100.0 | %   |  |  | 10      | %   |         |  | -16   | %  
|Cost of sales                                                               |                  |  | 86.0                    |     |                     |  | 87.2  |     |      |  | 85.8  |     |  |  | 8       |     |         |  | -15   |    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    
|Gross profit                                                                |                  |  | 14.0                    |     |                     |  | 12.8  |     |      |  | 14.2  |     |  |  | 20      |     |         |  | -24   |    
|Selling, general and administrative
expenses                                |                  |  | 8.8                     |     |                     |  | 7.9   |     |      |  | 6.3   |     |  |  | 23      |     |         |  | 4     |    
|Amortization of goodwill                                                    |                  |  | 0.0                     |     |                     |  | 0.0   |     |      |  | 0.6   |     |  |  |        |     |         |  | -100  |    
|Facility restructuring cost                                                 |                  |  | 0.0                     |     |                     |  | 0.5   |     |      |  |      |     |  |  | -100    |     |         |  | 100   |    
|Facility closing cost                                                       |                  |  | 0.0                     |     |                     |  | 0.9   |     |      |  |      |     |  |  | -100    |     |         |  | 100   |    
|Employee severance cost                                                     |                  |  | 0.6                     |     |                     |  | 0.4   |     |      |  |      |     |  |  | 59      |     |         |  | 1,950 |    
|Asset write-downs                                                           |                  |  | 0.0                     |     |                     |  | 1.1   |     |      |  |      |     |  |  | -100    |     |         |  | 100   |    
|Loss (gain) on asset sales                                                  |                  |  | 0.2                     |     |                     |  | 0.0   |     |      |  | -0.2  |     |  |  | -1,244  |     |         |  | -93   |    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    
|                                                                            | Operating income |  |                         | 4.4 |                     |  |       | 2.1 |      |  |       | 7.4 |  |  |         | 124 |         |  |       | -76 | 
|Interest expense                                                            |                  |  | -0.4                    |     |                     |  | -1.0  |     |      |  | -1.6  |     |  |  | -56     |     |         |  | -52   |    
|Interest
income and other income (expense)                                  |                  |  | -0.1                    |     |                     |  | 0.1   |     |      |  | 0.5   |     |  |  | -304    |     |         |  | -91   |    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    
|Income from continuing operations before
income taxes and accounting change |                  |  | 3.9                     |     |                     |  | 1.3   |     |      |  | 6.3   |     |  |  | 238     |     |         |  | -83   |    
|Income tax expense (benefit)                                                |                  |  | 1.7                     |     |                     |  | 0.6   |     |      |  | 2.5   |     |  |  | 225     |     |         |  | -81   |    
|Income
from Continuing Operations                                           |                  |  | 2.2                     |     |                     |  | 0.7   |     |      |  | 3.8   |     |  |  | 248     |     |         |  | -841  |    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    
|Loss from discontinued operation                                            |                  |  | 0.8                     |     |                     |  | 2.2   |     |      |  | 1.4   |     |  |  | -58     |     |         |  | 35    |    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    
|Income (loss) before accounting change                                      |                  |  | 1.4                     |     |                     |  | -1.5  |     |      |  | 2.4   |     |  |  | -203    |     |         |  | -153  |    
|Cumulative effect of accounting change                                      |                  |  | 0.0                     |     |                     |  | -9.2  |     |      |  |      |     |  |  | -100    |     |         |  | 100   |    
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    
|Net income (loss)                                                           |                  |  | 1.4                     | %   |                     |  | -10.7 | %   |      |  | 2.4   | %   |  |  | -114    | %   |         |  | -479  | %  
|                                                                            |                  |  |                         |     |                     |  |       |     |      |  |       |     |  |  |         |     |         |  |       |    

The components of net sales and gross profit are summarized in the table
below:

|                                    |  |        |                       |       |      |        |      |       |  |        |      |       |      |  |     |   |  |   |      |  |  |  |     |   | 
|----------------------------------- |  | ------ | --------------------- | ----- | ---- | ------ | ---- | ----- |  | ------ | ---- | ----- | ---- |  | --- | - |  | - | ---- |  |  |  | --- | - | 
|                                    |  |        | 2003                  |       | 2002 |        | 2001
|                                    |  |        |                       |       |      |        |     
|                                    |  |        |                       |       |      |        | % of |       |  |        |      |       | % of |  |     |   |  |   | % of
|Net Sales                           |  | Amount |                       | Total |      | Amount |      | Total |  | Amount |      | Total
|                                    |  |        |                       |       |      |        |      |       |  |        |      |      
|                                    |  |        | (Dollars in millions)
|Contract manufacturing and printing |  | $      | 30.0                  |       |      |        | 54   | %     |  | $      | 27.8 |       |      |  | 54  | % |  | $ | 34.3 |  |  |  | 57  | %
|Business imaging paper products     |  |        | 25.3                  |       |      |        | 46   | %     |  |        | 23.2 |       |      |  | 46  | % |  |   | 26.1 |  |  |  | 43  | %
|                                    |  |        |                       |       |      |        |      |       |  |        |      |       |      |  |     |   |  |   |      |  |  |  |     |  
|Net sales                           |  | $      | 55.3                  |       |      |        | 100  | %     |  | $      | 51.0 |       |      |  | 100 | % |  | $ | 60.4 |  |  |  | 100 | %
|                                    |  |        |                       |       |      |        |      |       |  |        |      |       |      |  |     |   |  |   |      |  |  |  |     |  

|                                    |  |        |     |   |  |        |        |   |  |        |     |   |        |  |    |   |  |   |        |  |  |  |    |   | 
|----------------------------------- |  | ------ | --- | - |  | ------ | ------ | - |  | ------ | --- | - | ------ |  | -- | - |  | - | ------ |  |  |  | -- | - | 
|                                    |  |        |     |   |  |        | Margin |   |  |        |     |   | Margin |  |    |   |  |   | Margin
|Gross Profit                        |  | Amount |     | % |  | Amount |        | % |  | Amount |     | %
|                                    |  |        |     |   |  |        |        |   |  |        |     |  
|Contract manufacturing and printing |  | $      | 5.0 |   |  |        | 17     | % |  | $      | 4.7 |   |        |  | 17 | % |  | $ | 7.2    |  |  |  | 21 | %
|Business imaging paper products     |  |        | 3.0 |   |  |        | 11     | % |  |        | 1.9 |   |        |  | 8  | % |  |   | 1.4    |  |  |  | 5  | %
|                                    |  |        |     |   |  |        |        |   |  |        |     |   |        |  |    |   |  |   |        |  |  |  |    |  
|Gross profit                        |  | $      | 8.0 |   |  |        | 14     | % |  | $      | 6.6 |   |        |  | 13 | % |  | $ | 8.6    |  |  |  | 14 | %
|                                    |  |        |     |   |  |        |        |   |  |        |     |   |        |  |    |   |  |   |        |  |  |  |    |  

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Fiscal Year Ended September 30, 2003 Compared to September 30, 2002

Net salesfor fiscal 2003 increased $4.8 million due primarily to a $2.2
million (7.9%) increase in the Contract Manufacturing segment and a $2.1
million (9.1%) increase in the Business Imaging paper products segment. The
increase in Contract Manufacturing related primarily to increases in printing
as the new flexographic press started commercial production midway through the
year and also increases in contract manufacturing from new contracts brought
on line during the year as the wet wipe folding line began commercial
production during the third quarter. The Contract Manufacturing segment
purchases materials for some of its customers and in other situations has
materials supplied by customers. In 2003, purchases of materials increased
$1.5 million and this was passed through to customers, generating additional
sales revenue.

The Business Imaging segment sales increase resulted primarily from an increase
in point of sale rolls to a major discount retail customer and through its
network of distributors. This segment continues to experience strong
competition from numerous suppliers creating negative impacts on sales volume
in the engineering and data processing products manufactured in this segment.
The segment manufactured and sold engineering paper from its Newton facility,
following the close of its Dallas operation at the end of fiscal year 2002.

Gross profitincreased $1.3 million (20.0%) and gross margin increased to
14.0% from 12.8% in 2002. The margin in the Contract Manufacturing segment
remained at 17% compared to 2002 on a gross profit increase of $0.3
million. The Business Imaging segment increased gross profit by $1.1 million
and increased margin to 11% from 8% in 2002. This increase is primarily
related to reduced overhead following the closure of the Dallas, Texas
manufacturing operations at the end of fiscal 2002 and moving that production
to the Newton facility.

Selling, general and administrative expensesincreased $0.9 million in
2003 compared to 2002. This increase was primarily due to increases
in legal and other fees, costs relating to the relocation of
corporate services and IT from Dallas, Texas to Green Bay, Wisconsin
(exclusive of severance costs), increases in the number of sales
personnel, sales and administrative bonuses paid in 2003 which were
not paid for in 2002 and increased health care costs.

Amortization of goodwillwas not recorded for fiscal 2003 or 2002 as the
result of implementation of Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets in which the Company no longer
records goodwill amortization expense. See Cumulative Effect of Accounting
Change below.

Facility restructuring costsof $0.2 million for fiscal 2002 was recorded
following the Companys decision to exit the contract sheeting market in March
2002. These costs are mostly related to building lease abandonment. There were
no facility restructuring costs in 2003.

Facility closing expenseof $0.4 million for fiscal 2002 was recorded as a
result of a strategic decision to close the Dallas, Texas manufacturing and
distribution facility in September 2002 to control costs in order to remain
competitive with the Companys engineering paper products by moving the
decreased production to its Newton, North Carolina facility. Certain assets
used to produce Paint Sundries products were moved to the Companys Manning,
South Carolina facility. This expense mostly includes costs to move equipment
and inventory, employee severances, building and equipment lease abandonment.
There was no facility closing expense for 2003.

Severance expenseof $0.3 million in 2003 relates primarily to severance
paid to employees at the Dallas corporate services and IT location. Those
services were moved to Green Bay during 2003. Severance
expense of $0.2 million for 2002 relates primarily to payments made by the
Company to a former executive pursuant to an employee agreement with such
former executive.

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Fiscal Year Ended September 30, 2003 Compared to September 30, 2002-Continued

Asset write-downsof $0.5 million in 2002 includes $0.2
million for an adjustment related to misappropriation of inventory by former
employees of a supplier in Mexico to which
the Paint Sundries segment outsourced production. Property write-downs of $0.3
million are related to the restructuring and eventual closing of the Dallas,
Texas facility mentioned and includes adjustments to leasehold improvements and
production equipment. There were no asset writedowns for
2003.

(Gain)
loss on asset saleswas a loss of $0.1 million in 2003 due to the
Company selling various pieces of equipment which were no longer used in the
manufacturing process at amounts less than book value.

Interest expensedecreased $0.3 million to $0.2 million in fiscal 2003 due
to decreased borrowings. Effective with the sale of the Paint Sundries segment
sale, the Company repaid approximately $5.4 million of outstanding debt on
which interest was being paid.

Income taxesincreased $0.6 million as a result of increased profits. The
effective tax rate was 42% in 2003 compared to 44% in 2002. The decreased rate
results from the impact of certain non-deductible expenses, as well as the mix
of tax rates from the various jurisdictions in which the Company operates.

Loss from discontinued operations,net of tax was $0.2 for 2003 and $1.1
million for 2002. During the second quarter of fiscal 2003, the Company
sold the Paint Sundries segment. The loss from discontinued
operations reflects the short period results for fiscal 2003 and the
unfavorable trends identified in fiscal 2002.

Basic and diluted net earnings per sharewere $0.17 for 2003 compared to a
net loss of $1.17 for 2002.

Fiscal Year Ended September 30, 2002 Compared to September 30, 2001

Net salesfor fiscal 2002 decreased $9.6 million or 16% related to lower
sales at the Contract Manufacturing segment (down $6.5 million or 19%) and a
decrease of $2.9 million (11%) from the Business Imaging segment. The most
significant decline in Contract Manufacturing segment was related to reduced
product demand from a major customer for which the Company manufactures and
packages a variety of consumer products as well as unit price adjustments to
the customer. Contract Manufacturing also declined due to strong competition
from numerous suppliers of converting services to produce branded sheeting,
copier papers and engineering rolls for OEM customers and who compete primarily
on low pricing for a declining market of available sales. In the second
quarter of fiscal 2001, this segment received its last significant order from a
large manufacturer of wide-format printers and copiers before the customers
decision to reassess its inventory stocking program and change suppliers.
Printing and laminating services offered by the Contract Manufacturing segment
were down slightly from the prior year as well. The Companys Business Imaging
segment continued to experience strong competition from numerous suppliers
resulting in a negative impact on sales volume in the engineering and data
processing products from the segment. The decline in sales for those products
in the Business Imaging segment were somewhat offset by an increase in receipt
roll sales to the segments network of product distributors. Additionally, in
March 2002, the Company made a strategic decision to exit the contract sheeting
market and reached an agreement to sell its most significant production assets
and sublease a portion of its facility. Later in fiscal 2002 the Company closed
its Dallas, Texas manufacturing and distribution facility to control costs in
order to remain competitive with its engineering paper products.

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Fiscal Year Ended September 30, 2002 Compared to September 30, 2001-Continued

Gross profitdeclined $2.0 million (24%) and margins declined to 13% in
fiscal 2002 from 14% in fiscal 2001. The largest factor contributing to the
decline in margin percentages was the pass through of raw
material costs in certain Contract Manufacturing agreements which basically
contribute additional sales dollars with little or no margin dollar
contributions. For this segment, reductions in volume as well as unit
price adjustments to a major customer also contributed to the $2.5 million
(35%) decline in gross profit. The decline in sales due to strong competition
from numerous suppliers of converting services to produce
branded sheeting, copier papers and engineering rolls mentioned earlier
accounted for part of the decline in gross profit. Business Imaging gross
profit increased $0.5 million or 36% due to a change in sales
mix related to growth in receipt roll sales to the
segments network of products distributors discussed previously. Also the
segment improved margins by shedding overhead from underutilized production
assets and reducing its Dallas, Texas manufacturing facility size when it
exited from the contract sheeting market mentioned earlier

Selling, general and administrative expensesfor fiscal 2002 were up $0.2
million or 4%, compared to $3.8 million for 2001, primary due to increased
expenses for outside professional services, rising health care costs, increases
to the sales force late in fiscal 2001 and employee recruiting costs.
Additionally, the Company increased its bad debt reserves following the
bankruptcy of a large discount retail store chain.

Amortization of goodwillwas not recorded for fiscal 2002 as the result of
implementation of Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets in which the Company no longer records
goodwill amortization expense which was $0.5 million for fiscal 2001. Had
goodwill not been amortized for the year ended September 30, 2001, the net
income per share would have been $0.42 per share instead of the $0.31 per share
as reported. See Cumulative Effect of Accounting Change below.

Facility restructuring costsof $0.2 million for fiscal 2002 was recorded
following the Companys decision to exit the contract sheeting market in March
2002, mentioned above. These costs are mostly related to a building lease
abandonment.

Facility closing expenseof $0.4 million for fiscal 2002 was recorded as a
result of a strategic decision to close the Dallas, Texas manufacturing and
distribution facility in September 2002 to control costs in order to remain
competitive with the Companys engineering paper products by moving the
decreased production to its Newton, North Carolina facility. Also, certain
assets used to produce Paint Sundries products were moved to the Companys
Manning, South Carolina facility. This expense mostly includes costs to move
equipment and inventory, employee severances, building and equipment lease
abandonment.

Severance expensewas $0.2 million in fiscal 2002, and relates primarily
to payments by the Company pursuant to an employment agreement with a former
executive.

Asset write-downsof $0.5 million includes $0.2 million
for an adjustment related to misappropriation of inventory by former employees
of a supplier in Mexico to which the Paint Sundries segment outsourced
production. Property write-downs of $0.3 million are related to the
restructuring and closing of the Dallas Texas facility mentioned above and
includes adjustments to leasehold improvements and production equipment.

Gain on asset saleswere nominal in fiscal 2002, compared to $0.1 million
for 2001. The gain was related to the sale of sheeting equipment from its
Dallas, Texas facility mentioned above which was mostly offset by disposals of
unutilized equipment at the Companys Green Bay, Wisconsin facility.

Interest
Expensedecreased $0.5 million to $0.5 million in fiscal
2002. The decline resulted from debt elimination of $6.2 million throughout
fiscal 2002 and reductions in the interest rate on borrowings.

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Fiscal Year Ended September 30, 2002 Compared to September 30, 2001-Continued

Income taxesdecreased $1.2 million as a result of a decline in pre-tax
profit as discussed above. The effective tax rate was 44% in 2002 compared to 40% in
2001 as a result of the impact that certain non-deductible expenses, such as
meal and entertainment expense, as well as the mix of tax rates from the
various jurisdictions in which the Company operates.

Loss from discontinued operationsnet of tax was $1.1 million in 2002
compared to $0.8 million in 2001. The decrease in profitability
of the Paint Sundries segment is due to reduced gross margins related
to a change in sales mix and an increase in bad debt reserves
following the bankruptcy of a large discount retail store chain.

Cumulative effect of accounting changeis the result of the Company
adopting certain provisions of SFAS No. 142, effective October 1, 2001. Under
SFAS No. 142, goodwill and certain other intangible assets are no longer
systematically amortized but instead are reviewed for impairment and any excess
in carrying value over the estimated fair value is charged to results of
operations. In connection with the adoption of SFAS No. 142, the Company
completed the transitional goodwill impairment test during the second quarter
of fiscal 2002. As a result, an impairment charge of $ 6.4 million ($4.7
million after tax, or $1.01 per diluted share) was recorded related to goodwill
at certain Business Imaging and Paint Sundry reporting units. The fair value of
the reporting units was estimated using a combination of valuation techniques
including the expected present value of future cash flows and prices of
comparable businesses. For the year ended September 30, 2001, amortization of
goodwill related to continuing operations was $227,940, net of tax,
or $0.05 per share, and $284,400, net of tax, or $0.06 per share
related to discontinued operations.

Basic and diluted net loss per sharewas $1.17 for fiscal 2002 compared to
basic and diluted net earnings per share of $0.31 in fiscal 2001 as a result
of matters discussed above.

Selected Quarterly Financial Data

The following table sets forth selected quarterly financial information.
This information is derived from unaudited consolidated financial statements of
the Company and includes, in the opinion of management, all normal and
recurring adjustments that management considers necessary for a fair statement
of results for such periods. The operating results for any quarter are not
necessarily indicative of results for any future period.

Fiscal 2003(Dollars in
thousands, except per share amounts)(1)

|                                                      |         |         |        |         |      |         |        |         |       |         |        |      |      |   |        |      |      | 
|----------------------------------------------------- | ------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | ----- | ------- | ------ | ---- | ---- | - | ------ | ---- | ---- | 
|                                                      |         |         |        | First   |      | Second  |        | Third   |       | Fourth 
|                                                      |         |         |        | Quarter |      | Quarter |        | Quarter |       | Quarter
|Net sales                                             |         | $       | 12,529 |         |      | $       | 12,794 |         |       | $       | 14,272 |      |      | $ | 15,612 |     
|Gross profit                                          |         |         | 1,489  |         |      |         | 1,552  |         |       |         | 2,353  |      |      |   | 2,348  |     
|Operating expenses                                    |         |         | 1,078  |         |      |         | 1,249  |         |       |         | 1,581  |      |      |   | 1,419  |     
|Operating income                                      |         |         | 411    |         |      |         | 303    |         |       |         | 772    |      |      |   | 929    |     
|Income from continuing operations before
income taxes |         |         | 317    |         |      |         | 227    |         |       |         | 737    |      |      |   | 883    |     
|Income tax expense                                    |         |         | 134    |         |      |         | 91     |         |       |         | 309    |      |      |   | 382    |     
|Income from continuing operations                     |         |         | 183    |         |      |         | 136    |         |       |         | 428    |      |      |   | 501    |     
|Loss from discontinued operations                     |         |         | (16    | )       |      |         | (391   | )       |       |         | (58    | )    |      |   | (4     | )   
|Net income (loss)                                     |         |         | 167    |         |      |         | (255   | )       |       |         | 370    |      |      |   | 497    |     
|Income from continuing operations per share:          |         |         |        |         |      |         |        |         |       |         |        |      |      |   |        |     
|                                                      | Basic   |         |        | 0.04    |      |         |        | 0.03    |       |         |        | 0.09 |      |   |        | 0.11 |     
|                                                      | Diluted |         |        | 0.04    |      |         |        | 0.03    |       |         |        | 0.09 |      |   |        | 0.11 |     
|Income (loss) per share:                              |         |         |        |         |      |         |        |         |       |         |        |      |      |   |        |     
|                                                      |         | Basic   |        |         | 0.04 |         |        |         | (0.06 | )       |        |      | 0.08 |   |        |      | 0.11 | 
|                                                      |         | Diluted |        |         | 0.04 |         |        |         | (0.06 | )       |        |      | 0.08 |   |        |      | 0.11 | 

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##### Table of Contents



Selected Quarterly Financial Data-Continued

Fiscal 2002(Dollars in
thousands, except per share amounts)(1)

|                                                                                   |         |   |         |       |         |   |         |       |         |   |        |      |  |   |        |       |  
|---------------------------------------------------------------------------------- | ------- | - | ------- | ----- | ------- | - | ------- | ----- | ------- | - | ------ | ---- |  | - | ------ | ----- | -
|                                                                                   |         |   | First   |       | Second  |   | Third   |       | Fourth 
|                                                                                   |         |   | Quarter |       | Quarter |   | Quarter |       | Quarter
|Net sales                                                                          |         | $ | 11,666  |       |         | $ | 12,186  |       |         | $ | 13,689 |      |  | $ | 12,893 |      
|Gross profit                                                                       |         |   | 744     |       |         |   | 1,864   |       |         |   | 2,748  |      |  |   | 1,097  |      
|Operating expenses                                                                 |         |   | 976     |       |         |   | 1,720   |       |         |   | 1,023  |      |  |   | 1,658  |      
|Operating income (loss)                                                            |         |   | (232    | )     |         |   | 144     |       |         |   | 1,725  |      |  |   | (561   | )    
|Income
(loss) from continuing operations before income
taxes and accounting change |         |   | (358    | )     |         |   | 32      |       |         |   | 1,619  |      |  |   | (654   | )    
|Income tax expense (benefit)                                                       |         |   | (115    | )     |         |   | 6       |       |         |   | 737    |      |  |   | (347   | )    
|Income (loss) from continuing operations                                           |         |   | (243    | )     |         |   | 26      |       |         |   | 882    |      |  |   | (307   | )    
|Loss
from discontinued operations                                                  |         |   | (164    | )     |         |   | (875    | )     |         |   | (104   | )    |  |   | (468   | )    
|Cumulative effect of accounting change                                             |         |   | (4,652  | )     |         |   |        |       |         |   |       |      |  |   |       |      
|Net income (loss)                                                                  |         |   | (5,059  | )     |         |   | (349    | )     |         |   | 778    |      |  |   | (775   | )    
|Income (loss) from continuing operations per share:                                |         |   |         |       |         |   |         |       |         |   |        |      |  |   |        |      
|                                                                                   | Basic   |   |         | (0.05 | )       |   |         | 0.01  |         |   |        | 0.19 |  |   |        | (0.07 | )
|                                                                                   | Diluted |   |         | (0.05 | )       |   |         | 0.01  |         |   |        | 0.19 |  |   |        | (0.07 | )
|Cumulative effect of accounting change per share:                                  |         |   |         |       |         |   |         |       |         |   |        |      |  |   |        |      
|                                                                                   | Basic   |   |         | (1.01 | )       |   |         |      |         |   |        |     |  |   |        |      |  
|                                                                                   | Diluted |   |         | (1.01 | )       |   |         |      |         |   |        |     |  |   |        |      |  
|Income (loss) per share:                                                          
|                                                                                   | Basic   |   |         | (1.09 | )       |   |         | (0.07 | )       |   |        | 0.17 |  |   |        | (0.17 | )
|                                                                                   | Diluted |   |         | (1.09 | )       |   |         | (0.07 | )       |   |        | 0.17 |  |   |        | (0.17 | )

In the fourth quarter of fiscal 2003, sales increased $2.7 million or 21%
as compared to fourth quarter of fiscal 2002. The Contract Manufacturing
segment sales were up $1.5 million or 28% in fourth quarter fiscal 2003 when
compared to the same period last year as a result of increased product demand
from a major customer for which the Company manufactures and packages a variety
of consumer products. Contract Manufacturing also increased due to the start-up
of the second printing press and the wet wipes production line in 2003. For
fourth quarter fiscal 2003, Business Imaging segment sales were up $1.2 million
(21%) in fourth quarter of fiscal 2003 compared to the same quarter of fiscal
year 2002 due to increase sales of point of sale rolls by the segments network
of products distributors and to a major retail discount customer. The fourth quarter of fiscal 2002 included asset
write-downs and facility closing costs of $0.5 million and $0.4 million, respectively, related
to the closing of the Companys Dallas, Texas facility in September 2002. For
the fourth quarter of 2003, results included $0.2 million for severance costs, primarily relating to
the transfer of corporate services and IT services, respectively, from Dallas,
Texas. During the second quarter of fiscal 2003, the Company sold the
assets and business of its Paint Sundries segment (See Note 1 below)
and incurred a loss of $0.2 million (net of tax) from that sale.

|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Reflects the sale of the Paint Sundries segment
on March 31, 2003 effective for financial purposes as of February 28,
2003. See Footnote 14  Discontinued Operations to the Company's
Consolidated Financial Statements attached as an Appendix to this
Report.

Liquidity and Capital Resources

Cash flow from continuing operations was ($0.5) million for fiscal 2003, a
positive $6.8 million in 2002 and $4.6 million in 2001. Accounts Receivable
increased $2.4 million in 2003, primarily due to higher sales late in the
fourth quarter of 2003 compared to 2002. Accounts Payable decreased $2.2
million in 2003, compared to 2002.

Cash used in investing activities was $2.2 million in 2003 as the Company
completed the purchase and start-up of its wet wipes converting line. Cash
used in investing activities for 2002 was $0.6 million as

17



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##### Table of Contents



expenditures for production and office equipment were somewhat offset by
proceeds from the sale of certain underutilized equipment.

Cash used in financing activities was $5.5 million in 2003 and $6.1
million in 2002 resulting primarily from repayments of outstanding
indebtedness. In 2003, the Company repaid all of its outstanding term loan
debt and cancelled that portion of its credit facility. In March 2003, the
Companys Board of Directors approved the purchase by the Company of up to
100,000 of its shares of common stock after concluding that the cash and debt
position would enable these purchases without impairment to the Companys
capital. The purchase plan began in April 2003, and extends over a nine-month
period. During 2003, the Company purchased 45,500 shares of
its common stock on the open market for an aggregate of $0.3 million.

The Companys primary need for capital resources is to finance
inventories, accounts receivable, capital expenditures, and acquisitions. At
September 30, 2003, cash recorded on the balance sheet was $2.9 million.

The Contract Manufacturing segments sales are made pursuant to
project-specific purchase orders as well as contract service agreements with
terms of 18 months to three years. Sales under such contract service
agreements are typically derived from customer directed purchase orders based
on unit volume projections supplied by the customers and demand generated by
the customers consumer bases. During fiscal 2003, the Company was informed by
a customer which accounted for more than 33% of consolidated sales during
fiscal 2003 that at the end of the contract term (December 31, 2003), the customer
had decided to stop ordering certain products from the Company and would
manufacture those products at its own facility. Those products
accounted for approximately 20% of fiscal 2003 revenues. While the loss of these
products could result in a significant reduction in revenues, on December 4, 2003 the
Company announced it had signed significant contracts with new and existing
customers for both printing and contract manufacturing. The Company believes
that the revenue generated from these new contracts, on an annualized basis,
should more than offset any revenue decline resulting from the products being
removed. However, because the Companys contract revenue agreements described
above do not have minimum purchase requirements, there can be no assurances
that the revenues attributable to such contracts will be sufficient to offset
the loss associated with the products being removed.

To satisfy the manufacturing requirements of the new contracts discussed
above, the Company is undertaking a capital equipment expansion program
aggregating approximately $3.6 million for fiscal 2004. Included in this
expansion program is doubling the capacity for wet wipes production, a new flat
pack folder, and a rebuild of an existing quarter folder. The Company
anticipates such amounts will be funded by cash generated from the sale of the
Paint Sundries segment, cash from operations and bank borrowings.

On March 31, 2003 the Company sold the Paint Sundries segment for
approximately $12.2 million in cash to Trimaco, LLC and its affiliate. The
sale included all Paint Sundries segment assets, including the stock of
Foremost, Inc. and the Companys Manning, South Carolina facility. The
effective date for the closing of the sale of the Paint Sundries segment for
financial purposes was February 28, 2003, with the purchasers being entitled to
the revenues attributable to the Paint Sundries segment from and after February
28, 2003, and being obligated to reimburse the Company for the expenses
incurred and liabilities satisfied by the Company in connection with the
operation of the Paint Sundries segment from and after February 28, 2003. The
net proceeds from this sale were used to repay outstanding indebtedness
consisting of term and revolving loans in the aggregate of $7.9 million
outstanding under the Companys Amended and Restated Credit Agreement, dated as
of August 15, 2002 with JP Morgan Chase Bank (the Prior Credit Facility), and
for general corporate purposes.

On March 31, 2003, the Company entered into an amended and restated Credit
Facility with JP Morgan Chase Bank (the Credit Facility). The Credit
Facility supersedes the Prior Credit Facility in its

18



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##### Table of Contents



Liquidity and Capital Resources-Continued

entirety and, among other things, reflects the release of the lenders security
interest in the assets of the Paint Sundries segment and reduces the available
amount of the revolving loan under the Prior Credit Agreement from $10.0
million to $6.0 million. The Credit Facility expires June 2004. Management
has received a
proposal from JP Morgan Chase to extend the Credit Facility for two and one
half years and to increase the available revolving amount from $6.0 million to
$9.0 million on substantially similar terms as currently exist. The Company
can make no assurances that the Credit Facility will be extended or replaced.
At December 18, 2003, the Company had no borrowings outstanding under the
Credit Facility, with $6.0 million available under the revolving credit
agreement. Management believes its operating cash flow, together with amounts
available under its Credit Facility, are adequate to service the Companys
long-term obligations as of September 30, 2003, and any budgeted capital
expenditures.

The Credit Facility is secured by substantially all of the Companys
assets and contains certain restrictive covenants, including, minimum required
cash flow, maximum allowable indebtedness and
maximum allowable capital expenditures. At September 30, 2003 the Company was
in compliance with all of its debt covenants under the Credit Facility.

On July 30, 1998, the Company entered into an interest rate swap
arrangement with Wachovia Bank, NA (formerly First Union) which had the effect
of creating a fixed interest rate on the Companys term debt. This swap was
terminated effective with the repayment of the term debt under the Prior Credit
Agreement.

The Company has a $0.75 million standby letter of credit issued under the
Credit Facility with its senior lender for amounts payable in connection with
certain Village of Ashwaubenon Industrial Development Revenue Bonds. These
bonds pay variable rates of interest which were 1.35% and 2.00% at September
30, 2003 and 2002, respectively.

During fiscal 2003, the Company entered into a lease to own and operate an
eight color flexographic printing press. The lease is structured as an
operating lease over 7 years with payments totaling approximately $0.5 million
annually. The Company has the right to purchase the asset at varying points
during the lease.

The Company intends to retain earnings to finance future operations and
expansion and does not expect to pay any dividends within the foreseeable
future. In addition, the Companys primary lender must approve the payment of
any dividends over $4.0 million pursuant to the Credit Facility.

Sharp increases or decreases in the costs of key commodities, such as
paper or polyethylene, could periodically impact the Companys inventory values
and net income. In fiscal years 2003 and 2002, the impact of inflation was
minimal on the Companys inventory and net income. Management believes that the
Company is generally successful in eventually passing these fluctuations in raw
material prices to its
customers through increases or decreases in the selling price of the Companys
products, although the timing of selling price increases may lag behind cost
increases. Prior to these periods, the impact of inflation has been minimal on
the Companys inventory and net income.

Off Balance Sheet Arrangements

The Company has no Off Balance Sheet Arrangements (as defined in Item 303
(a)(4) of Regulation S-K).

19



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##### Table of Contents



Contractual Obligation Data

The following table sets forth obligations and commitments to make future
payments of debt, operating lease agreements, and future payments under
purchase contracts:

|                                                          |  |                        |           |      |  |        |           |       |  |         |           |      |  |  |           |      |  |  |           | 
|--------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | ------ | --------- | ----- |  | ------- | --------- | ---- |  |  | --------- | ---- |  |  | --------- | 
|                                                          |  | Payments Due By Period |           |      |  |       
|                                                          |  |                        |           |      |  |       
|                                                          |  |                        |           |      |  | Less   |           |       |  |         |           |      |  |  |           | More
|                                                          |  |                        |           |      |  | Than 1 |           | 2-3   |  | 4-5     |           | Than
|                                                          |  | Total                  |           | Year |  | Years  |           | Years |  | 5 Years
|                                                          |  |                        |           |      |  |        |           |       |  |        
|Long-Term Debt                                            |  |                        | 750,000   |      |  |        | 250,000   |       |  |         | 500,000   |      |  |  |          |      |  |  |          | 
|Capital Lease Obligations and Other
Long Term Liabilities |  |                        |          |      |  |        |          |       |  |         |          |      |  |  |          |      |  |  |          | 
|Operating Leases                                          |  |                        | 7,399,450 |      |  |        | 1,278,725 |       |  |         | 2,458,568 |      |  |  | 2,167,941 |      |  |  | 1,494,216 | 
|Unconditional Purchase Obligations (1)                    |  |                        |          |      |  |        |          |       |  |         |          |      |  |  |          |      |  |  |          | 
|                                                          |  |                        |           |      |  |        |           |       |  |         |           |      |  |  |           |      |  |  |           | 
|Total Contractual Cash Obligations                        |  |                        | 8,149,450 |      |  |        | 1,528,725 |       |  |         | 2,958,568 |      |  |  | 2,167,941 |      |  |  | 1,494,216 | 
|                                                          |  |                        |           |      |  |        |           |       |  |         |           |      |  |  |           |      |  |  |           | 



|(1) |  | The Company had no unconditional purchase obligations at September 30, 2003. As of December 18, 2003 the Company had incurred
unconditional purchase obligations of approximately $2.3 million for equipment for the capital equipment expansion program announced by the
Company on December 4, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. The reported
financial results and disclosures were determined using significant accounting
policies, practices and estimates as described below. We believe the reported
financial disclosures are reliable and present fairly, in all material
respects, the financial position and results of the Company.

Financial statement preparation requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses for the period. Actual amounts could
differ from the amounts estimated. Differences from those estimates are
recognized in the period they become known.

Revenue Recognition- The Company recognizes revenue when title and risk of
loss transfers to the customer and there is evidence and there is an agreement
and collectibility of consideration to be received is reasonably assured, all
of which generally occur at the time of shipment. Sales are recorded net of
sales returns and allowances. Shipping and handling fees billed to customers
are recorded as revenue and costs incurred for shipping and handling are
recorded in cost of sales. Amounts related to raw materials provided
by customers are excluded from revenue and cost of sales.

Trade Accounts and Notes Receivable- Management estimates allowances for
collectibility related to its trade accounts and note receivables. These
allowances are based on the customer relationships, the aging and turns of
accounts receivable, credit worthiness of customers, credit concentrations and
payment history. Although management monitors collections and credit
worthiness, the inability of a particular customer to pay its debts could
impact collectibility of receivables and could have an impact on future
revenues if the customer is unable to arrange other financing. Management does
not believe these conditions are reasonably likely to have a material impact on
the collectibility of its receivables or future revenues.

20



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Critical Accounting Policies-Continued

Management estimates sales returns and allowances by analyzing historical
returns and credits, and applies these trend rates to the most recent 12
months sales data to calculate estimated reserves for future credits.
Management estimates the allowance for doubtful accounts by analyzing accounts
receivable balances by age, applying historical trend rates to the most recent
12 months sales, less actual write-offs to date. Managements estimates
include providing for 100 percent of specific customer balances when it is
deemed probable that the balance is uncollectible. Actual results could differ
from these estimates under different assumptions.

Inventories- Inventories are carried at the lower of cost or market, with
cost determined under the first-in, first-out (FIFO) method of inventory
evaluation. The Company estimates reserves for inventory obsolescence and
shrinkage based on its judgment of future realization. A large portion of the
Companys inventory is saleable to multiple customers and a portion of the
inventory is manufactured to specifications provided by original equipment
manufacturers and is not subject to rapid technological change.

Management does not believe changes are reasonably likely to have a
material impact on the valuation of its inventories.

Goodwill- Goodwill represents the excess of cost over fair value of net
assets acquired in business combinations. In order to calculate goodwill,
management applies judgment in determining the reporting units, which represent
distinct parts of the business. The annual goodwill impairment analysis
involves estimating the fair value of a reporting unit and comparing it with
its carrying amount. If the carrying value of the reporting unit exceeds its
fair value, additional steps are required to calculate a potential impairment
loss. Calculating the fair value of the reporting unit requires significant
estimates and long-term assumptions. Any changes in key assumptions about he
business and its prospects, or any changes in market conditions, interest rates
or other externalities, could result in an impairment charge.

The annual test for impairment of goodwill was done during the third
quarter of fiscal 2003 at the reporting unit level. The fair value of the
reporting units was calculated using a combination of an income and market
approach with the conclusion that no impairment existed as of October 1, 2002.

Note 1 to the Consolidated Financial Statements contains additional
information on the Companys accounting policies.

21



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Recently Issued Accounting Standards

In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets.
SFAS No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transaction. SFAS
No. 144 also amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS No. 144 requires
that one accounting model be used for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired. SFAS No. 144 also
broadens the presentation of discontinued operations to include more disposal
transactions. The Company adopted SFAS No. 144, effective October 1, 2002.
Adoption of SFAS No. 144 did not have a material impact on the Companys
financial position or results of operations. The sale and discontinued
operations of the Paint Sundries segment in the second quarter 2003 have been
recorded in accordance with SFAS No. 144.

In December, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation,and provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require disclosures in
interim financial statements of the effects of stock-based compensation. The
interim disclosure requirements of SFAS No. 148 are effective
for periods beginning after December 15, 2002. The Companys stock-based
compensation related to employees and non-employee directors is recognized
using the intrinsic value method in accordance with

Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and thus there is no compensation expense for options granted with
exercise prices equal to the fair value of the Companys common stock on the
date of the grant.




ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk- In August 1998, the Company entered into an interest
rate swap contract as a cash flow hedge under which the interest rate on its
term debt under the then existing Credit Facility was fixed at 5.87%, plus a
profit spread for the lender (see Note 6 to the Companys Financial
Statements). Prior to entering into the swap agreement, management had
reviewed the 40-year history of interest rates and had determined that the
Companys risk of liability resulting from a material decline in interest rates
over the life of the swap below the fixed level under the swap was not
significant. In May 2003, the Company paid $26,000 to cancel the swap as
there was no longer any outstanding term debt.

Foreign Currency Exchange Risk-The Company had no transactions in foreign
currencies, nor had it entered into any foreign currency futures contracts as
of September 30, 2003.

Commodity Price Risk-The Company had not entered into any forward buying
agreements for the raw materials it uses to produce its goods and services as
of September 30, 2003. An assessment of the risks of short-term commodity price
fluctuations is set forth in Part I, Item 1 of this Form 10-K under the caption
Raw Materials and Suppliers.

Other Relevant Market Risks-The Company does not own any marketable
securities, and management is not aware of any other relevant market risks.

22



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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Companys Consolidated Financial Statements are attached as an
Appendix to this Report. In addition, Selected Quarterly Financial Data is set
forth in Item 7 of this Form 10-K under the caption Selected Quarterly
Financial Data.




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

None.




ITEM 9A - CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its reports filed
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms, and that such information
is accumulated and communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the
participation of its management, including its Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Companys disclosure controls and procedures. Based on the foregoing, the
Companys Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act) were effective as of the end
of the Companys 2003 fiscal year.

There
have been no changes in the Company's internal control over financial
reporting during the fiscal quarter ended September 30, 2003 that
have materially affected, or are reasonably likely to materially
affect the Company's internal control over financial reporting.




PART III




ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Except as set forth below, the information called for by Item 10 is
incorporated by reference from the Companys definitive proxy statement
relating to the Companys annual meeting to be held in 2004 (the Proxy
Statement), which Proxy Statement is to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days of the end of
the fiscal year covered by this Report. In addition, the information called for
by Item 10 with respect to Executive Officers is set forth under Part I of this
Report.

Compliance with Section 16(a) of the Securities Exchange Act

The information called for by Item 10 with respect to compliance with
Section 16 (a) of the Securities Exchange Act is incorporated by reference from
the Proxy Statement.

Code of Ethics

The Company has adopted a code of ethics that applies to the Companys
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, a copy of which
is filed as Exhibit 14.1 to this Form 10-K.




ITEM 11 - EXECUTIVE COMPENSATION

The information called for by Item 11 is incorporated by reference from
the Proxy Statement.

23



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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by Item 12 is incorporated by reference from
the Proxy Statement.




ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by Item 13 is incorporated by reference from
the Proxy Statement.




ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

The information called for by Item 14 is incorporated by reference from
the Proxy Statement.




PART IV




ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |  |    |  |                                                                                                                            |                                                                                                                                                                                                                                                                                        
|--- |  |  | -- |  | -------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  |  | 1. |  |                                                                                                                            | Financial Statements. Financial statements are attached as an Appendix to this Report. The
index to the financial statements is found on F-1 of the Appendix.                                                                                                                          
|    |  |  |    |  |                                                                                                                            |                                                                                                                                                                                                                                                                                        
|    |  |  | 2. |  |                                                                                                                            | Financial Statement Schedules. All schedules are omitted since the
required information
is not present or is not present in amounts sufficient to require
a submission of the schedules, or because the information required
is included in the financial statements and notes thereto.
|    |  |  |    |  |                                                                                                                            |                                                                                                                                                                                                                                                                                        
|    |  |  | 3. |  |                                                                                                                            | Exhibits. See Exhibit Index in Item 15(c), below.                                                                                                                                                                                                                                      
|    |  |  |    |  |                                                                                                                            |                                                                                                                                                                                                                                                                                        
|(b) |  |  |    |  | The Company filed a report on Form 8-K on August 14, 2003 reporting
financial results for the
quarter ended June 30, 2003.



|    |         |  |                                                                                                                                                                                                                                                                                                                              
|--- | ------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Exhibit |  |                                                                                                                                                                                                                                                                                                                              
|    | Number  |  | Description                                                                                                                                                                                                                                                                                                                  
|    |         |  |                                                                                                                                                                                                                                                                                                                              
|    | 2.1     |  | Stock Purchase Agreement dated as of November 12, 1997 by and among Tufco
Technologies, Inc. (the Company), Charles Cobaugh and James Barnes
(filed as exhibit 2.1 to the Companys Form 8-K dated November 13, 1997 filed
with the Commission on November 26, 1997 file number 0-21018, incorporated by
reference herein).
|    | 2.2     |  | Amended and Restated Asset and Stock Purchase Agreement, dated as of March 31,
2003, by and among Tufco Technologies, Inc., Tufco, L.P., and Trimaco, LLC (13)
(Exhibit 2.1)                                                                                                                                                 
|    | 3.1     |  | Restated Certificate of Incorporation (1) (Exhibit 3.1)                                                                                                                                                                                                                                                                      
|    | 3.2     |  | Bylaws (1) (Exhibit 3.2)                                                                                                                                                                                                                                                                                                     
|    | 10.1    |  | Stock Purchase and Contribution Agreement, dated as of February 25, 1992, among
the Company, Tufco Industries, Inc. (Tufco), and the Stockholders of Tufco. (1) (Exhibit 10.1)                                                                                                                                             
|    | 10.2    |  | Amended and Restated Consulting Agreement with Bradford Investment Partners, L.P. (3) (Exhibit 10)                                                                                                                                                                                                                           
|    | 10.3    |  | Loan Agreement, dated May 1, 1992, between the Village of Ashwaubenon, Wisconsin, and the Company.
(1) (Exhibit 10.11)                                                                                                                                                                                                       
|    | 10.4    |  | 1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12)                                                                                                                                                                                                                                                                     
|    | 10.5    |  | Form of Employee Stock Purchase Agreement between the Company and certain key employees of the Company. (1) (Exhibit 10.17)                                                                                                                                                                                                  
|    | 10.6    |  | 1993 Non-Employee Director Stock Option Plan. (2) (Exhibit 10.19)                                                                                                                                                                                                                                                            
|    | 10.7    |  | Amended Employment Agreement with Greg Wilemon, dated September 18, 1995. (4) (Exhibit 10.11)                                                                                                                                                                                                                                
|    | 10.8    |  | Lease between Bero and McClure Partnership and Tufco, L.P, dated October 15, 2002. (Exhibit 10.8)                                                                                                                                                                                                                            

24



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|      |  |                                                                                                                                                                                                                        
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |  | Employment Agreement with Louis LeCalsey, III dated September 19, 1996. (5) (Exhibit 10.18)                                                                                                                            
|10.10 |  | Credit Agreement among Tufco L.P. as Borrower, the Company as the Parent First Union National
Bank as agent and the banks named herein dated August 28, 1998. (6) (Exhibit 10.13)                                      
|10.11 |  | ISDA Master Agreement and Schedule to the Master Agreement dated as of July 30, 1998 between
First Union National Bank and Tufco, L.P. (6) (Exhibit 10.14)                                                             
|10.12 |  | First Amendment to Credit Agreement. (6) (Exhibit 10.15)                                                                                                                                                               
|10.13 |  | Second Amendment to Credit Agreement. (7) (Exhibit 10.16)                                                                                                                                                              
|10.14 |  | Waiver, Consent and Fourth Amendment. (8) (Exhibit 10.15)                                                                                                                                                              
|10.15 |  | Fifth Amendment to Credit Agreement. (9) (Exhibit 10.16)                                                                                                                                                               
|10.16 |  | Sixth Amendment to Credit Agreement. (10) (Exhibit 10.16)                                                                                                                                                              
|10.17 |  | Amended and Restated Credit Agreement dated August 15, 2002. (12)(Exhibit 10.17)                                                                                                                                       
|10.18 |  | First Amendment to the Amended and Restated Credit Agreement.(12)(Exhibit 10.18)                                                                                                                                       
|10.19 |  | *2003 Non-Qualified Stock Option Plan                                                                                                                                                                                  
|10.20 |  | Second Amended and Restated Credit Agreement dated March 31, 2003 among Tufco L.P., as Borrower,
Tufco Technologies, Inc. as the Parent, JP Morgan Chase Bank, as Agent, and the banks named
therein(13)(Exhibit 10.19)
|14.1  |  | *Code of Ethics                                                                                                                                                                                                        
|21.1  |  | *Subsidiaries of the Company.                                                                                                                                                                                          
|23.1  |  | *Consent of Deloitte & Touche LLP                                                                                                                                                                                      
|31.1  |  | *Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934 of Louis LeCalsey, III                                                                                              
|31.2  |  | *Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934 of Michael B. Wheeler                                                                                               
|32.1  |  | **Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of Louis LeCalsey, III                                                              
|32.2  |  | **Certification furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 of Michael B. Wheeler                                                               
|      |  |                                                                                                                                                                                                                        



|*    |  | Filed herewith                                                                                                                                                                     
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|**   |  | Furnished herewith                                                                                                                                                                 
|(1)  |  | Incorporated by reference to the Companys Registration
Statement on Form S-1 (Reg. No. 33-55828) (the Registration
Statement) as filed with the Commission on December 16, 1992.
|    
|(2)  |  | Incorporated by reference to Amendment No. 1 to the
Registration Statement as filed with the Commission on November 23,
1993.                                                      
|    
|(3)  |  | Incorporated by reference to the Companys Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1995.
(Commission file number 0-21018)                           
|    
|(4)  |  | Incorporated by reference to the Companys Annual Report on
Form 10-K for the period ended September 30, 1995. (Commission file
number 0-21018)                                    
|    
|(5)  |  | Incorporated by reference to the Companys Annual Report on
Form 10-K for the period ended September 30, 1997. (Commission file
number 0-21018)                                    
|    
|(6)  |  | Incorporated by reference to the Companys Annual Report on
Form 10-K for the period ended September 30, 1998. (Commission file
number 0-21018)                                    
|    
|(7)  |  | Incorporated by reference to the Companys Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2000.
(Commission file number 0-21018)                            
|    
|(8)  |  | Incorporated by reference to the Companys Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 2002.
(Commission file number 0-21018)                           
|    
|(9)  |  | Incorporated by reference to the Companys Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2002.
(Commission file number 0-21018)                            
|    
|(10) |  | Incorporated by reference to the Companys Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2002. (Commission file number
0-21018)                            
|    
|(11) |  | Incorporated by reference to the Companys Annual Report on Form 10-K
for the period ended September 30, 2000. (Commission file number 0-21018)                                    
|    
|(12) |  | Incorporated by reference to the Companys Annual Report on Form 10-K for the period ended
September 30, 2002. (Commission file number 0-21018)                                    

25



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##### Table of Contents





| | (13) | Incorporated by reference to the Companys Current Report on
Form 8-K filed on April 15, 2003.
| | ---- | ----------------------------------------------------------------------------------------------
|

26



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Green Bay, Wisconsin,
on December 29, 2003.

| |  |                          |  |                                                          
| |  | ------------------------ |  | ---------------------------------------------------------
| |  | Tufco Technologies, Inc.
| |  |                          |  |                                                          
| |  | By:                      |  | /s/ Louis LeCalsey, III                                  
| |  |                          |  |                                                          
| |  |                          |  | Louis LeCalsey, III
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.

|                                                       |  |                                                                               |  |                  
|------------------------------------------------------ |  | ----------------------------------------------------------------------------- |  | -----------------
|Signature                                              |  | Title                                                                         |  | Date             
|                                                       |  |                                                                               |  |                  
|/s/ Louis LeCalsey, III

Louis LeCalsey, III           |  | President, Chief Executive
Officer and Director
(Principal Executive Officer) |  | December 29, 2003
|                                                       |  |                                                                               |  |                  
|/s/ Robert J. Simon

Robert J. Simon                   |  | Chairman of the Board                                                         |  | December 29, 2003
|                                                       |  |                                                                               |  |                  
|/s/ Michael B. Wheeler

Michael B. Wheeler             |  | VP/Chief Financial Officer                                                    |  | December 29, 2003
|                                                       |  |                                                                               |  |                  
|/s/ Samuel J. Bero

Samuel J. Bero                     |  | Director                                                                      |  | December 29, 2003
|                                                       |  |                                                                               |  |                  
|/s/ C. Hamilton Davison, Jr.

C. Hamilton Davison, Jr. |  | Director                                                                      |  | December 29,2003 
|                                                       |  |                                                                               |  |                  
|/s/ William J. Malooly

William J. Malooly             |  | Director                                                                      |  | December 29, 2003
|                                                       |  |                                                                               |  |                  
|/s/ Seymour S. Preston

Seymour S. Preston, III        |  | Director                                                                      |  | December 29, 2003

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TUFCO TECHNOLOGIES, INC.

Index to Financial Statements

|                                                                                         |                                                                       |  |      |     | 
|---------------------------------------------------------------------------------------- | --------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                         |                                                                       |  | Page
|                                                                                         |                                                                       |  |     
|INDEPENDENT AUDITORS REPORT                                                             |                                                                       |  | F-2  |    
|CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 2003, 2002 AND 2001: |                                                                       |  |      |    
|                                                                                         | Consolidated Balance Sheets                                           |  |      | F-3 | 
|                                                                                         | Consolidated Statements of Operations and Comprehensive Income (Loss) |  |      | F-4 | 
|                                                                                         | Consolidated Statements of Stockholders Equity                       |  |      | F-5 | 
|                                                                                         | Consolidated Statements of Cash Flows                                 |  |      | F-6 | 
|                                                                                         | Notes to Consolidated Financial Statements                            |  |      | F-7 | 

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##### Table of Contents






INDEPENDENT AUDITORS REPORT

Directors and Stockholders
Tufco Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Tufco
Technologies, Inc. and subsidiary (the Company) as of September 30, 2003 and
2002, and the related consolidated statements of operations and comprehensive
income (loss), stockholders equity and cash flows for each of the three years
in the period ended September 30, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Tufco Technologies, Inc. and
subsidiary at September 30, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 2003, in conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
October 1, 2001, the Company adopted statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.

/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Milwaukee, Wisconsin
December 19, 2003

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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY




CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2002

|                                     |                                                                                     |                           |                            |            |            |            |            |            |            |            | 
|------------------------------------ | ----------------------------------------------------------------------------------- | ------------------------- | -------------------------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | 
|                                     |                                                                                     |                           |                            |            | 2003       |            | 2002      
|ASSETS                               |                                                                                     |                           |                            |            |            |            |            |           
|CURRENT ASSETS:                      |                                                                                     |                           |                            |            |            |            |            |           
|                                     | Cash and cash equivalents                                                           |                           | $                          | 2,930,416  |            |            | $          | 251,346    |           
|                                     | Restricted cash                                                                     |                           |                            |            |            |            |            | 100,000    |           
|                                     | Accounts
receivable - net                                                           |                           |                            | 8,293,853  |            |            |            | 11,193,150 |           
|                                     | Inventories                                                                         |                           |                            | 3,891,083  |            |            |            | 6,687,100  |           
|                                     | Prepaid expenses and other current assets                                           |                           |                            | 388,319    |            |            |            | 569,358    |           
|                                     | Income taxes receivable                                                             |                           |                            |            |            |            |            | 133,242    |           
|                                     | Deferred income taxes                                                               |                           |                            | 515,918    |            |            |            | 832,927    |           
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|                                     |                                                                                     | Total current assets      |                            |            | 16,019,589 |            |            |            | 19,767,123 |           
|PROPERTY, PLANT AND EQUIPMENT - Net  |                                                                                     |                           | 14,318,907                 |            |            |            | 16,304,848 |           
|GOODWILL                             |                                                                                     |                           | 7,211,575                  |            |            |            | 10,345,213 |           
|OTHER
ASSETS - Net                   |                                                                                     |                           | 475,688                    |            |            |            | 749,959    |           
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|TOTAL                                |                                                                                     | $                         | 38,025,759                 |            |            | $          | 47,167,143 |           
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                     |                           |                            |            |            |            |            |           
|CURRENT LIABILITIES:                 |                                                                                     |                           |                            |            |            |            |            |           
|                                     | Accounts payable                                                                    |                           | $                          | 1,829,414  |            |            | $          | 5,279,556  |           
|                                     | Accrued payroll, vacation and payroll taxes                                         |                           |                            | 844,330    |            |            |            | 935,973    |           
|                                     | Other current liabilities                                                           |                           |                            | 531,681    |            |            |            | 1,326,075  |           
|                                     | Income taxes payable                                                                |                           |                            | 529,521    |            |            |            |            |           
|                                     | Current portion of long-term debt                                                   |                           |                            | 250,000    |            |            |            | 922,726    |           
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|                                     |                                                                                     | Total current liabilities |                            |            | 3,984,946  |            |            |            | 8,464,330  |           
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|LONG-TERM DEBT-Less current portion  |                                                                                     |                           | 500,000                    |            |            |            | 5,233,882  |           
|DEFERRED INCOME TAXES                |                                                                                     |                           | 53,395                     |            |            |            | 660,640    |           
|STOCKHOLDERS EQUITY:                |                                                                                     |                           |                            |            |            |            |            |           
|                                     | Common stock, $.01 par value - 9,000,000 shares authorized;
4,706,341 shares issued |                           |                            | 47,063     |            |            |            | 47,063     |           
|                                     | Additional paid-in capital                                                          |                           |                            | 25,088,631 |            |            |            | 25,088,631 |           
|                                     | Retained earnings                                                                   |                           |                            | 9,183,109  |            |            |            | 8,404,112  |           
|                                     | Treasury stock - 123,997 and 78,497 common shares
at cost, respectively             |                           |                            | (831,385   | )          |            |            | (534,045   | )         
|                                     | Stockholder notes receivable                                                        |                           |                            |            |            |            |            | (157,246   | )         
|                                     | Accumulated other comprehensive loss - net of tax                                   |                           |                            |            |            |            |            | (40,224    | )         
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|                                     |                                                                                     |                           | Total stockholders equity |            |            | 33,487,418 |            |            |            | 32,808,291 | 
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           
|TOTAL                                |                                                                                     | $                         | 38,025,759                 |            |            | $          | 47,167,143 |           
|                                     |                                                                                     |                           |                            |            |            |            |            |            |           

See notes to consolidated financial statements.

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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |           |       |          |           |  
|----------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------- | ----- | ------ | ---------- | ---------- | ----- | ------ | ---------- | --------- | ----- | -------- | --------- | -
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       | 2003   |            | 2002       |       | 2001  
|NET SALES                                                   |                                                                         | $                                                                | 55,206,658                                                                            |                                   |       | $      | 50,434,029 |            |       | $      | 60,017,109 |          
|COST OF SALES                                               |                                                                         |                                                                  | 47,465,108                                                                            |                                   |       |        | 43,980,787 |            |       |        | 51,515,070 |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|GROSS PROFIT                                                |                                                                         |                                                                  | 7,741,550                                                                             |                                   |       |        | 6,453,242  |            |       |        | 8,502,039  |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|OPERATING EXPENSES:                                         |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Selling, general and administrative                                     |                                                                  |                                                                                       | 4,885,178                         |       |        |            | 3,961,851  |       |        |            | 3,810,946 |      
|                                                            | Amortization of goodwill                                                |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            | 381,261   |      
|                                                            | Facility closing costs                                                  |                                                                  |                                                                                       |                                   |       |        |            | 434,882    |       |        |            |           |      
|                                                            | Facility restructuring costs                                            |                                                                  |                                                                                       |                                   |       |        |            | 232,958    |       |        |            |           |      
|                                                            | Employee severance costs                                                |                                                                  |                                                                                       | 333,114                           |       |        |            | 209,324    |       |        |            | 10,218    |      
|                                                            | Asset write-downs                                                       |                                                                  |                                                                                       |                                   |       |        |            | 547,562    |       |        |            |           |      
|                                                            | Loss (gain) on asset sales                                              |                                                                  |                                                                                       | 108,636                           |       |        |            | (9,500     | )     |        |            | (147,164  | )    
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            |                                                                         |                                                                  |                                                                                       | Total                             |       |        | 5,326,928  |            |       |        | 5,377,077  |           |       |          | 4,055,261 |  
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|OPERATING INCOME                                            |                                                                         |                                                                  | 2,414,622                                                                             |                                   |       |        | 1,076,165  |            |       |        | 4,446,778  |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|OTHER INCOME (EXPENSE):                                     |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Interest expense                                                        |                                                                  |                                                                                       | (202,454                          | )     |        |            | (460,532   | )     |        |            | (960,529  | )    
|                                                            | Interest income and other income (expense)                              |                                                                  |                                                                                       | (48,696                           | )     |        |            | 24,179     |       |        |            | 277,345   |      
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            |                                                                         |                                                                  |                                                                                       | Total                             |       |        | (251,150   | )          |       |        | (436,353   | )         |       |          | (683,184  | )
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES       |                                                                         |                                                                  | 2,163,472                                                                             |                                   |       |        | 639,812    |            |       |        | 3,763,594  |          
|INCOME TAX EXPENSE                                          |                                                                         |                                                                  | 915,425                                                                               |                                   |       |        | 281,450    |            |       |        | 1,513,501  |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|INCOME FROM CONTINUING OPERATIONS                           |                                                                         |                                                                  | 1,248,047                                                                             |                                   |       |        | 358,362    |            |       |        | 2,250,093  |          
|LOSS FROM DISCONTINUED OPERATIONS:                          |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Loss from operations of discontinued segment, net of income taxes       |                                                                  |                                                                                       | (224,644                          | )     |        |            | (1,111,386 | )     |        |            | (824,855  | )    
|                                                            | Loss from sale of discontinued segment, net of income taxes of $163,325 |                                                                  |                                                                                       | (244,406                          | )     |        |            |            |       |        |            |           |      
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|INCOME (LOSS) BEFORE ACCOUNTING CHANGE                      |                                                                         |                                                                  | 778,997                                                                               |                                   |       |        | (753,024   | )          |       |        | 1,425,238  |          
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF INCOME TAXES |                                                                         |                                                                  |                                                                                       |                                   |       |        | (4,651,591 | )          |       |        |            |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|NET INCOME (LOSS)                                           |                                                                         |                                                                  | 778,997                                                                               |                                   |       |        | (5,404,615 | )          |       |        | 1,425,238  |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|OTHER COMPREHENSIVE INCOME (LOSS) -                         |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Net of tax:                                                             |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |           |      
|                                                            |                                                                         | Interest rate swap as hedge of future variable interest on debt: |                                                                                       |                                   |       |        |            |            |       |        |            |           |       |         
|                                                            |                                                                         |                                                                  | Cumulative effect of implementing SFAS No. 133, net of income taxes of $21,350        |                                   |       |        |            |            |       |        |            |           |       | 39,650   |          
|                                                            |                                                                         |                                                                  | Change in fair value, net of income taxes (benefit) of $25,717, $22,921 and $(69,988) |                                   |       | 40,224 |            |            |       | 35,851 |            |           |       | (115,725 | )        
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            |                                                                         |                                                                  |                                                                                       | Other comprehensive income (loss) |       |        | 40,224     |            |       |        | 35,851     |           |       |          | (76,075   | )
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|TOTAL COMPREHENSIVE INCOME (LOSS)                           |                                                                         | $                                                                | 819,221                                                                               |                                   |       | $      | (5,368,764 | )          |       | $      | 1,349,163  |          
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|EARNINGS (LOSS) PER SHARE:                                  |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Basic:                                                                  |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |           |      
|                                                            |                                                                         | Income from continuing operations                                |                                                                                       | $                                 | 0.27  |        |            | $          | 0.08  |        |            | $         | 0.49  |         
|                                                            |                                                                         | Loss from operations of discontinued segment                     |                                                                                       |                                   | (0.05 | )      |            |            | (0.24 | )      |            |           | (0.18 | )       
|                                                            |                                                                         | Loss from sale of discontinued segment                           |                                                                                       |                                   | (0.05 | )      |            |            |       |        |            |           |       |         
|                                                            |                                                                         | Cumulative effective of accounting change                        |                                                                                       |                                   |       |        |            |            | (1.01 | )      |            |           |       |         
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            |                                                                         | Net income (loss)                                                |                                                                                       | $                                 | 0.17  |        |            | $          | (1.17 | )      |            | $         | 0.31  |         
|                                                            | Diluted:                                                                |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |           |      
|                                                            |                                                                         | Income from continuing operations                                |                                                                                       | $                                 | 0.27  |        |            | $          | 0.08  |        |            | $         | 0.49  |         
|                                                            |                                                                         | Loss from operations of discontinued segment                     |                                                                                       |                                   | (0.05 | )      |            |            | (0.24 | )      |            |           | (0.18 | )       
|                                                            |                                                                         | Loss from sale of discontinued segment                           |                                                                                       |                                   | (0.05 | )      |            |            |       |        |            |           |       |         
|                                                            |                                                                         | Cumulative effective of accounting change                        |                                                                                       |                                   |       |        |            |            | (1.01 | )      |            |           |       |         
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            |                                                                         | Net income (loss)                                                |                                                                                       | $                                 | 0.17  |        |            | $          | (1.17 | )      |            | $         | 0.31  |         
|WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                 |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Basic                                                                   |                                                                  |                                                                                       | 4,616,331                         |       |        |            | 4,627,884  |       |        |            | 4,613,731 |      
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          
|                                                            | Diluted                                                                 |                                                                  |                                                                                       | 4,626,204                         |       |        |            | 4,630,621  |       |        |            | 4,641,693 |      
|                                                            |                                                                         |                                                                  |                                                                                       |                                   |       |        |            |            |       |        |            |          

See notes to consolidated financial statements.

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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

|                              |                                                              |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         |         |   |   |            |            |           | 
|----------------------------- | ------------------------------------------------------------ | ---------- | --------- | ------------ |  | ---------- | ------ | -------- |  | -------- | ---------- | ------- |  | ------------- | ---------- | ------------- | --------- | ------ | -------- | -------- | - | ----------- | -------- | -------- | - | - | ------- | ------- | - | - | ---------- | ---------- | --------- | 
|                              |                                                              |            |           | Common Stock |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   | Accumulated |          |          |   |  
|                              |                                                              |            |           | Voting       |  | Additional |        |          |  |          |            |         |  |               |            | Stockholder   |           | Other  |          | Total   
|                              |                                                              |            |           |              |  | Paid-in    |        | Retained |  | Treasury |            | Notes   |  | Comprehensive |            | Stockholders
|                              |                                                              |            |           | Shares       |  | Amount     |        | Capital  |  | Earnings |            | Stock   |  | Receivable    |            | Income (Loss) |           | Equity
|BALANCES - SEPTEMBER 30, 2000 |                                                              |            | 4,675,019 |              |  | $          | 46,750 |          |  | $        | 24,879,246 |         |  | $             | 12,383,489 |               |           | $      | (534,045 | )        |   | $           | (196,679 | )        |   | $ |        |         |   | $ | 36,578,761 |           
|                              | Exercise of employee stock options                           |            |           | 31,322       |  |            |        | 313      |  |          |            | 209,385 |  |               |            |               |           |        |          |          |   |             |          | (109,273 | ) |   |         |         |   |   |            | 100,425    |          
|                              | Repayment of stockholder notes receivable                    |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          | 25,195   |   |   |         |         |   |   |            | 25,195     |          
|                              | Unrealized loss on interest rate hedge contract - net of tax |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         | (76,075 | ) |   |            | (76,075    | )        
|                              |                                                              | Net income |           |              |  |            |        |          |  |          |            |         |  |               |            |               | 1,425,238 |        |          |          |   |             |          |          |   |   |         |         |   |   |            |            | 1,425,238 | 
|                              |                                                              |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         |         |   |   |            |           
|BALANCES - September 30, 2001 |                                                              |            | 4,706,341 |              |  |            | 47,063 |          |  |          | 25,088,631 |         |  |               | 13,808,727 |               |           |        | (534,045 | )        |   |             | (280,757 | )        |   |   | (76,075 | )       |   |   | 38,053,544 |           
|                              | Repayment of stockholder notes receivable                    |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          | 123,511  |   |   |         |         |   |   |            | 123,511    |          
|                              | Unrealized gain on interest rate hedge contract -
net of tax |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         | 35,851  |   |   |            | 35,851     |          
|                              | Net loss                                                     |            |           |              |  |            |        |          |  |          |            |         |  |               |            | (5,404,615    | )         |        |          |          |   |             |          |          |   |   |         |         |   |   |            | (5,404,615 | )        
|                              |                                                              |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         |         |   |   |            |           
|BALANCES - September 30, 2002 |                                                              |            | 4,706,341 |              |  |            | 47,063 |          |  |          | 25,088,631 |         |  |               | 8,404,112  |               |           |        | (534,045 | )        |   |             | (157,246 | )        |   |   | (40,224 | )       |   |   | 32,808,291 |           
|                              | Repayment of stockholder notes receivable                    |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          | 157,246  |   |   |         |         |   |   |            | 157,246    |          
|                              | Elimination of interest rate hedge contract -
net of tax     |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         | 40,224  |   |   |            | 40,224     |          
|                              | Purchase of treasury stock - 45,500 shares
at cost           |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          | (297,340 | ) |             |          |          |   |   |         |         |   |   |            | (297,340   | )        
|                              | Net income                                                   |            |           |              |  |            |        |          |  |          |            |         |  |               |            | 778,997       |           |        |          |          |   |             |          |          |   |   |         |         |   |   |            | 778,997    |          
|                              |                                                              |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         |         |   |   |            |           
|BALANCES - September 30, 2003 |                                                              |            | 4,706,341 |              |  | $          | 47,063 |          |  | $        | 25,088,631 |         |  | $             | 9,183,109  |               |           | $      | (831,385 | )        |   | $           |          |          |   | $ |         |         |   | $ | 33,487,418 |           
|                              |                                                              |            |           |              |  |            |        |          |  |          |            |         |  |               |            |               |           |        |          |          |   |             |          |          |   |   |         |         |   |   |            |           

See notes to consolidated financial statements.

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##### Table of Contents



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY




CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001

|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |            |   |            |  
|---------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------------------------- | --------- | ------------------------------------------------------------------------------ | ---------- | ---- | ---------- | ---------- | --------- | ---- | ---------- | ---------- | ---------- | - | ---------- | -
|                                                     |                                                                        |                                                                |           |                                                                                |            | 2003 |            | 2002       |           | 2001
|OPERATING ACTIVITIES:                                |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |           
|                                                     | Income from continuing operations                                      |                                                                | $         | 1,248,047                                                                      |            |      | $          | 358,362    |           |      | $          | 2,250,093  |           
|                                                     | Noncash items in income from continuing operations:                    |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     |                                                                        | Depreciation and amortization of property, plant and equipment |           |                                                                                | 2,539,704  |      |            |            | 2,832,027 |      |            |            | 2,920,192  |  
|                                                     |                                                                        | Amortization                                                   |           |                                                                                | 272,767    |      |            |            | 95,961    |      |            |            | 381,261    |  
|                                                     |                                                                        | Deferred income taxes                                          |           |                                                                                | (290,236   | )    |            |            | 104,172   |      |            |            | (186,258   | )
|                                                     |                                                                        | Loss (gain) on asset sales, net                                |           |                                                                                | 108,636    |      |            |            | (9,500    | )    |            |            | (147,164   | )
|                                                     |                                                                        | Property and inventory write-downs                             |           |                                                                                |            |      |            |            | 547,562   |      |            |            |            |  
|                                                     | Changes in operating working capital:                                  |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     |                                                                        | Accounts receivable                                            |           |                                                                                | (2,376,045 | )    |            |            | 1,680,750 |      |            |            | 1,724,765  |  
|                                                     |                                                                        | Inventories                                                    |           |                                                                                | (225,134   | )    |            |            | 593,381   |      |            |            | 508,755    |  
|                                                     |                                                                        | Prepaid expenses and other assets                              |           |                                                                                | 97,982     |      |            |            | (242,674  | )    |            |            | 42,988     |  
|                                                     |                                                                        | Accounts payable                                               |           |                                                                                | (2,180,601 | )    |            |            | 1,527,474 |      |            |            | (3,277,199 | )
|                                                     |                                                                        | Accrued and other current liabilities                          |           |                                                                                | (473,729   | )    |            |            | (308,849  | )    |            |            | (593,107   | )
|                                                     |                                                                        | Income taxes payable/receivable                                |           |                                                                                | 826,087    |      |            |            | (548,773  | )    |            |            | 976,772    |  
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     |                                                                        |                                                                |           | Net cash (used in) provided by operating activities from
continuing operations |            |      | (452,522   | )          |           |      | 6,629,893  |            |            |   | 4,601,098  |  
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|INVESTING ACTIVITIES:                                |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |           
|                                                     | Additions to property, plant, and equipment                            |                                                                |           | (2,372,546                                                                     | )          |      |            | (1,099,363 | )         |      |            | (1,036,758 | )         
|                                                     | Advances to directors and former owners                                |                                                                |           |                                                                                |            |      |            | (18,863    | )         |      |            | (16,581    | )         
|                                                     | Collection of advances to directors and former owners                  |                                                                |           | 20,060                                                                         |            |      |            |            |           |      |            |            |           
|                                                     | Proceeds from asset sales, net of transaction costs                    |                                                                |           | 74,454                                                                         |            |      |            | 581,716    |           |      |            | 169,500    |           
|                                                     | Decrease (increase) in restricted cash                                 |                                                                |           | 100,000                                                                        |            |      |            | (67,261    | )         |      |            | (1,022     | )         
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     |                                                                        |                                                                |           | Net cash used in investing activities                                          |            |      | (2,178,032 | )          |           |      | (603,771   | )          |            |   | (884,861   | )
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|FINANCING ACTIVITIES:                                |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |           
|                                                     | Repayment of long-term debt                                            |                                                                |           | (5,840,667                                                                     | )          |      |            | (7,745,037 | )         |      |            | (771,432   | )         
|                                                     | Borrowings of long-term debt                                           |                                                                |           | 500,000                                                                        |            |      |            | 1,500,000  |           |      |            |            |           
|                                                     | Proceeds from issuance of common stock                                 |                                                                |           |                                                                                |            |      |            |            |           |      |            | 100,425    |           
|                                                     | Purchase of treasury stock                                             |                                                                |           | (297,340                                                                       | )          |      |            |            |           |      |            |            |           
|                                                     | Net settlement of interest rate swap                                   |                                                                |           | (25,716                                                                        | )          |      |            |            |           |      |            |            |           
|                                                     | Repayment of stockholder notes receivable                              |                                                                |           | 157,246                                                                        |            |      |            | 123,511    |           |      |            | 25,195     |           
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     |                                                                        |                                                                |           | Net cash used in financing activities                                          |            |      | (5,506,477 | )          |           |      | (6,121,526 | )          |            |   | (645,812   | )
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|NET CASH FLOWS FROM DISCONTINUED OPERATIONS:         |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |           
|                                                     | Proceeds from sale of discontinued operations net of transaction costs |                                                                |           | 11,660,603                                                                     |            |      |            |            |           |      |            |            |           
|                                                     | Net cash used by activities of discontinued operations                 |                                                                |           | (844,502                                                                       | )          |      |            | (174,703   | )         |      |            | (3,479,360 | )         
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     |                                                                        |                                                                |           | Net cash provided by (used in) discontinued operations                         |            |      | 10,816,101 |            |           |      | (174,703   | )          |            |   | (3,479,360 | )
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                        |                                                                | 2,679,070 |                                                                                |            |      | (270,107   | )          |           |      | (408,935   | )         
|CASH AND CASH EQUIVALENTS:                           |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |           
|                                                     | Beginning of year                                                      |                                                                |           | 251,346                                                                        |            |      |            | 521,453    |           |      |            | 930,388    |           
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           
|                                                     | End of year                                                            |                                                                | $         | 2,930,416                                                                      |            |      | $          | 251,346    |           |      | $          | 521,453    |           
|                                                     |                                                                        |                                                                |           |                                                                                |            |      |            |            |           |      |            |            |           

See notes to consolidated financial statements.

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TUFCO TECHNOLOGIES, INC. AND SUBSIDIARY




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001



|1. |  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Consolidated Financial Statementsinclude the accounts of Tufco
Technologies, Inc. and its wholly owned subsidiary (the Company).
Significant intercompany transactions and balances are eliminated in
consolidation. The Company markets its own line of business imaging paper
products and performs specialty printing, custom converting and packaging.                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Financial Statement Preparationrequires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenues and expenses for the period. Actual amounts
could differ from the amounts estimated. Differences from those estimates
are recognized in the period they become known.                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Cash Equivalentsrepresent liquid investments with maturities at acquisition
of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Inventoriesare stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Property, Plant and Equipmentare stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
using the straight-line method over the following estimated useful lives:
20 to 40 years for buildings, 3 to 10 years for machinery and equipment, 3
to 5 years for computer equipment and software, 5 to 7 years for furniture
and fixtures, and the shorter of the actual useful life or the lease term
for leasehold improvements. Management periodically reviews asset carrying
values for recoverability based on undiscounted cash flows. When
appropriate, the Company provides for any write-downs based on estimated
fair value.                                                                   
|  
|   |  | Goodwillrepresents the excess of cost over fair value of net assets
acquired in business combinations. Prior to October 1, 2001, the Company
amortized goodwill on a straight-line basis over 25 to 40 years. Management
has continued to review the carrying values of goodwill for recoverability
based on fair market value estimated using estimated future cash flows and
prices of comparable companies.                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The Company adopted Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, effective October 1, 2001. Under
SFAS No. 142, goodwill and certain other intangible assets are no longer
systematically amortized but instead are reviewed for impairment, and any
excess in carrying value over the estimated fair value is charged to results
of operations. The previous method for determining impairment utilized an
undiscounted cash flow approach for the initial impairment assessment, while
SFAS No. 142 utilizes a fair value approach. The goodwill impairment charge
in fiscal 2002 discussed below was the result of the change in the
accounting method for determining impairment of goodwill.
|  
|   |  | In connection with the adoption of SFAS No. 142, the Company allocated
goodwill to each of its reporting units and tested this goodwill for
impairment as of the beginning of fiscal 2002. The Company completed the
transitional goodwill impairment test during the second quarter of fiscal
2002. As a result, an impairment charge of $6.4 million ($4.7 million after
tax, or $1.01 per diluted share) was                                                                                                                                                                                                                                                                                                                                         

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| |  | recorded related to goodwill allocated to the Business Imaging and Paint Sundry
reporting units. The fair value of the reporting units was estimated using
a combination of valuation techniques, including the expected present value
of future cash flows and prices of comparable businesses. The impairment
charge was recorded as the cumulative effect of an accounting change in the
fiscal 2002 consolidated statement of operations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The changes in the carrying amount of goodwill by segment for the years
ended September 30, 2003 and 2002 are as follows:                                                                                                                                                                                                                                                                                                                    

|                                 |                                 |   |               |  |          |   |           |           |       |   |           |            |   |   |            |            |  
|-------------------------------- | ------------------------------- | - | ------------- |  | -------- | - | --------- | --------- | ----- | - | --------- | ---------- | - | - | ---------- | ---------- | -
|                                 |                                 |   | Contract      |  | Business |   | Paint     |           |       |   |          
|                                 |                                 |   | Manufacturing |  | Imaging  |   | Sundries  |           | Total
|Balance as of September 30, 2001 |                                 | $ | 4,281,759     |  |          | $ | 7,925,269 |           |       | $ | 4,538,185 |            |   | $ | 16,745,213 |           
|                                 | Impairment charge               |   |               |  |          |   |           | 4,995,453 |       |   |           | 1,404,547  |   |   |            | 6,400,000  |  
|                                 |                                 |   |               |  |          |   |           |           |       |   |           |            |   |   |            |           
|Balance as of September 30, 2002 |                                 |   | 4,281,759     |  |          |   | 2,929,816 |           |       |   | 3,133,638 |            |   |   | 10,345,213 |           
|                                 | Sale of discontinued operations |   |               |  |          |   |           |           |       |   |           | (3,133,638 | ) |   |            | (3,133,638 | )
|                                 |                                 |   |               |  |          |   |           |           |       |   |           |            |   |   |            |           
|Balance as of September 30, 2003 |                                 | $ | 4,281,759     |  |          | $ | 2,929,816 |           |       | $ |           |            |   | $ | 7,211,575  |           
|                                 |                                 |   |               |  |          |   |           |           |       |   |           |            |   |   |            |           



| |  | As required by SFAS No. 142, the results for periods prior to its adoption
have not been restated. The following tables reconcile the reported income
from continuing operations, net income and basic and diluted earnings per share to that
which would have resulted for the year ended September 30, 2001 if SFAS No.
142 had been adopted effective October 1, 2000:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              |  |      |           | 
|--------------------------------------------- |  | ---- | --------- | 
|                                              |  | 2001
|Income from continuing operations as reported |  | $    | 2,250,093 | 
|Goodwill amortization, net of tax             |  |      | 227,940   | 
|                                              |  |      |           | 
|Adjusted income from continuing operations    |  | $    | 2,478,033 | 
|                                              |  |      |           | 
|Basic earnings per share:                     |  |      |           | 
|As reported                                   |  | $    | 0.49      | 
|Add back goodwill amortization, net of tax    |  |      | 0.05      | 
|                                              |  |      |           | 
|Adjusted basic earnings per share             |  | $    | 0.54      | 
|                                              |  |      |           | 
|Diluted earnings per share:                   |  |      |           | 
|As reported                                   |  | $    | 0.49      | 
|Add back goodwill amortization, net of tax    |  |      | 0.05      | 
|                                              |  |      |           | 
|Adjusted diluted earnings per share           |  | $    | 0.54      | 
|                                              |  |      |           | 

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|                                    |                                            |   |           |      | 
|----------------------------------- | ------------------------------------------ | - | --------- | ---- | 
|                                    |                                            |   | 2001     
|Net income as reported              |                                            | $ | 1,425,238 |     
|Goodwill amortization, net of tax   |                                            |   | 512,339   |     
|                                    |                                            |   |           |     
|Adjusted net income                 |                                            | $ | 1,937,577 |     
|                                    |                                            |   |           |     
|Basic earnings per share:           |                                            |   |           |     
|                                    | As reported                                |   | $         | 0.31 | 
|                                    | Add
back goodwill amortization, net of tax |   |           | 0.11 | 
|                                    |                                            |   |           |     
|Adjusted basic earnings per share   |                                            | $ | 0.42      |     
|                                    |                                            |   |           |     
|Diluted earnings per share:         |                                            |   |           |     
|                                    | As reported                                |   | $         | 0.31 | 
|                                    | Add
back goodwill amortization, net of tax |   |           | 0.11 | 
|                                    |                                            |   |           |     
|Adjusted diluted earnings per share |                                            | $ | 0.42      |     
|                                    |                                            |   |           |     



| |  | Financial Instrumentsconsist of cash, receivables, payables, debt, and
letters of credit. Their carrying values are estimated to approximate their
fair values unless otherwise indicated due to their short maturities,
variable interest rates or fixed rates approximating current rates available
for similar instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Derivatives- At September 30, 2003, the Company does not hold any
derivatives. In prior years derivatives consisted of an interest rate swap
as a cash flow hedge of variable interest rate debt. This cash flow hedge
was stated at its estimated fair value based on market quotes at
September 30, 2002 and changes in fair value were reported as a component of
other comprehensive income (loss).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Other Assetsinclude loan origination fees, which are amortized on a
straight-line basis (approximating the interest method) over the terms of
the related long-term debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Income Taxesare provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due, if any, plus
deferred taxes related primarily to differences between the basis of assets
and liabilities for financial and income tax reporting. Deferred tax assets
and liabilities represent the future tax return consequences of those
differences that will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets include
recognition of operating losses that are available to offset future taxable
income and tax credits that are available to offset future income taxes.
Valuation allowances are recognized to limit recognition of deferred tax
assets where appropriate. Such allowances may be reversed when
circumstances provide evidence that the deferred tax assets will more likely
than not be realized.
|
| |  | Revenuesare recognized as sales when title and risk of loss transfers to
the customer and there is evidence of an agreement and collectibility of
consideration to be received is reasonably assured, all of which generally
occur at the time of shipment. Sales are recorded net of sales returns and
allowances. Shipping and handling fees billed to customers are recorded as
revenue and costs incurred for shipping and handling are recorded in cost of
sales. Amounts related to raw materials provided by customers are
excluded from revenue and cost of sales.                                                                                                                                                                                                                                                                                                                                                  

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| |  | Stock-Based Compensation- Stock option grants to employees are accounted
for by the intrinsic value method under Accounting Principles Board (APB)
Opinion No. 25 and related interpretations. SFAS No. 123, Accounting for
Stock-Based Compensation, encourages (but does not require) the cost of
stock options and other stock-based compensation arrangements with employees
to be measured based on the fair value of the equity instrument awarded.
The following table illustrates the effect on income from continuing
operations and related earnings per share if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based
compensation.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                            |                       |   |           |      |      |   |          |      |  |   |           |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------------- | - | --------- | ---- | ---- | - | -------- | ---- |  | - | --------- | ---- | 
|                                                                                                                                            |                       |   | 2003      |      | 2002 |   | 2001    
|Income from continuing operations as reported                                                                                               |                       | $ | 1,248,047 |      |      | $ | 358,362  |      |  | $ | 2,250,093 |     
|Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects |                       |   | (72,483   | )    |      |   | (232,698 | )    |  |   | (212,421  | )   
|                                                                                                                                            |                       |   |           |      |      |   |          |      |  |   |           |     
|Pro forma income from continuing operations                                                                                                 |                       | $ | 1,175,564 |      |      | $ | 125,664  |      |  | $ | 2,037,672 |     
|                                                                                                                                            |                       |   |           |      |      |   |          |      |  |   |           |     
|Earnings per share:                                                                                                                         |                       |   |           |      |      |   |          |      |  |   |           |     
|                                                                                                                                            | Basic  as reported   |   | $         | 0.27 |      |   | $        | 0.08 |  |   | $         | 0.49 | 
|                                                                                                                                            | Basic  pro forma     |   | $         | 0.25 |      |   | $        | 0.03 |  |   | $         | 0.44 | 
|                                                                                                                                            | Diluted  as reported |   | $         | 0.27 |      |   | $        | 0.08 |  |   | $         | 0.49 | 
|                                                                                                                                            | Diluted  pro forma   |   | $         | 0.25 |      |   | $        | 0.03 |  |   | $         | 0.44 | 

Earnings Per Share- Basic earnings per share is computed using the weighted
average number of common shares outstanding. Diluted earnings per share
includes common equivalent shares from dilutive stock options outstanding
during the year, the effect of which was 9,873; 2,737 and 27,962 shares in
fiscal 2003, 2002, and 2001, respectively. During 2003, 2002 and 2001,
options to purchase 376,700 shares, 448,400 shares and 294,900 shares,
respectively, were excluded from the diluted earnings per share computation
as the effects of such options would have been anti-dilutive.

Asset write-downs include a $200,000
adjustment related to misappropriation
of inventory by former employees of a supplier in Mexico and $300,000
related to property write-downs at the Dallas, Texas facility.

Reclassificationsof certain 2002 and 2001 amounts have been made to conform
to the 2003 presentation reflecting the disposition of the Paint Sundries
segment in fiscal 2003 and presenting results of that segment as discontinued operations.

Recently Issued Accounting Standards -In August 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transaction. SFAS No. 144 also amends Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to eliminate the

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exception to
consolidation for a subsidiary for which control is likely to be temporary.
SFAS No. 144 requires that one accounting model be used for long-lived
assets to be disposed of by sale, whether previously held
and used or newly acquired. SFAS No. 144 also broadens the presentation of
discontinued operations to include more disposal transactions. The Company
adopted SFAS No. 144, effective October 1, 2002. Adoption of SFAS No. 144
did not have a material impact on the Companys financial position or
results of operations. The sale and discontinued operations of the Paint
Sundries segment in the second quarter 2003 have been recorded in accordance
with SFAS No. 144.




In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation,and provides alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require disclosures in
interim financial statements of the effects of stock-based compensation.
The interim disclosure requirements of SFAS No. 148 are effective for
periods beginning after December 15, 2002. The Companys stock-based
compensation related to employees and non-employee directors is recognized
using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and thus
there is no compensation expense for options granted with exercise prices
equal to the fair value of the Companys common stock on the date of the
grant.


2.     ACCOUNTS RECEIVABLE



Accounts receivable are stated net of allowances for doubtful accounts of
$389,321 and $535,013 at September 30, 2003 and 2002, respectively. For the
years ended September 30, 2003, 2002 and 2001, the Company recorded bad debt
expense (income) of $(76,356), $64,066 and $1,243, respectively, and had
write-offs of $69,336, $25,343 and $166,483, respectively. Amounts due from
a Fortune 500 customer represent 30% of total accounts receivable at
September 30, 2003 and 2002, respectively. Accounts receivable include
$101,338 for the cost of equipment to be reimbursed by one of these
customers at September 30, 2002.


3.     INVENTORIES

Inventories at September 30 consist of the following:

|                  |  |      |           |      |  |   |           | 
|----------------- |  | ---- | --------- | ---- |  | - | --------- | 
|                  |  | 2003 |           | 2002
|Raw materials     |  | $    | 3,042,120 |      |  | $ | 4,940,569 | 
|Finished goods    |  |      | 848,963   |      |  |   | 1,746,531 | 
|                  |  |      |           |      |  |   |           | 
|Total inventories |  | $    | 3,891,083 |      |  | $ | 6,687,100 | 
|                  |  |      |           |      |  |   |           | 



| |  | Finished goods inventories are stated net of allowance for inventory
obsolescence and shrinkage of $413,900 and $1,060,121 at September 30, 2003
and 2002, respectively. For the years ended September 30, 2003, 2002 and
2001, the Company recorded obsolescence and shrinkage expense (income) of
$(587,551), $301,661 and $(120,743), respectively, and had write-offs of
$58,670, $177,010 and $100,253, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|4. |  | PROPERTY, PLANT AND EQUIPMENT                                          
|-- |  | -----------------------------------------------------------------------
|  
|   |  | Property, plant and equipment at September 30 consist of the following:

|                                               |  |      |            |      |  |   |            | 
|---------------------------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                                               |  | 2003 |            | 2002
|Land and land improvements                     |  | $    | 604,756    |      |  | $ | 631,057    | 
|Buildings                                      |  |      | 9,990,856  |      |  |   | 11,069,273 | 
|Leasehold improvements                         |  |      | 693,163    |      |  |   | 1,399,453  | 
|Machinery and equipment                        |  |      | 14,009,437 |      |  |   | 15,847,822 | 
|Computer equipment and software                |  |      | 5,460,368  |      |  |   | 6,167,633  | 
|Furniture and fixtures                         |  |      | 546,105    |      |  |   | 788,768    | 
|Vehicles                                       |  |      | 44,206     |      |  |   | 78,280     | 
|                                               |  |      |            |      |  |   |            | 
|                                               |  |      | 31,348,890 |      |  |   | 35,982,286 | 
|Less accumulated depreciation and amortization |  |      | 17,565,839 |      |  |   | 20,089,950 | 
|                                               |  |      |            |      |  |   |            | 
|Net depreciated value                          |  |      | 13,783,052 |      |  |   | 15,892,336 | 
|Construction in progress                       |  |      | 535,855    |      |  |   | 412,512    | 
|                                               |  |      |            |      |  |   |            | 
|Property, plant and equipment - net            |  | $    | 14,318,907 |      |  | $ | 16,304,848 | 
|                                               |  |      |            |      |  |   |            | 



|   |  | Gains or losses on asset sales in fiscal 2003, 2002 and 2001 represent
disposals occurring in the normal course of business.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------
|  
|5. |  | OTHER ASSETS                                                                                                                
|  
|   |  | Other assets at September 30 consist of the following:                                                                      

|                                                                                                 |  |      |         |      |  |   |         | 
|------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                                                 |  | 2003 |         | 2002
|Loan origination and other fees                                                                  |  | $    | 621,529 |      |  | $ | 601,252 | 
|Less accumulated amortization                                                                    |  |      | 551,773 |      |  |   | 279,006 | 
|                                                                                                 |  |      |         |      |  |   |         | 
|Subtotal                                                                                         |  |      | 69,756  |      |  |   | 322,246 | 
|Note receivable bearing interest at 7% to 10%, due in
variable monthly installments through 2005 |  |      | 106,902 |      |  |   | 27,792  | 
|Prepaid rent on leased equipment                                                                 |  |      | 38,836  |      |  |   | 46,244  | 
|Deposits on equipment to be acquired and other                                                   |  |      | 72,805  |      |  |   | 146,228 | 
|Cash surrender value of life insurance                                                           |  |      | 187,389 |      |  |   | 207,449 | 
|                                                                                                 |  |      |         |      |  |   |         | 
|Other assets-net                                                                                 |  | $    | 475,688 |      |  | $ | 749,959 | 
|                                                                                                 |  |      |         |      |  |   |         | 

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|6. |  | LONG-TERM DEBT                                           
|-- |  | ---------------------------------------------------------
|  
|   |  | Long-term debt at September 30 consists of the following:

|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   |         |         |      |   |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | - | ------- | ------- | ---- | - | --------- | --------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   | 2003    |         | 2002
|Note payable to bank, collateralized by substantially all assets
of the Company bearing a variable interest rate of 3.82% at
September 30, 2002 ($2,114,272 fixed at 5.87% plus a profit
spread for the bank under an interest rate swap arrangement
discussed below), installments are due quarterly
at $168,182 with final payment made on March 31, 2003                                                                           |                                       |   |         |         |      | $ | 3,429,571 |          
|Note payable to bank, under a revolving line-of-credit
agreement (not to exceed maximum borrowings of $6 million,
reduced by outstanding letters of credit  see Note 8)
collateralized by substantially all assets of the Company,
bearing interest at a combination of 200 basis points over
LIBOR or 0.50% above the banks reference rate
(effective rate of 4.5% at September 30, 2003), payable
quarterly, due on June 1, 2004) |                                       |   |         |         |      |   | 1,727,037 |          
|Variable rate (1.35% and 2.00% at September 30, 2003 and
2002, respectively) note payable underlying Industrial
Development Revenue Bonds, collateralized by substantially
all assets of the Company, due in annual installments of
$250,000 through 2006, interest payable monthly                                                                                                                                                   |                                       | $ | 750,000 |         |      |   | 1,000,000 |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   |         |         |      |   |           |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                      | Total                                 |   |         | 750,000 |      |   |           | 6,156,608 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      | Less-current portion                  |   |         | 250,000 |      |   |           | 922,726   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      | Long-term debt - less current portion |   | $       | 500,000 |      |   | $         | 5,233,882 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   |         |         |      |   |           |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Long-term debt - less current portion matures as follows:                                                                                                                                                                                                                                                                                                                                                                             |                                       |   |         |         |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2005                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                       |   |         |         |      |   | $         | 250,000   | 
|2006                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                       |   |         |         |      |   |           | 250,000   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   |         |         |      |   |           |           | 
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                       |   |         |         |      |   | $         | 500,000   | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                       |   |         |         |      |   |           |           | 



| |  | In 1998, the Company entered into an interest rate swap agreement, as a
hedge under which the interest rate on the notional amount of $2,114,272 of
term debt was fixed at 5.87%, plus a profit spread for the lender of between
100 and 150 basis points, depending on certain financial ratios achieved by
the Company. In May, 2003, the Company repaid the associated debt and
settled the interest rate swap agreement. The net settlement value of the
interest rate swap agreement was recorded within the statement of
operations. The fair value of this cash flow hedge was estimated to be a
net payable position (unrealized loss) of $65,941 at September 30, 2002. It
was recorded as a component of long-term debt as of September 30, 2002. The
Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, effective October 1, 2000, and recognized the unrealized
gain at that date of $39,650, net of income tax effects, as other
comprehensive income. The increase (decrease)
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|   |  | in fair value, net of tax of $40,224, $35,851 and ($115,725), was
reported as other comprehensive income (loss) during fiscal 2003, 2002, and
2001, respectively.                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The revolving line-of-credit agreement contains certain restrictive
covenants, including requirements to maintain minimum fixed charge coverage
and restrictions on maximum allowable debt, capital purchases, stock
purchases, mergers, and payment of dividends. At September 30, 2003, the
Company was in compliance with all of its debt covenants under the
line-of-credit agreement. The Company has a standby letter of credit for
the outstanding balance associated with the Industrial Development Revenue
Bonds.
|  
|7. |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The tax effects of significant items composing the Companys net deferred
tax asset as of September 30 are as follows:                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |            |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | -------------------- | ------- | ---------- | ------- | ---- | -------- | ---------- | ------- | 
|                                                                                                                                                                                  |                                                                                         |                      |         | 2003       |         | 2002
|Current deferred tax asset:                                                                                                                                                       |                                                                                         |                      |         |            |         |      |          |           
|                                                                                                                                                                                  | Valuation allowances for accounts receivable
and inventories - not currently deductible |                      | $       | 334,532    |         |      | $        | 606,361    |        
|                                                                                                                                                                                  | Inventory costs capitalized for tax purposes                                            |                      |         | 5,940      |         |      |          | 20,391     |        
|                                                                                                                                                                                  | Vacation and severance accruals - not currently
deductible                              |                      |         | 74,878     |         |      |          | 81,650     |        
|                                                                                                                                                                                  | Other accruals - not currently deductible                                               |                      |         | 100,568    |         |      |          | 124,525    |        
|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |           
|                                                                                                                                                                                  |                                                                                         | Total current assets |         |            | 515,918 |      |          |            | 832,927 | 
|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |           
|Noncurrent deferred tax liability:                                                                                                                                                |                                                                                         |                      |         |            |         |      |          |           
|                                                                                                                                                                                  | Accelerated tax depreciation on property and equipment                                  |                      |         | (1,164,184 | )       |      |          | (2,256,225 | )      
|                                                                                                                                                                                  | Accelerated tax amortization of goodwill                                                |                      |         | 949,587    |         |      |          | 529,493    |        
|                                                                                                                                                                                  | Operating loss carryforwards                                                            |                      |         |            |         |      |          | 946,658    |        
|                                                                                                                                                                                  | Other                                                                                   |                      |         | 161,202    |         |      |          | 142,355    |        
|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |           
|                                                                                                                                                                                  |                                                                                         |                      | (53,395 | )          |         |      | (637,719 | )         
|Unrealized loss on interest rate swap arrangement,
not currently deductible (the change in this component of
deferred taxes is included in other comprehensive
loss - see Note 6) |                                                                                         |                      |         |            |         |      | (22,921  | )         
|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |           
|Total noncurrent liability - net                                                                                                                                                  |                                                                                         |                      | (53,395 | )          |         |      | (660,640 | )         
|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |           
|Net deferred tax asset                                                                                                                                                            |                                                                                         | $                    | 462,523 |            |         | $    | 172,287  |           
|                                                                                                                                                                                  |                                                                                         |                      |         |            |         |      |          |            |        

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| |  | The components of income tax expense (benefit) of continuing operations are as
follows:
| |  | ---------------------------------------------------------------------------------------

|                                |         |       |         |          |           |      |         |         |         |   |           |           |           |  
|------------------------------- | ------- | ----- | ------- | -------- | --------- | ---- | ------- | ------- | ------- | - | --------- | --------- | --------- | -
|                                |         |       |         | 2003     |           | 2002 |         | 2001   
|Current tax expense:            |         |       |         |          |           |      |         |         |         |   |           |          
|                                | Federal |       | $       | 968,973  |           |      | $       | 141,822 |         |   | $         | 1,359,807 |          
|                                | State   |       |         | 236,688  |           |      |         | 35,456  |         |   |           | 339,952   |          
|                                |         |       |         |          |           |      |         |         |         |   |           |          
|                                |         | Total |         |          | 1,205,661 |      |         |         | 177,278 |   |           |           | 1,699,759 |  
|                                |         |       |         |          |           |      |         |         |         |   |           |          
|Deferred tax expense (benefit): |         |       |         |          |           |      |         |         |         |   |           |          
|                                | Federal |       |         | (232,478 | )         |      |         | 83,338  |         |   |           | (149,006  | )        
|                                | State   |       |         | (57,778  | )         |      |         | 20,834  |         |   |           | (37,252   | )        
|                                |         |       |         |          |           |      |         |         |         |   |           |          
|                                |         | Total |         |          | (290,236  | )    |         |         | 104,172 |   |           |           | (186,258  | )
|                                |         |       |         |          |           |      |         |         |         |   |           |          
|Income tax expense              |         | $     | 915,425 |          |           | $    | 281,450 |         |         | $ | 1,513,501 |          
|                                |         |       |         |          |           |      |         |         |         |   |           |          



| |  | Income tax expense varies from the amount determined by applying the
applicable statutory income tax rates to pretax income as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------

|                                                       |  |      |         |      |  |      |         |   |  |   |           |  
|------------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | --------- | -
|                                                       |  | 2003 |         | 2002 |  | 2001
|Federal income taxes computed at
statutory rates       |  | $    | 757,215 |      |  | $    | 223,934 |   |  | $ | 1,317,258 |  
|State income taxes, net of federal tax benefit         |  |      | 116,074 |      |  |      | 36,859  |   |  |   | 196,755   |  
|Certain goodwill amortization and other
nondeductibles |  |      | 24,050  |      |  |      | 30,260  |   |  |   | 162,329   |  
|Other                                                  |  |      | 18,086  |      |  |      | (9,333  | ) |  |   | (162,841  | )
|                                                       |  |      |         |      |  |      |         |   |  |   |           |  
|Income tax expense                                     |  | $    | 915,425 |      |  | $    | 281,450 |   |  | $ | 1,513,501 |  
|                                                       |  |      |         |      |  |      |         |   |  |   |           |  



|8. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Leases- The Company leases facilities in Green Bay, Wisconsin, from a
partnership composed of certain current and former stockholders. The lease
expires in April 2008, is classified as an operating lease and requires
monthly rental payments of $9,255 which increase every six months through
the duration of the lease term. Rental expense for the lease totaled
$111,060 annually for fiscal 2003, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Company had an agreement with a third party to construct and lease under
an initial five-year lease agreement a 62,000-square-foot facility in
Manning, South Carolina, which the Company occupied in October 1996. The
agreement was an operating lease with rental payments of $11,856 per month.
The Company had three contiguous options to renew the lease for successive
five-year terms beginning at the end of the fifth year. The Company also
had the option of purchasing the building for $1,100,000. If the purchase
and renewal options were not exercised, the Company may have been required
to pay the lessor a residual amount of up to $900,000, depending upon the
extent, if any, that the facilitys
value diminished during the lease term. On December 5, 2002, the Company
exercised its option to purchase the building for $1,100,000. The exercise
of this option was funded by additional borrowings under the Companys
existing revolving credit agreement. The building was sold as part of the
sale of the Paint Sundries segment.

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| |  | The Company also leases other facilities and equipment under operating
leases. Office and warehouse leases expire in March 2004 and March 2008.
From March 2002 to September 2002, the Company subleased part of its Dallas,
Texas, facility and received $129,239 in fiscal 2002, which was offset
against rental expense. The equipment leases expire on varying dates over
the next five years.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Future minimum rental commitments under operating leases with initial or
remaining terms in excess of one year at September 30, 2003 are as follows:                                                                                                                                                                                                                                              

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 1,278,725 | 
|2005       |  |   | 1,252,877 | 
|2006       |  |   | 1,205,691 | 
|2007       |  |   | 1,142,931 | 
|2008       |  |   | 1,025,010 | 
|Thereafter |  |   | 1,494,216 | 
|           |  |   |           | 
|Total      |  | $ | 7,399,450 | 
|           |  |   |           | 



|    |  | Rental expense for all operating leases related to continuing operations
totaled $1,143,594, $1,380,792 and $1,674,755 for fiscal 2003, 2002 and
2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Commercial Letters of Creditthe Company has no amounts outstanding under
commercial import letters of credit as of September 30, 2003 and 2002.
Letters of credit collateralize the Companys obligations to third parties
for the purchase of inventory. The Company has unused letters of credit of
$750,000 available at September 30, 2003 and 2002.                                                                                                                                                                                                                  
|   
|    |  | Litigationthe Company is subject to lawsuits, investigations, and potential
claims arising out of the ordinary conduct of its business. Management
believes the outcome of these matters will not materially affect the
financial position, results of operations, or cash flows of the Company.                                                                                                                                                                                                                                                                          
|   
|9.  |  | PROFIT SHARING PLANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The Company has a defined contribution profit sharing 401(k) plan covering
substantially all employees. The Company makes annual contributions at the
discretion of the board of directors. In addition, the Company matches
certain amounts of employees contributions. Profit sharing plan expense
relating to the defined contribution profit sharing 401(k) plan related to
continuing operations totaled $209,132, $122,158 and $156,932 for fiscal
2003, 2002 and 2001, respectively.                                                                              
|   
|10. |  | STOCKHOLDERS EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Non-voting Common Stock and Preferred Stockat September 30, 2003 and 2002,
the Company has authorized and unissued 2,000,000 shares of $.01 par value
non-voting common stock and 1,000,000 shares of $.01 par value preferred
stock.                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Stock Compensation Arrangements- The 2003 Non-Qualified Stock Option Plan
currently reserves 300,000 shares of common stock for grants to selected
employees through April 30, 2013 and provides that the price and exercise
period be determined by the board of directors which should be at least
equal to fair value at the date of grant. Options vest primarily over three
years and expire 5 to 10 years from date of grant. During fiscal 2003, 2002
and 2001, options to purchase 51,200, 90,500 and 0 shares, respectively, of
voting common stock were granted.
|   
|    |  | The Non-Employee Director Stock Option Plan for non-employee members of the
board of directors reserves 200,000 shares of common stock for grants
through March 2004 and provides that the exercise                                                                                                                                                                                                                                                                                                                                                                       

F-16



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##### Table of Contents





| |  | price be at least equal to
fair value at the date of grant. Options are exercisable immediately and
for a period of 10 years. During each of the fiscal years 2003, 2002 and
2001, options to purchase 15,000 shares of voting common stock were granted.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following information summarizes the shares subject to options:                                                                                                                                                                                      

|                                                  |  |                  |         |                 |  |      |         |      |  |      |         |      |  |                           |      |  |  |   |      |  |  |   |      | 
|------------------------------------------------- |  | ---------------- | ------- | --------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ------------------------- | ---- |  |  | - | ---- |  |  | - | ---- | 
|                                                  |  |                  |         |                 |  |      |         |      |  |      |         |      |  | Weighted Average Exercise
|                                                  |  | Number of Shares |         | Price per share
|                                                  |  |                  |         |                
|                                                  |  | 2003             |         | 2002            |  | 2001 |         | 2003 |  | 2002 |         | 2001
|Options outstanding -
beginning of year           |  |                  | 454,400 |                 |  |      | 443,400 |      |  |      | 476,805 |      |  | $                         | 7.87 |  |  | $ | 8.23 |  |  | $ | 8.20 | 
|Granted                                           |  |                  | 66,200  |                 |  |      | 105,500 |      |  |      | 15,000  |      |  |                           | 5.27 |  |  |   | 6.64 |  |  |   | 7.38 | 
|Exercised                                         |  |                  |        |                 |  |      |        |      |  |      | (31,322 | )    |  |                           |      |  |  |   |      |  |  |   | 6.78 | 
|Terminated                                        |  |                  | (66,900 | )               |  |      | (94,500 | )    |  |      | (17,083 | )    |  |                           | 7.82 |  |  |   | 8.14 |  |  |   | 8.60 | 
|                                                  |  |                  |         |                 |  |      |         |      |  |      |         |      |  |                           |      |  |  |   |      |  |  |   |      | 
|Options outstanding - end
of year                 |  |                  | 453,700 |                 |  |      | 454,400 |      |  |      | 443,400 |      |  |                           | 7.51 |  |  |   | 7.87 |  |  |   | 8.23 | 
|                                                  |  |                  |         |                 |  |      |         |      |  |      |         |      |  |                           |      |  |  |   |      |  |  |   |      | 
|Options exercisable - end
of year                 |  |                  | 395,367 |                 |  |      | 328,233 |      |  |      | 355,067 |      |  |                           | 7.77 |  |  |   | 7.97 |  |  |   | 7.94 | 
|                                                  |  |                  |         |                 |  |      |         |      |  |      |         |      |  |                           |      |  |  |   |      |  |  |   |      | 
|Reserved for future options
at September 30, 2003 |  |                  | 300,000 |                 |  |      |         |      |  |      |         |      |  |                           |      |  |  |   |      |  |  |   |      | 
|                                                  |  |                  |         |                 |  |      |         |      |  |      |         |      |  |                           |      |  |  |   |      |  |  |   |      | 



| |  | The following table summarizes additional information about stock options
outstanding and exercisable at September 30, 2003:
| |  | ----------------------------------------------------------------------------------------------------------------------------

|             |  |                  |         |                     |  |           |  |           |      |          |  |  |         |          |  |   |      |  |  | 
|------------ |  | ---------------- | ------- | ------------------- |  | --------- |  | --------- | ---- | -------- |  |  | ------- | -------- |  | - | ---- |  |  | 
|             |  | Number of Shares |         | Options Exercisable
|             |  |                  |         |                    
|             |  |                  |         |                     |  | Weighted  |  |           |      |          |  |  |         |          |  |   |      | 
|             |  |                  |         |                     |  | Average   |  | Weighted  |      |          |  |  |         | Weighted
|Range of     |  |                  |         |                     |  | Remaining |  | Average   |      |          |  |  |         | Average 
|Exercise     |  | Number of        |         | Contractual         |  | Exercise  |  | Number of |      | Exercise
|Prices       |  | Shares           |         | Life                |  | Price     |  | Shares    |      | Price   
|$4.50 - 7.00 |  |                  | 184,200 |                     |  | 1.1 Years |  |           | 6.65 |          |  |  | 163,200 |          |  | $ | 6.67 | 
|7.00 - 10.00 |  |                  | 269,500 |                     |  | 2.6 Years |  |           | 8.10 |          |  |  | 232,167 |          |  |   | 8.55 | 
|             |  |                  |         |                     |  |           |  |           |      |          |  |  |         |          |  |   |      |  |  | 
|4.50 - 10.00 |  |                  | 453,700 |                     |  | 2.0 Years |  |           | 7.51 |          |  |  | 395,367 |          |  |   | 7.77 | 
|             |  |                  |         |                     |  |           |  |           |      |          |  |  |         |          |  |   |      |  |  | 



| |  | In the pro forma calculations as included in Note 1, the weighted average
fair value of options granted during 2003, 2002 and 2001 was estimated at
$3.30, $3.32 and $4.18 per share, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions used
for grants in 2003, 2002 and 2001:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                              |  |      |          |      |  |      |          |   |  |  |      |  
|--------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  |  | ---- | -
|                                              |  | 2003 |          | 2002 |  | 2001
|Risk-free interest rate                       |  |      | 3.5%-5.0 | %    |  |      | 4.3%-5.2 | % |  |  | 4.8  | %
|Expected volatility                           |  |      | 70.0     | %    |  |      | 50.0     | % |  |  | 50.0 | %
|Dividend yield                                |  |      | 0.0      | %    |  |      | 0.0      | % |  |  | 0.0  | %
|Expected option life, standard option (years) |  |      | 7.0      |      |  |      | 7.0      |   |  |  | 7.0  |  



| |  | In fiscal 2003 and 2002, the Company received notes from various employees
to facilitate the exercise of employee stock options. The notes receivable
with recourse included interest at 5% to 8.5% payable
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | annually. The notes
were repaid in 2003. The outstanding balance of $157,246 at September 30,
2002, is presented as a reduction of stockholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|11. |  | RELATED-PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The Company has an agreement with Bradford Ventures, Ltd., an affiliate of
the two largest stockholders of the Company, under which Bradford Ventures,
Ltd. provides various financial and management consulting services until
January 2004, when the agreement will be automatically renewed unless
terminated by either party. The agreement calls for an annual fee of
$210,000 with annual increases of 5% plus reimbursement of reasonable
out-of-pocket expenses. The Company believes the terms of its consulting
agreement are comparable to those available from unaffiliated third parties
for similar services. Consulting expense was $304,114, $289,633 and
$275,841 for fiscal 2003, 2002 and 2001, respectively.
|   
|12. |  | SUPPLEMENTAL CASH FLOW INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The following is provided as supplemental information to the consolidated
statements of cash flows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                  |  |      |         |      |  |      |         |  |  |   |           | 
|--------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | --------- | 
|                                  |  | 2003 |         | 2002 |  | 2001
|Interest paid                     |  | $    | 234,103 |      |  | $    | 461,226 |  |  | $ | 1,005,357 | 
|Income
taxes paid, net of refunds |  | $    | 250,695 |      |  | $    | 363,350 |  |  | $ | 256,161   | 



|13. |  | MAJOR CUSTOMER AND SEGMENT INFORMATION                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------
|   
|    |  | One significant customer, which is a Fortune 500 company, accounted for the
following percentage of total sales:

|                                                         |  |      |    |      |  |      |    |   |  |  |    |  
|-------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                                         |  | 2003 |    | 2002 |  | 2001
|Customer - related to the
Contract Manufacturing segment |  |      | 33 | %    |  |      | 39 | % |  |  | 30 | %



| |  | The Company operates in a single industry since it manufactures and
distributes custom paper-based and woven products, and provides contract
manufacturing, specialty printing and related services on these types of
products. The Company does, however, separate its operations and prepare
information for management use by the market segment aligned with the
Companys products and services. Such market segment information is
summarized below. The Contract Manufacturing segment provides services to
large national consumer products companies while the Business Imaging
segment manufactures and distributes printed and unprinted business imaging
paper products for a variety of business needs. Prior to fiscal 2002,
goodwill historically had not been assigned to specific segments and,
therefore, is included in the Corporate and other column for fiscal 2001.
However, the Company allocated goodwill to each of its market segments as of
the beginning of fiscal 2002 in connection with
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | the adoption of SFAS No. 142. During fiscal 2003, the Company sold the
Paint Sundries segment. The assets associated with the discontinued
operations are included in the corporate and other segment for fiscal 2002
and 2001.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      |                                                    |               |            |            |          |           |            |              |  |   |            |            |  |   |            |            | 
|------------------------------------- | -------------------------------------------------- | ------------- | ---------- | ---------- | -------- | --------- | ---------- | ------------ |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                      |                                                    |               | Contract   |            | Business |           | Corporate  |              |  |   |           
|Fiscal 2003                           |                                                    | Manufacturing |            | Imaging    |          | and Other |            | Consolidated
|Net sales                             |                                                    | $             | 30,005,732 |            |          | $         | 25,344,795 |              |  | $ | (143,869   | )          |  | $ | 55,206,658 |           
|Gross profit                          |                                                    |               | 4,977,156  |            |          |           | 2,981,962  |              |  |   | (217,568   | )          |  |   | 7,741,550  |           
|Operating income (loss)               |                                                    |               | 2,277,014  |            |          |           | 911,188    |              |  |   | (773,579   | ) (1)      |  |   | 2,414,622  |           
|Depreciation and amortization
expense |                                                    |               | 1,077,267  |            |          |           | 554,733    |              |  |   | 1,180,471  |            |  |   | 2,812,471  |           
|Capital expenditures                  |                                                    |               | 2,269,674  |            |          |           | 102,872    |              |  |   |            |            |  |   | 2,372,546  |           
|Assets:                               |                                                    |               |            |            |          |           |            |              |  |   |            |            |  |   |            |           
|                                      | Inventories                                        |               | $          | 1,975,398  |          |           | $          | 1,915,685    |  |   |            |            |  |   | $          | 3,891,083  | 
|                                      | Property, plant and
equipment - net                |               |            | 10,031,794 |          |           |            | 3,134,751    |  |   | $          | 1,152,362  |  |   |            | 14,318,907 | 
|                                      | Accounts receivable and other
(including goodwill) |               |            | 4,281,759  |          |           |            | 2,929,816    |  |   |            | 12,604,194 |  |   |            | 19,815,769 | 
|                                      |                                                    |               |            |            |          |           |            |              |  |   |            |            |  |   |            |           
|Total assets                          |                                                    | $             | 16,288,951 |            |          | $         | 7,980,252  |              |  | $ | 13,756,556 |            |  | $ | 38,025,759 |           
|                                      |                                                    |               |            |            |          |           |            |              |  |   |            |            |  |   |            |           

|                                      |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |            | 
|------------------------------------- | -------------------------------------------------- | ------------- | ---------- | --------- | -------- | --------- | ---------- | ------------ |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                      |                                                    |               | Contract   |           | Business |           | Corporate  |              |  |   |           
|Fiscal 2002                           |                                                    | Manufacturing |            | Imaging   |          | and Other |            | Consolidated
|Net sales                             |                                                    | $             | 27,848,224 |           |          | $         | 23,161,145 |              |  | $ | (575,340   | )          |  | $ | 50,434,029 |           
|Gross profit                          |                                                    |               | 4,695,116  |           |          |           | 1,872,380  |              |  |   | (114,254   | )          |  |   | 6,453,242  |           
|Operating income (loss)               |                                                    |               | 2,271,070  |           |          |           | (1,929,724 | ) (2)        |  |   | 734,819    | (1)        |  |   | 1,076,165  |           
|Depreciation and
amortization expense |                                                    |               | 1,093,244  |           |          |           | 804,144    |              |  |   | 1,030,600  |            |  |   | 2,927,988  |           
|Capital expenditures                  |                                                    |               | 839,848    |           |          |           | 35,203     |              |  |   | 224,312    |            |  |   | 1,099,363  |           
|Assets:                               |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |           
|                                      | Inventories                                        |               | $          | 1,490,516 |          |           | $          | 2,175,432    |  |   | $          | 3,021,152  |  |   | $          | 6,687,100  | 
|                                      | Property, plant and
equipment - net                |               |            | 8,950,575 |          |           |            | 3,775,801    |  |   |            | 3,578,472  |  |   |            | 16,304,848 | 
|                                      | Accounts receivable and
other (including goodwill) |               |            | 4,281,759 |          |           |            | 2,929,816    |  |   |            | 16,963,620 |  |   |            | 24,175,195 | 
|                                      |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |           
|Total assets                          |                                                    | $             | 14,722,850 |           |          | $         | 8,881,049  |              |  | $ | 23,563,244 |            |  | $ | 47,167,143 |           
|                                      |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |           

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|                                      |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |            | 
|------------------------------------- | -------------------------------------------------- | ------------- | ---------- | --------- | -------- | --------- | ---------- | ------------ |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                      |                                                    |               | Contract   |           | Business |           | Corporate  |              |  |   |           
|Fiscal 2001                           |                                                    | Manufacturing |            | Imaging   |          | and Other |            | Consolidated
|Net sales                             |                                                    | $             | 34,313,778 |           |          | $         | 26,112,163 |              |  | $ | (408,831   | )          |  | $ | 60,017,109 |           
|Gross profit                          |                                                    |               | 7,182,856  |           |          |           | 1,387,875  |              |  |   | (68,693    | )          |  |   | 8,502,039  |           
|Operating income (loss)               |                                                    |               | 5,019,196  |           |          |           | (1,517,270 | )            |  |   | 944,852    |            |  |   | 4,446,778  |           
|Depreciation and amortization
expense |                                                    |               | 1,092,164  |           |          |           | 1,016,367  |              |  |   | 1,192,922  |            |  |   | 3,301,453  |           
|Capital expenditures                  |                                                    |               | 316,850    |           |          |           | 84,411     |              |  |   | 635,497    |            |  |   | 1,036,758  |           
|Assets:                               |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |           
|                                      | Inventories                                        |               | $          | 969,410   |          |           | $          | 3,374,511    |  |   | $          | 4,821,505  |  |   | $          | 9,165,426  | 
|                                      | Property, plant and
equipment - net                |               |            | 9,222,346 |          |           |            | 5,655,760    |  |   |            | 4,325,793  |  |   |            | 19,203,899 | 
|                                      | Accounts receivable
and other (including goodwill) |               |            |           |          |           |            |              |  |   |            | 30,575,141 |  |   |            | 30,575,141 | 
|                                      |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |           
|Total assets                          |                                                    | $             | 10,191,756 |           |          | $         | 9,030,271  |              |  | $ | 39,722,439 |            |  | $ | 58,944,466 |           
|                                      |                                                    |               |            |           |          |           |            |              |  |   |            |            |  |   |            |           

|    |  |                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Amounts include employee severance costs of $333,114 and
$209,324 for fiscal years 2003 and 2002, respectively.                 
|   
|(2) |  | Amount includes facility closing costs of $434,882, facility
restructuring costs of $232,958, and asset write-downs of $547,562.



|    |  | Pursuant to authorization by the Board of Directors, the Company formalized
a plan in March 2003 to relocate the accounting and information technology
departments from the Dallas, Texas location to the Green Bay, Wisconsin
Corporate office. As a result, the Company provided one-time termination
benefits payable August 31, 2003 for employees in the Dallas office. The
liability for the termination benefits was recognized ratably over the
future service period as required by SFAS No. 146. Severance costs also
included costs related to the elimination of several salary positions. The
2002 expense relates primarily to severance pursuant to an employment
agreement with a former executive. Severance costs incurred and paid for
the fiscal year 2003 were $333,114.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In fiscal 2002, the Company announced plans to close its Dallas, Texas
operations and, at September 30, 2002, accrued the estimated property
write-downs, building and equipment abandonment, and other related costs.
In fiscal 2003, the closure was completed, the estimated liabilities were
paid substantially as accrued, and there is no remaining liability as of
September 30, 2003.                                                                                                                                                                                                                                                                                                                                                                                                
|   
|14. |  | DISCONTINUED OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | On January 27, 2003, the Companys Board of Directors approved a plan to
dispose of the operations of the Paint Sundries segment. The Company sold
the assets and business of the Paint Sundries segment for approximately
$12.2 million in cash to Trimaco, LLC and its affiliate. The sale included
all Paint Sundries segment assets, including the stock of Foremost
Manufacturing Company and the Manning, South Carolina manufacturing
facility. Accordingly, the operating results of the Paint Sundries segment
have been reported separately from continuing operations and reported as a
separate                                                                                                                                                                                  

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| |  | line item in the statement of operations. The Company has also
restated its prior years statements of operations to present the earnings
of the Paint Sundries segment as a discontinued operation. Interest
expense was not allocated to the discontinued segment. The Company
recorded a $0.4 million loss ($0.2 million after tax) on the sale of the
Paint Sundries segment which includes a $0.1 million gain on the sale of
assets offset by $0.5 million of fees and expenses associated with the
sale. The Company provided certain accounting and information technology
services to Trimaco, LLC from the date of the sale to October 15, 2003 for
an agreed upon fee.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating results from discontinued operations were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                  |  |      |           |      |  |      |            |   |  |   |            |  
|--------------------------------- |  | ---- | --------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                  |  | 2003 |           | 2002 |  | 2001
|Net sales                         |  | $    | 9,698,802 |      |  | $    | 25,222,910 |   |  | $ | 22,109,635 |  
|Loss before income taxes          |  |      | (379,240  | )    |  |      | (1,497,008 | ) |  |   | (1,291,681 | )
|Income tax benefit                |  |      | 154,596   |      |  |      | 385,622    |   |  |   | 466,826    |  
|                                  |  |      |           |      |  |      |            |   |  |   |            |  
|Loss from discontinued operations |  | $    | (224,644  | )    |  | $    | (1,111,386 | ) |  | $ | (824,855   | )
|                                  |  |      |           |      |  |      |            |   |  |   |            |  



| |  | The components of disposed assets and liabilities were as follows:
| |  | ------------------------------------------------------------------

|                                        |                           |   |            |            |  
|--------------------------------------- | ------------------------- | - | ---------- | ---------- | -
|                                        | Accounts receivable - net |   | $          | 4,872,707  |  
|                                        | Inventory - net           |   |            | 3,122,830  |  
|                                        | Equipment - net           |   |            | 328,090    |  
|                                        | Building - net            |   |            | 2,448,916  |  
|                                        | Goodwill                  |   |            | 3,133,638  |  
|                                        | Other assets              |   |            | 292,500    |  
|                                        | Accounts payable          |   |            | (1,848,388 | )
|                                        | Other accruals            |   |            | (281,959   | )
|                                        |                           |   |            |           
|Total net book value of disposed assets |                           | $ | 12,068,334 |           
|                                        |                           |   |            |           

******

F-21