UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2008
 or
 o
    
    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.
  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)
    
    (Zip Code)
 920-336-0054
 
 Title of Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, Par Value $0.01 per share
    
    NASDAQ Global Market
  o þ
 o þ
 þ o
 þ
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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PART I
 ITEM 1  BUSINESS
 General
    Products and Services
  1




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Contract Manufacturing
     Business Imaging
    2




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Business Imaging (Continued)
   Manufacturing and Operations
     ,
 3




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Sales and Marketing
     Competition
   4




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Competition (Continued)
   Product Development and Quality Control
  rd
 Raw Materials and Suppliers
   5




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Environmental Matters
    Employees
  Working Capital
  Class of Products
  6




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ITEM 1A  RISK FACTORS
  ITEM 1B  UNRESOLVED STAFF COMMENTS
  ITEM 2  PROPERTIES
     ITEM 3  LEGAL PROCEEDINGS
  ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  7




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PART II
 ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
  High
    
    Low
    
    CloseFiscal 2007:Quarter ended December 31, 2006
    
    $
    7.30
    
    
    $
    6.00
    
    
    $
    7.07Quarter ended March 31, 2007
    
    $
    8.48
    
    
    $
    6.62
    
    
    $
    8.17Quarter ended June 30, 2007
    
    $
    8.53
    
    
    $
    7.80
    
    
    $
    8.20Quarter ended September 30, 2007
    
    $
    9.51
    
    
    $
    6.03
    
    
    $
    7.50Fiscal 2008:Quarter ended December 31, 2007
    
    $
    8.59
    
    
    $
    5.52
    
    
    $
    6.50Quarter ended March 31, 2008
    
    $
    8.10
    
    
    $
    5.02
    
    
    $
    6.25Quarter ended June 30, 2008
    
    $
    7.49
    
    
    $
    5.62
    
    
    $
    6.35Quarter ended September 30, 2008
    
    $
    6.89
    
    
    $
    4.82
    
    
    $
    5.89
   Issuer Purchases of Equity Securities
  ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA
  8




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ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements
  General
   Results of Operations
  9




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Results of Operations (continued)
  Year-to-YearPercentage of Net Sales
    
    
    Percentage Change2008
    
    
    2007
    
    
    2008 to 2007Net sales
    
    
    
    100.0
    %
    
    
    
    100.0
    %
    
    
    
    (7
    %)Cost of sales
    
    
    
    95.2
    
    
    
    
    94.9
    
    
    
    
    (7
    )Gross profit
    
    
    
    4.8
    
    
    
    
    5.1
    
    
    
    
    (12
    )Selling, general and administrative
expenses
    
    
    
    3.8
    
    
    
    
    3.4
    
    
    
    
    4Operating income
    
    
    
    1.0
    
    
    
    
    1.7
    
    
    
    
    (45
    )Interest expense
    
    
    
    -0.2
    
    
    
    
    -0.4
    
    
    
    
    (49
    )Interest income and other income
(expense)
    
    
    
    0.0
    
    
    
    
    0.0
    
    
    
    NMIncome before income taxes
    
    
    
    0.8
    
    
    
    
    1.3
    
    
    
    
    (43
    )Income tax expense
    
    
    
    0.3
    
    
    
    
    0.5
    
    
    
    
    (48
    )Net income
    
    
    
    0.5
    %
    
    
    
    0.8
    %
    
    
    
    (40
    %)
  2008
    
    
    2007% of
    
    
    
    
    
    
    % ofNet Sales
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in millions)Contract manufacturing and printing
    
    $
    86.8
    
    
    
    78
    %
    
    $
    95.6
    
    
    
    80
    %Business imaging paper products
    
    
    24.5
    
    
    
    22
    
    
    
    24.1
    
    
    
    20Net sales
    
    $
    111.3
    
    
    
    100
    %
    
    $
    119.7
    
    
    
    100
    %
 Margin
    
    
    
    
    
    
    MarginGross Profit
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Contract manufacturing and printing
    
    $
    4.1
    
    
    
    5
    %
    
    $
    4.3
    
    
    
    5
    %Business imaging paper products
    
    
    1.2
    
    
    
    5
    %
    
    
    1.8
    
    
    
    7
    %Gross profit
    
    $
    5.3
    
    
    
    5
    %
    
    $
    6.1
    
    
    
    5
    %
 10




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Fiscal Year Ended September 30, 2008 Compared to September 30, 2007
 Net Sales
  Gross profit
 Selling, general and administrative expenses
 Interest expense
 Income taxes
 Basic and diluted net earnings per share
 Selected Quarterly Financial Data
  11




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Liquidity and Capital Resources
       12




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Liquidity and Capital Resources (Continued)
     Inflation
  Credit Environment
  Off Balance Sheet Arrangements
  13




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Critical Accounting Policies
         14




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Critical Accounting Policies (Continued)
   Recently Issued Accounting Standards
      15




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Recently Issued Accounting Standards (Continued)
   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
  16




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ITEM 9A (T)  CONTROLS AND PROCEDURES
        ITEM 9B  OTHER INFORMATION
  17




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PART III
 ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 THE DIRECTORS OF THE COMPANY
  Name
    
    Age
    
    Position HeldRobert J. Simon
    
    
    50
    
    
    Chairman of the Board of DirectorsSamuel J. Bero
    
    
    73
    
    
    DirectorC. Hamilton Davison, Jr.
    
    
    49
    
    
    DirectorBrian Kelly
    
    
    65
    
    
    DirectorLouis LeCalsey, III
    
    
    69
    
    
    Director, President and Chief Executive OfficerRichard M. Segel
    
    
    68
    
    
    DirectorWilliam R. Ziemendorf
    
    
    49
    
    
    Director
 Mr. Simon
 Mr. Bero
 Mr. Davison
 Mr. Kelly
 18




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THE DIRECTORS OF THE COMPANY (Continued)
 Mr. LeCalsey
 Mr. Segel
 Mr. Ziemendorf
  19




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THE EXECUTIVE OFFICERS OF THE COMPANY
 Name
    
    Age
    
    Positions With the CompanyLouis LeCalsey, III
    
    
    69
    
    
    Director, President and Chief Executive OfficerMichael B. Wheeler
    
    
    63
    
    
    Executive Vice President, Chief Financial Officer and
Chief Operating OfficerMichele M. Cherney
    
    
    40
    
    
    Sr. Vice President, Sales and MarketingGeorge Hare
    
    
    51
    
    
    General Manager, Business Imaging Sector
  Executive Officers
 Louis LeCalsey, III
 Michael B. Wheeler,
 Michele M. Cherney
 George Hare
 20




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CERTAIN CORPORATE GOVERNANCE MATTERS
  Audit Committee Composition
   Code of Ethics
  Compliance with Section 16(a) of the Securities Exchange Act
   ITEM 11  EXECUTIVE COMPENSATION
  Compliance with Section 162(m)
  21




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SUMMARY COMPENSATION TABLE
  Option
    
    
    All OtherName and Principal Position
    
    
    Year
    
    
    Salary
    
    
    Awards
    
    
    Compensation(1)
    
    
    TotalLouis LeCalsey, III
    
    
    
    2008
    
    
    
    $
    286,500
    
    
    
    $
    28,813
    
    
    
    $
    21,634
    
    
    
    $
    336,947Director, President
    
    
    
    2007
    
    
    
    $
    276,000
    
    
    
    $
    14,481
    
    
    
    $
    15,157
    
    
    
    $
    305,638and CEOMichael B. Wheeler
    
    
    
    2008
    
    
    
    $
    202,500
    
    
    
    $
    4,574
    
    
    
    $
    13,994
    
    
    
    $
    221,068Executive Vice President,
    
    
    
    2007
    
    
    
    $
    195,000
    
    
    
    $
    10,861
    
    
    
    $
    13,708
    
    
    
    $
    219,569CFO, COO, Secretary
and TreasurerMichele M. Cherney
    
    
    
    2008
    
    
    
    $
    170,500
    
    
    
    $
    2,287
    
    
    
    $
    18,586
    
    
    
    $
    191,373Sr. Vice President,
    
    
    
    2007
    
    
    
    $
    164,500
    
    
    
    $
    3,620
    
    
    
    $
    18,963
    
    
    
    $
    187,083Sales and
MarketingGeorge Hare (2)
    
    
    
    2008
    
    
    
    $
    39,600
    
    
    
    $
    448
    
    
    
    $
    1,979
    
    
    
    $
    42,027General Manager,
    
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Business Imaging Sector
 
 (1)
    
    The compensation reported represents contributions to the 401(k) Plan, car allowances and
country club dues.(2)
    
    Mr. Hare assumed the position of General Manager, Business Imaging Sector on June 30, 2008. Employment Agreements
   22




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##### 



Employment Agreements (Continued)
   Outstanding Equity Awards at Fiscal Year-End
  Number of SecuritiesNumber of Securities
    
    Underlying UnexercisedUnderlying Unexercised
    
    Options (#)
    
    Option Exercise
    
    Option ExpirationName
    
    Options (#) Exercisable
    
    Unexercisable
    
    Price($)
    
    DateLouis LeCalsey, III
    
    
    30,000
    
    
    
    
    
    
    $
    7.00
    
    
    
    10/01/1116,500
    
    
    
    
    
    
    $
    4.92
    
    
    
    10/01/1215,000
    
    
    
    
    
    
    $
    5.71
    
    
    
    11/26/1312,000
    
    
    
    
    
    
    $
    7.87
    
    
    
    11/19/146,000
    
    
    
    6,000
    
    
    $
    7.60
    
    
    
    10/01/179,000
    
    
    
    9,000
    
    
    $
    5.56
    
    
    
    9/03/18Michael B. Wheeler
    
    
    15,000
    
    
    
    
    
    
    $
    5.70
    
    
    
    3/27/1212,500
    
    
    
    
    
    
    $
    4.92
    
    
    
    10/01/1211,000
    
    
    
    
    
    
    $
    5.71
    
    
    
    11/26/139,000
    
    
    
    
    
    
    $
    7.87
    
    
    
    11/19/146,000
    
    
    
    6,000
    
    
    $
    7.60
    
    
    
    10/01/176,000
    
    
    
    6,000
    
    
    $
    5.56
    
    
    
    9/03/18Michele M. Cherney
    
    
    4,000
    
    
    
    
    
    
    $
    7.00
    
    
    
    10/01/114,500
    
    
    
    
    
    
    $
    4.92
    
    
    
    10/01/124,000
    
    
    
    
    
    
    $
    5.71
    
    
    
    11/26/133,000
    
    
    
    
    
    
    $
    7.87
    
    
    
    11/19/143,000
    
    
    
    3,000
    
    
    $
    7.60
    
    
    
    10/01/173,000
    
    
    
    3,000
    
    
    $
    5.56
    
    
    
    9/03/18George Hare
    
    
    2,000
    
    
    
    2,000
    
    
    $
    6.35
    
    
    
    6/30/18500
    
    
    
    500
    
    
    $
    5.56
    
    
    
    9/03/18
  23




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POTENTIAL PAYMENT OF TERMINATION OR CHANGE IN CONTROL
  Compensation of Individual ifCompensation Following
    
    Terminated Within 180 DaysName
    
    Termination Without Cause(1)
    
    Following Change in Control(1)Louis LeCalsey, III
    
    $
    286,500
    
    
    $
    573,000Michael B. Wheeler
    
    $
    202,500
    
    
    
    Michele M. Cherney
    
    $
    170,500
    
    
    
    George Hare (2)
    
    $
    156,000
    
    
    
    
 
 (1)
    
    Some officers would receive a bonus based upon a target for operating income determined by the
Compensation Committee.(2)
    
    Mr. Hare was hired as General Manager for the Business Imaging sector on June 30, 2008. 24




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Director Compensation
  
    
    an annual fee of $12,000,
    
    a payment of $1,500 for each board meeting attended,
    
    a payment of $1,500 for each committee meeting attended, and
    
    per diem fees for supplemental Audit Committee services.
  DIRECTOR COMPENSATION
 Fees Earned or
    
    OptionName
    
    Paid in Cash
    
    Awards
    
    TotalRobert J. Simon
    
    $
    20,000
    
    
    $
    4,893
    
    
    $
    24,893Samuel J. Bero
    
    $
    20,000
    
    
    $
    4,893
    
    
    $
    24,893C. Hamilton Davison, Jr.
    
    $
    23,000
    
    
    $
    4,893
    
    
    $
    27,893Brian Kelly
    
    $
    24,000
    
    
    $
    4,893
    
    
    $
    28,893Seymour S. Preston, III (1)
    
    $
    14,000
    
    
    $
    
    
    
    $
    14,000Richard M. Segel
    
    $
    10,500
    
    
    $
    7,809
    
    
    $
    18,309William R. Ziemendorf
    
    $
    7,500
    
    
    $
    4,893
    
    
    $
    12,393
 
 (1)
    
    Mr. Preston served on the Board of Directors until May 15, 2008. 25




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ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 Security Ownership of Certain Beneficial Owners
   AMOUNT AND NATURE OFBENEFICIAL OWNERSHIP
    
    PERCENT OF CLASSOver 5% StockholdersRobert J. Simon(1)(3)(4)(14)
    
    
    2,660,543
    
    
    
    60.4
    %Barbara M. Henagan(1)(3)
    
    
    2,621,661
    
    
    
    59.9
    %Bradford Venture Partners, L.P. (1)(6)
    
    
    2,619,740
    
    
    
    59.8
    %Overseas Equity Investors Partners(3)(2)
    
    
    2,619,740
    
    
    
    59.8
    %Other Directors And Executive OfficersSamuel J. Bero(7)
    
    
    206,500
    
    
    
    4.7
    %Louis LeCalsey III(8)
    
    
    204,692
    
    
    
    4.6
    %C. Hamilton Davison, Jr. (5)
    
    
    32,842
    
    
    
    *Richard M. Segel (9)
    
    
    5,000
    
    
    
    *Brian Kelly(15)
    
    
    8,000
    
    
    
    *William R. Ziemendorf (16)
    
    
    3,000
    
    
    
    *Michael B. Wheeler(10)
    
    
    50,500
    
    
    
    1.1
    %George Hare (11)
    
    
    0
    
    
    
    *Michele M. Cherney (12)
    
    
    35,000
    
    
    
    *Directors and Executive Officers as a Group (10 persons)(1)(3)(13)
    
    
    3,206,077
    
    
    
    69.4
    %
 
 *
    
    Less than one percent(1)
    
    The amounts shown for Mr. Simon and Ms. Henagan include the shares owned of record by
Bradford Venture Partners, L.P., as to which they may be deemed to share beneficial ownership
due to their having voting and dispositive power over such shares. Bradford Associates, a
general partnership of which such two persons are the partners, is the sole general partner of
Bradford Venture Partners, L.P. and, as such, holds a 1% interest in that partnership. The
business address of each of Mr. Simon and Ms. Henagan is 92 Nassau Street, Princeton, New
Jersey, 08542.(2)
    
    The address of the stockholder is 92 Nassau Street, Princeton, New Jersey 08542. The amount
shown for the stockholder includes 709,870 shares owned of record by Overseas Equity Investors
Partners (Overseas Equity), as to which the stockholder may be deemed to share beneficial
ownership due to the formation of a group comprised of the stockholder and Overseas Equity
for purposes of SEC rules.(3)
    
    The amounts shown for Mr. Simon and Ms. Henagan includes the shares owned of record by
Overseas Equity as to which they may be deemed to share beneficial ownership due to their
having voting power over such shares. Mr. Simon serves as chairman of the board of directors
of the corporation that acts as the managing partner of Overseas Equity. Bradford Associates
holds a 1% partnership interest in Overseas Equity, which may increase upon the satisfaction
of certain contingencies related to the overall performance of Overseas Equitys investment
portfolio, and also acts as an investment advisor for Overseas Equity. 26




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Security Ownership of Certain Beneficial Owners (Continued)
 (4)
    
    The stockholder is also one of our directors.(5)
    
    The amount shown includes 29,000 shares that may be acquired under options exercisable within
60 days of December 18, 2008.(6)
    
    The address of the stockholder is Clarendon House, Church Street, Hamilton 5-31, Bermuda.
The amount shown for the stockholder includes 1,909,870 shares owned of record by Bradford
Venture Partners, L.P., as to which the stockholder may be deemed to share beneficial
ownership due to the information of a group comprised of the stockholder and Bradford
Venture Partners, L.P. for purposes of SEC rules.(7)
    
    The amount shown includes 29,000 shares that may be acquired under options exercisable within
60 days of December 18, 2008.(8)
    
    The amount shown includes 75,500 shares that may be acquired under options exercisable within
60 days of December 18, 2008.(9)
    
    The amount shown includes 5,000 shares that may be acquired under options exercisable within
60 days of December 18, 2008.(10)
    
    The amount shown includes 49,500 shares that may be acquired under options exercisable within
60 days of December 18, 2008.(11)
    
    The amount shown includes zero shares that may be acquired under options exercisable within
60 days of December 18, 2008.(12)
    
    The amount shown includes 16,500 shares that may be acquired under options exercisable within
60 days of December 18, 2008.(13)
    
    The amount shown includes an aggregate of 244,500 shares that may be acquired under options
exercisable within 60 days of December 18, 2008.(14)
    
    The amount shown includes 29,000 shares that may be acquired under options exercisable
within 60 days of December 18, 2008.(15)
    
    The amount shown includes 8,000 shares that may be acquired under options exercisable
within 60 days of December 18, 2008.(16)
    
    The amount shown includes 3,000 shares that may be acquired under options exercisable within
60 days of December 18, 2008.
 Equity Compensation Plan Information
  (C)(A)
    
    
    
    
    
    Number of SecuritiesNumber of
    
    (B)
    
    Remaining Available forSecurities to be Issued
    
    Weighted Average
    
    Future Issuance underUpon Exercise of
    
    Exercise Price of
    
    Equity Compensation PlansOutstanding Options,
    
    Outstanding Options,
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    Reflected in Column (A))Equity compensation
plans approved by
security holders
(1)
    
    
    323,150
    
    
    $
    6.62
    
    
    
    282,350Equity compensation
plans not approved
by security holders
(2)
 
 (1)
    
    Plans represent (i) the 1992 Non-Qualified Stock Option Plan, which expired in April 2002,
(ii) the 2003 Non-Qualified
Stock Option Plan, which expires April 2013 and the 1993 Non-Employee Director Stock Option
Plan, which expired March
2004, and (iii) the 2004 Non-Employee Director Stock Option Plan, which expires March 2014.(2)
    
    There are no equity compensation plans not approved by security holders. 27




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ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
      ITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICES
  28




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##### 



ITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICES (Continued)
 McGladrey
    
    Deloitte &
    
    McGladrey
    
    Deloitte && Pullen
    
    Touche
    
    & Pullen
    
    ToucheFY 2008
    
    FY 2008
    
    FY 2007
    
    FY 2007Audit Fees
    
    $
    175,000
    
    
    $
    5,598
    
    
    $
    154,344
    
    
    $
    38,182Audit-Related Fees
    
    
    8,542
    
    
    
    0
    
    
    
    8,590
    
    
    
    5,718Tax Fees
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0All Other Fees
    
    
    8,827
    
    
    
    0
    
    
    
    0
    
    
    
    0
   29




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##### 



PART IV
 ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    1.
    
    Financial Statements. Financial statements are attached as an Appendix to this Report. The
index to the consolidated financial statements is found on F-1 of the Appendix.2.
    
    Financial Statement Schedules. All schedules are omitted or are not required for a smaller reporting company because the information required is included in the consolidated
financial statements and notes thereto.3.
    
    Exhibits. See Exhibit Index in Item 15(b), below.
 (b)
    
    ExhibitNumber
    
    Description3.1
    
    
    Restated Certificate of Incorporation (filed as Exhibit
3.1 to the Companys Registration Statement as filed with
the Commission on December 16, 1992, incorporated by
reference herein).3.2
    
    
    Bylaws (filed as Exhibit 3.2 to the Companys
Registration Statement as filed with the Commission on
December 16, 1992, incorporated by reference herein).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 (filed as
Exhibit 10.1 to the Companys Registration Statement as
filed with the Commission on December 16, 1992,
incorporated by reference herein).10.2
    
    
    Amended and Restated Consulting Agreement with Bradford
Investment Partners, L.P. (filed as Exhibit 10 to the
Companys Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1995, incorporated by reference
herein).10.3
    
    
    1992 Non-Qualified Stock Option Plan (filed as Exhibit
10.12 to the Companys Registration Statement as filed
with the Commission on December 16, 1992, incorporated by
reference herein).10.4
    
    
    1993 Non-Employee Director Stock Option Plan (filed as
Exhibit 10.19 to the Companys Amendment No. 1 to the
Registration Statement as filed with the Commission on
November 23, 1993, incorporated by reference herein).10.5
    
    
    Lease between Bero and McClure Partnership and Tufco,
L.P, dated October 15, 2002 (filed as Exhibit 10.8 to the
Companys Annual Report on Form 10-K for the period ended
September 30, 2002, incorporated by reference herein).10.6
    
    
    Employment Agreement with Louis LeCalsey, III dated
September 19, 1996 (filed as Exhibit 10.18 to the
Companys Report on Form 10-K for the period ended
September 30, 1997, incorporated by reference herein).10.7
    
    
    2003 Non-Qualified Stock Option Plan (filed as Exhibit
10.19 to the Companys Annual Report on Form 10-K for the
period ended September 30, 2003, incorporated by
reference herein).10.8
    
    
    Credit Agreement dated as of May 20, 2004, among Tufco
Technologies, Inc., each of the banks or other lending
institutions which is or which may from time to time
become a signatory thereto or assigned thereof and
BankOne, N.A. (filed as Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 2004, incorporated by reference herein).10.9
    
    
    2004 Non-Employee Director Stock Option Plan
(incorporated by reference to the Companys definitive
proxy statement filed on January 29, 2004).10.10
    
    
    First Amendment to the Credit Agreement dated May 22,
2006 (filed as Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for the quarterly period ended June
30, 2006, incorporated by reference herein).10.11
    
    
    Amended lease between Bero and McClure Partnership and
Tufco LP dated November 22, 2006 (filed as Exhibit 10.1
to the Companys Current Report on Form 8-K filed on
November 22, 2006, incorporated by reference herein).10.12
    
    
    Second Amendment to the Credit Agreement dated February
9, 2007 (filed as Exhibit 10.1 to the Companys Current
Report on Form 8-K filed February 13, 2007, incorporated
by reference herein).
 30




---



##### 



ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES (Continued)
 ExhibitNumber
    
    Description10.13
    
    
    Third Amendment to the Credit Agreement dated August 14, 2007
(filed as Exhibit 10.1 to the Companys Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2007, incorporated by
reference herein).14.1
    
    
    Code of Ethics (filed as Exhibit 14.1 to the Companys Annual
Report on Form 10-K for the period ended September 30, 2003,
incorporated by reference herein).21.1
    
    
    Subsidiaries of the Company (filed as Exhibit 23.1 to the
Companys Annual Report on Form 10-K for the period ended
September 30, 2006, incorporated by reference herein).23.1
    
    
    *Consent of McGladrey & Pullen, LLP31.1
    
    
    *Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 of Louis LeCalsey, III31.2
    
    
    *Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 of Michael B. Wheeler32.1
    
    
    **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, III32.2
    
    
    **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 31




---



##### 



Tufco Technologies, Inc.By:
    /s/ Louis LeCalsey, IIILouis LeCalsey, IIIPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Louis LeCalsey, III

Louis LeCalsey, III
    
    President, Chief Executive Officer
and Director(Principal Executive Officer)
    
    December 29, 2008/s/ Robert J. Simon

Robert J. Simon
    
    Chairman of the Board
    
    December 29, 2008/s/ Michael B. Wheeler

Michael B. Wheeler
    
    Executive VP, Chief Financial Officer
and Chief Operating 
Officer (Principal Financial Officer 
and Principal Accounting Officer)
    
    December 29, 2008/s/ Samuel J. Bero

Samuel J. Bero
    
    Director
    
    December 29, 2008/s/ C. Hamilton Davison, Jr.

C. Hamilton Davison, Jr.
    
    Director
    
    December 29, 2008/s/ Brian Kelly

Brian Kelly
    
    Director
    
    December 29, 2008/s/ Richard M. Segel

Richard M. Segel
    
    Director
    
    December 29, 2008/s/ William R. Ziemendorf

William R. Ziemendorf
    
    Director
    
    December 29, 2008
 32




---



##### 



PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1CONSOLIDATED FINANCIAL STATEMENTS:Balance Sheets as of September 30, 2008 and 2007
    
    
    F-2Statements of Income for the
Years Ended September 30, 2008 and 2007
    
    
    F-3Statements of Stockholders Equity for the
Years Ended September 30, 2008 and 2007
    
    
    F-4Statements of Cash Flows for the
Years Ended September 30, 2008 and 2007
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6  F-18




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-1




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2008 AND 2007
 2008
    
    
    2007ASSETSCURRENT ASSETS:Cash
    
    $
    68,397
    
    
    $
    6,663Accounts receivablenet
    
    
    11,770,981
    
    
    
    15,301,870Inventoriesnet
    
    
    14,939,968
    
    
    
    16,354,816Prepaid expenses and other current assets
    
    
    420,237
    
    
    
    833,896Income taxes receivable
    
    
    118,991
    
    
    
    Deferred income taxes
    
    
    571,583
    
    
    
    534,990Total current assets
    
    
    27,890,157
    
    
    
    33,032,235PROPERTY, PLANT, AND EQUIPMENTNet
    
    
    18,036,764
    
    
    
    19,002,401GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETSNet
    
    
    122,297
    
    
    
    126,729TOTAL
    
    $
    53,260,793
    
    
    $
    59,372,940LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    8,320,011
    
    
    $
    11,706,586Accrued payroll, vacation, and payroll taxes
    
    
    562,598
    
    
    
    513,331Income taxes payable
    
    
    
    
    
    
    107,182Other current liabilities
    
    
    700,095
    
    
    
    716,620Total current liabilities
    
    
    9,582,704
    
    
    
    13,043,719LONG-TERM DEBT
    
    
    3,000,000
    
    
    
    6,191,666DEFERRED INCOME TAXES
    
    
    2,896,002
    
    
    
    2,537,154COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.01 par value9,000,000 shares authorized;
4,708,741 shares issued
    
    
    47,087
    
    
    
    47,087Non-voting common stock, $.01 par value2,000,000 shares
authorized and unissued
    
    
    
    
    
    
    Preferred stock, $.01 par value1,000,000 shares authorized
and unissued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    25,374,211
    
    
    
    25,304,421Retained earnings
    
    
    13,981,031
    
    
    
    13,390,699Treasury stock252,037 and 173,097 common shares at cost
    
    
    (1,620,242
    )
    
    
    (1,141,806
    )Total stockholders equity
    
    
    37,782,087
    
    
    
    37,600,401TOTAL
    
    $
    53,260,793
    
    
    $
    59,372,940
  F-2




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 2008
    
    
    2007NET SALES
    
    $
    111,316,250
    
    
    $
    119,708,226COST OF SALES
    
    
    105,963,596
    
    
    
    113,593,746GROSS PROFIT
    
    
    5,352,654
    
    
    
    6,114,480OPERATING EXPENSES:Selling, general, and administrative
    
    
    4,215,242
    
    
    
    4,057,699OPERATING INCOME
    
    
    1,137,412
    
    
    
    2,056,781OTHER (EXPENSE) INCOME:Interest expense
    
    
    (265,168
    )
    
    
    (519,227
    )Interest income and other income
    
    
    18,570
    
    
    
    21,287Total
    
    
    (246,598
    )
    
    
    (497,940
    )INCOME BEFORE INCOME TAXES
    
    
    890,814
    
    
    
    1,558,841INCOME TAX EXPENSE
    
    
    300,482
    
    
    
    576,065NET INCOME
    
    $
    590,332
    
    
    $
    982,776NET INCOME PER SHARE:Basic
    
    $
    0.13
    
    
    $
    0.22Diluted
    
    $
    0.13
    
    
    $
    0.22WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    4,500,268
    
    
    
    4,535,443Diluted
    
    
    4,510,992
    
    
    
    4,563,984
  F-3




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 Common Stock
    
    
    
    
    
    
    
    
    
    
Additional
    
    
    
    
    
    
    
    
    
    TotalVoting
    
    Non-voting
    
    
    Preferred
    
    
    
Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Amount
    
    Common Stock
    
    
    Stock
    
    
    
Capital
    
    
    Earnings
    
    
    Stock
    
    
    EquityBALANCESSeptember 30, 2006
    
    
    4,708,341
    
    
    
    47,083
    
    
    
    
    
    
    
    
    
    
    
    25,226,526
    
    
    
    12,407,923
    
    
    
    (1,141,806
    )
    
    
    36,539,726Exercise of employee stock option
    
    
    400
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    2,280
    
    
    
    
    
    
    
    
    
    
    
    2,284Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,615
    
    
    
    
    
    
    
    
    
    
    
    75,615Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    982,776
    
    
    
    
    
    
    
    982,776BALANCESSeptember 30, 2007
    
    
    4,708,741
    
    
    
    47,087
    
    
    
    
    
    
    
    
    
    
    
    25,304,421
    
    
    
    13,390,699
    
    
    
    (1,141,806
    )
    
    
    37,600,401Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,790
    
    
    
    
    
    
    
    
    
    
    
    69,790Purchase of treasury stock 
78,940
common shares at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (478,436
    )
    
    
    (478,436
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    590,332
    
    
    
    
    
    
    
    590,332BALANCESSeptember 30, 2008
    
    
    4,708,741
    
    
    $
    47,087
    
    
    
    
    
    
    
    
    
    
    $
    25,374,211
    
    
    $
    13,981,031
    
    
    $
    (1,620,242
    )
    
    $
    37,782,087
  F-4




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 2008
    
    
    2007OPERATING ACTIVITIES:Net income
    
    $
    590,332
    
    
    $
    982,776Noncash items in net income:Depreciation and amortization of property, plant, and equipment
    
    
    2,176,089
    
    
    
    2,156,880Amortization
    
    
    
    
    
    
    15,858Non-monetary reimbursement of cost
    
    
    (100,000
    )
    
    
    (480,000
    )Deferred income taxes
    
    
    322,255
    
    
    
    389,851Other
    
    
    
    
    
    
    (145
    )Stock-based compensation expense
    
    
    69,790
    
    
    
    75,615Changes in operating working capital:Accounts receivable
    
    
    3,530,889
    
    
    
    (223,163
    )Inventories
    
    
    1,414,848
    
    
    
    (2,229,399
    )Prepaid expenses and other assets
    
    
    418,091
    
    
    
    (186,774
    )Accounts payable
    
    
    (3,360,752
    )
    
    
    2,184,762Accrued and other current liabilities
    
    
    32,742
    
    
    
    (12,005
    )Income taxes receivable
    
    
    (118,991
    )
    
    
    46,893Income taxes payable
    
    
    (107,182
    )
    
    
    107,182Net cash provided by operating activities
    
    
    4,868,111
    
    
    
    2,828,331INVESTING ACTIVITIES:Additions to property, plant, and equipment
    
    
    (1,110,452
    )
    
    
    (1,739,123
    )Payment of construction payable
    
    
    (25,823
    )
    
    
    (400,918
    )Other
    
    
    
    
    
    
    500Net cash used in investing activities
    
    
    (1,136,275
    )
    
    
    (2,139,541
    )FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (3,191,666
    )
    
    
    (689,678
    )Purchase of treasury stock
    
    
    (478,436
    )
    
    
    Issuance of common stock
    
    
    
    
    
    
    2,284Net cash used in financing activities
    
    
    (3,670,102
    )
    
    
    (687,394
    )NET INCREASE IN CASH
    
    
    61,734
    
    
    
    1,396CASH:Beginning of year
    
    
    6,663
    
    
    
    5,267End of year
    
    $
    68,397
    
    
    $
    6,663NONCASH SUPPLEMENTAL INFORMATION:Construction payable
    
    $
    
    
    
    $
    25,823
  F-5




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 1.
    
    SIGNIFICANT ACCOUNTING POLICIESConsolidated Financial StatementsConsolidated financial statements include the accounts of
Tufco Technologies, Inc., and its subsidiaries, Tufco LLC, and Tufco LP and its wholly owned
subsidiary Hamco Manufacturing and Distributing LLC (the Company). Significant intercompany
transactions and balances are eliminated in consolidation. The Company provides integrated
manufacturing services including wide web flexographic printing, wet and dry wipe converting,
hot melt adhesive laminating, folding, integrated downstream packaging and on-site quality
microbiological process management and manufactures and distributes business imaging paper
products.Financial Statement PreparationFinancial statement preparation requires 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.Accounts ReceivableAccounts receivables are carried at original invoice amount less an
estimate made for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management estimates allowances for collectability related to its accounts
receivable balances. These allowances are based on the customer relationships, the aging and
turns of accounts receivable, credit worthiness of customers, credit concentrations and payment
history. Management estimates the allowance for doubtful accounts by analyzing accounts
receivable balances by age and applying historical trend rates. Management estimates sales
returns and allowances by analyzing historical returns and credits. Accounts receivables are
written off when deemed uncollectible. Recoveries of accounts receivables previously written
off are recorded when received. Credit terms to customers in the Contract Manufacturing
segment are generally net 30 days. Credit terms to customers in the Business Imaging segment
are generally discounted net 30 terms.InventoriesInventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.Property, Plant, and EquipmentProperty, plant, and equipment are 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.
 F-6




---



##### 



Impairment of Long-Lived AssetsImpairment of long-lived assets is reviewed in accordance with
Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or
Disposal of Long-lived Assets. The Company evaluates the recoverability of the recorded amount
of long-lived assets whenever events or changes in circumstances indicate that the recorded
amount of an asset may not be fully recoverable. An impairment is assessed when the
undiscounted expected future cash flows derived from an asset are less than its carrying
amount. If an asset is determined to be impaired, the impairment to be recognized is measured
as the amount by which the recorded amount of the asset exceeds its fair value. Assets to be
disposed of are reported at the lower of the recorded amount or fair value less cost to sell.
The Company determines fair value using discounted future cash flow analysis or other accepted
valuation techniques.GoodwillGoodwill represents the excess of cost over fair value of net assets acquired in
business combinations. Management has continued to review the carrying values of goodwill for
recoverability on the annual measurement date of June 30, based on estimated fair market value
using the expected present value of future cash flows and prices of comparable companies in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets.There were no changes in the carrying amount of goodwill by reporting unit for the years ended
September 30, 2008 and 2007. Goodwill by reporting unit is:
 Contract
    
    BusinessManufacturing
    
    Imaging
    
    Total$4,281,759
    
    $
    2,929,816
    
    
    $
    7,211,575
 Financial InstrumentsFinancial instruments consist 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 and variable interest rates.Other AssetsOther assets include 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 TaxesIncome taxes are provided for the tax effects of transactions reported in the
consolidated 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 deductible or taxable 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.RevenuesRevenues are 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 net sales and
cost of sales.
 F-7




---



##### 



Stock-Based Compensation The Company has an incentive stock plan under which the Board of
Directors may grant non-qualified stock options to employees. Additionally, the Company has a
Non-Qualified Stock Option Plan for Non-Employee Directors, under which shares are available
for grant.The options have an exercise price equal to the fair market value of the underlying stock at
the date of grant. Employee stock options vest ratably over a three-year period and
non-employee director stock options vest immediately. Options issued under these plans
generally expire ten years from the date of grant.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 10,724, and 28,541
shares in fiscal 2008 and 2007, respectively. During fiscal 2008 and 2007, options to
purchase 167,350 shares, and 82,500 shares, respectively, were excluded from the diluted
earnings per share computation, as the effects of such options would have been anti-dilutive.Recently Issued Accounting Standards In September 2006, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value
Measurements (SFAS No. 157). SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions. Under the standard, fair value measurements would be separately disclosed by
level within the fair value hierarchy. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007, except for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a nonrecurring basis for
which delayed application is permitted until fiscal years beginning after November 15, 2008.
The Company has determined that the adoption of SFAS No. 157 did not have a material effect on
its consolidated financial statements.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). SFAS No. 159 permits entities to choose to measure
many financial instruments and certain other items at fair value at specified election dates.
Under SFAS No. 159, a business entity shall report unrealized gains and losses on items for
which the fair value option has been elected in earnings (or another performance indicator if
the business entity does not report earnings) at each subsequent reporting date. SFAS No. 159
also establishes presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The
Company has not elected to adopt SFAS No. 159.In June 2007, the FASB ratified EITF No. 07-3, Accounting for Nonrefundable Advance Payments
for Goods or Services Received for Use in Future Research and Development Activities (EITF
No. 07-3). EITF No. 07-3 requires that nonrefundable advance payments for goods or services
that will be used or rendered for future research and development activities be deferred and
capitalized and recognized as an expense as the goods are delivered or the related services are
performed. EITF No. 07-3 is effective, on a prospective basis, for financial statements issued
for fiscal years beginning after December 15, 2007. The Company has determined that the
adoption of EITF No. 07-3 did not have a material effect on its consolidated financial
statements.
 F-8




---



##### 



In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)).
SFAS No. 141 (R) revised the requirements of SFAS No. 141 related to fair value principles,
the cost allocation process and together with other revisions from past practice. SFAS No.
141(R) is effective for fiscal years beginning on or after December 15, 2008. Any business
combination in the future will have an effect on the Companys consolidated financial
statements.In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements (SFAS No. 160). SFAS No. 160 amends ARB 51, Consolidated Financial
Statements, and requires all entities to report noncontrolling (minority) interests in
subsidiaries within equity in the consolidated financial statements, but separate from the
parent shareholders equity. SFAS No. 160 also requires any acquisitions or dispositions of
noncontrolling interests that do not result in a change of control to be accounted for as
equity transactions. Further, SFAS No. 160 requires that a parent recognize a gain or loss in
net income when a subsidiary is deconsolidated. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company has determined that the adoption of SFAS
No. 160 will not have a material effect on its consolidated financial statements.In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161). SFAS No. 161 amends and expands SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, to provide users of financial
statements with an enhanced understanding of the use of derivative instruments, accounting for
derivative instruments and related hedged items, and the effect on an entitys financial
position, financial performance, and cash flows. SFAS No. 161 requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures about fair
value amounts of and gains and losses on derivative instruments, as well as disclosures about
credit-risk related to contingent features in derivative agreements. SFAS No. 161 is effective
for financial statements issued for the Companys first fiscal year beginning after November
15, 2008. The Company has determined that the adoption of SFAS No. 161 will not have a
material impact on its consolidated financial statements.In May 2008, the FASB issued SFAS No. 162, Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162), which identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles (GAAP) in the United States (the GAAP hierarchy). The FASB does not expect that
this statement will result in a change in current practice. SFAS No. 162 is effective for all
pronouncement and applications of accounting principles issued after March 15, 1992. The
Company has determined that the adoption of SFAS No. 162 did not have a material effect on its
consolidated financial statements.ReclassificationsCertain prior year amounts have been reclassified to conform to the current
year presentation.
 F-9




---



##### 



2.
    
    ACCOUNTS RECEIVABLEAccounts receivable are stated net of allowances for doubtful accounts of $128,556, and
$105,271 at September 30, 2008 and 2007, respectively. Amounts due from two multinational
consumer products customers represent 58% and 70% of total accounts receivable at September 30,
2008 and 2007, respectively. Accounts receivable included none and $436,736 for the cost of
equipment to be reimbursed by one of these customers at September 30, 2008 and 2007,
respectively.
 3.
    
    INVENTORIESInventories at September 30, 2008 and 2007, consist of the following:
 2008
    
    
    2007Raw materials
    
    $
    11,407,472
    
    
    $
    11,448,432Finished goods
    
    
    3,532,496
    
    
    
    4,906,384Total inventories
    
    $
    14,939,968
    
    
    $
    16,354,816
 Finished goods inventories are stated net of allowance for inventory obsolescence and shrinkage
of $312,332 and $197,064 at September 30, 2008 and 2007, respectively.
 4.
    
    PROPERTY, PLANT, AND EQUIPMENTProperty, plant, and equipment at September 30, 2008 and 2007, consist of the following:
 2008
    
    
    2007Land and land improvements
    
    $
    631,042
    
    
    $
    631,042Buildings
    
    
    9,817,231
    
    
    
    9,817,231Leasehold improvements
    
    
    753,952
    
    
    
    753,952Machinery and equipment
    
    
    24,019,694
    
    
    
    23,473,684Computer equipment and software
    
    
    5,571,446
    
    
    
    5,399,114Furniture and fixtures
    
    
    560,154
    
    
    
    542,355Vehicles
    
    
    44,206
    
    
    
    44,20641,397,725
    
    
    
    40,661,584Less accumulated depreciation and amortization
    
    
    25,120,916
    
    
    
    22,944,927Net depreciated value
    
    
    16,276,809
    
    
    
    17,716,657Construction in progress
    
    
    1,759,955
    
    
    
    1,285,744Property, plant, and equipmentnet
    
    $
    18,036,764
    
    
    $
    19,002,401
 F-10




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##### 



5.
    
    OTHER ASSETSOther assets at September 30, 2008 and 2007, consist of the following:
 2008
    
    
    2007Loan origination and other fees
    
    $
    
    
    
    $
    138,267Less accumulated amortization
    
    
    
    
    
    
    (138,267
    )Subtotal
    
    
    
    
    
    
    Note receivable bearing interest at 7% to 10%, due in
variable monthly installments through 2009
    
    
    
    
    
    
    5,205Prepaid rent on leased equipment
    
    
    1,794
    
    
    
    9,202Deposits on equipment to be acquired and other
    
    
    22,805
    
    
    
    22,805Cash surrender value of life insurance
    
    
    97,698
    
    
    
    89,517Other assetsnet
    
    $
    122,297
    
    
    $
    126,729
 6.
    
    LONG-TERM DEBTLong-term debt at September 30, 2008 and 2007, consists of the following:
 2008
    
    
    2007Long-term note payable to banks, under a $15 million
unsecured credit agreement
    
    $
    3,000,000
    
    
    $
    6,000,000Other Long-term Debt
    
    
    
    
    
    
    191,666Total Long-term Debt
    
    $
    3,000,000
    
    
    $
    6,191,666
 On May 20, 2004, the Company entered into a credit agreement. The credit agreement, as amended,
includes a $14.0 million revolving line of credit facility as well as a $1.0 million swing line
available for overdrafts and expires on May 18, 2010. Borrowings under the line of credit are
made under the base rate account or the Eurodollar account. Interest on amounts borrowed under
the base rate account is calculated based on the greater of the Federal Funds Effective Rate
plus 1/2 of 1% or the Prime Rate on the date of the borrowing. Interest on amounts borrowed
under the Eurodollar account is calculated based on LIBOR. As of September 30, 2008, the
Company had $1,000,000 outstanding under the base rate account at a rate of 5.00%, $1,000,000
outstanding under one Eurodollar account at a rate of 3.74% and $1,000,000 outstanding under a
second Eurodollar account at a rate of 4.44%. The credit agreement also includes a commitment
to issue commercial and standby letters of credit not to exceed $1,000,000. The Company had
no amounts outstanding under the letter of credit commitment as of September 30, 2008. The
Company had $11,000,000 available under the line of credit as of September 30, 2008.
 F-11




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##### 



The credit agreement contains certain restrictive covenants, including requirements to maintain
a minimum tangible net worth, after tax net income and restrictions on maximum allowable debt,
stock purchases, mergers, and payment of dividends. The Other Long-Term Debt of $191,666
relates to an amount due to a specific customer for the purchase of new wipe converting
equipment. Payment is due in April of 2009 and is included in other current liabilities at
September 30, 2008 and 2007.Tufco LP is the borrower under the credit agreement. Tufco LLC is an affiliated guarantor and
is 100% owned by the parent company, Tufco Technologies, Inc., also a guarantor. Under the
credit agreement, Hamco Manufacturing and Distributing LLC, a subsidiary of Tufco LP is also a
guarantor. All guarantees are full and unconditional, as well as joint and several. The
underlying borrowings are not registered securities.
 7.
    
    INCOME TAXESThe tax effects of significant items composing the Companys net deferred tax liability as of
September 30, 2008 and 2007, are as follows:
 2008
    
    
    2007Current deferred tax asset:Valuation allowances for accounts receivable
and inventoriesnot currently deductible
    
    $
    168,820
    
    
    $
    115,764Inventory costs capitalized for tax purposes
    
    
    44,684
    
    
    
    48,916Vacation and severance accrualsnot currently deductible
    
    
    87,342
    
    
    
    87,342Other accrualsnot currently deductible
    
    
    55,353
    
    
    
    186,991State income tax attributes
    
    
    110,832
    
    
    
    18,148Stock compensation
    
    
    104,552
    
    
    
    77,829Total current assets
    
    
    571,583
    
    
    
    534,990Noncurrent deferred tax liability:Accelerated tax depreciation on property and equipment
    
    
    (1,996,041
    )
    
    
    (1,882,751
    )Accelerated tax amortization of goodwill
    
    
    (899,961
    )
    
    
    (654,403
    )Total noncurrent liabilitynet
    
    
    (2,896,002
    )
    
    
    (2,537,154
    )Net deferred tax liability
    
    $
    (2,324,419
    )
    
    $
    (2,002,164
    )
 F-12




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##### 



The components of income tax expense are as follows:
 2008
    
    
    2007Current tax (benefit) expense:Federal
    
    $
    (30,473
    )
    
    $
    173,506State
    
    
    8,700
    
    
    
    12,708Total
    
    
    (21,773
    )
    
    
    186,214Deferred tax expense:Federal
    
    
    296,849
    
    
    
    302,628State
    
    
    25,406
    
    
    
    87,223Total
    
    
    322,255
    
    
    
    389,851Income tax expense
    
    $
    300,482
    
    
    $
    576,065
 Income tax expense varies from the amount determined by applying the applicable statutory
income tax rates to pretax income as follows:
 2008
    
    
    2007Federal income taxes computed at
statutory rates
    
    $
    302,877
    
    
    $
    530,006State income taxesnet of federal tax benefit
    
    
    22,510
    
    
    
    65,954Other
nondeductibles
    
    
    6,148
    
    
    
    5,109Other
    
    
    (31,053
    )
    
    
    (25,004
    )Income tax expense
    
    $
    300,482
    
    
    $
    576,065
 The Company adopted the provisions of FASB Interpretation No. 48, Accounting For
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (FIN 48), on
October 1, 2007. At the adoption date and as of September 30, 2008, the Company had no
material unrecognized tax benefits and no adjustment to liabilities, retained earnings, loss
from continued operations, or net loss was required. The adoption of FIN 48 had no effect
on the Companys basic and diluted earnings per share. The Company files tax returns in all
appropriate jurisdictions, which include a federal tax return and all
required state jurisdictions. The Company recently completed an IRS Audit through September 30, 2007 and the proposed adjustment accepted by the Company resulted in additional income tax of $20,194.The Company recognizes interest and penalties related to uncertain tax positions as income
tax expense as incurred. No expense for interest and penalties was recognized for the year
ended September 30, 2008.
 F-13




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##### 



8.
    
    COMMITMENTS AND CONTINGENCIESLeasesThe Company leases facilities in Green Bay, Wisconsin, from a partnership composed of
certain current and former stockholders. In November 2006, the Company entered into a new lease
with the partnership that expires in March 2013, which is classified as an operating lease and
requires monthly rental payments of $10,796 through December 2006, $16,800 in January through
March 2007 and $17,070 thereafter which increase 1.65% every twelve months beginning on April
1, 2008 through the duration of the lease term. Rental expense under the lease totaled $206,530
for fiscal 2008 and $185,819 for fiscal 2007, respectively. On the expiration date there is an
option for an additional five-year term to be negotiated. In exchange for the Companys
entering into the new lease, the partnership agreed to pay for up to $300,000 of improvements
to the facility.The Company also leases other facilities and equipment under operating leases. Office and
warehouse 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, 2008, are as follows:
 2009
    
    $
    1,307,7362010
    
    
    862,7112011
    
    
    288,6942012
    
    
    260,2272013
    
    
    111,153Total
    
    $
    2,830,521
 Rental expense for all operating leases totaled $1,518,363 and $1,425,137 for the years ended
September 2008 and 2007, respectively.LitigationThe 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 SAVINGS AND INVESTMENT PLANThe Company has a defined contribution 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 an employees contribution. Expenses relating to the
defined contribution 401(k) plan totaled $168,553 and $167,237 for fiscal 2008 and 2007,
respectively.
 F-14




---



##### 



10.
    
    STOCKHOLDERS EQUITYNon-voting Common Stock and Preferred StockAt September 30, 2008 and 2007, 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 Repurchase PlanIn February 2008, the Companys Board of Directors approved a program
for open market stock repurchases through December 31, 2008 for up to 100,000 shares of its
common stock at prevailing market prices after concluding that the Companys cash and debt
position would enable these purchases without impairment to the Companys capital. On October
15, 2008, the Companys Board of Directors approved an extension of its February 2008 stock
repurchase program through June 2009 and an increase in the number of shares from 100,000 to
200,000. A total of 78,940 shares were purchased under the plan through September 30, 2008.Stock Compensation ArrangementsThe 2003 Non-Qualified Stock Option Plan, the (2003 Plan)
currently reserves 282,350 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 2008,
options to purchase 38,850 shares of voting common stock were granted. No options were issued
in fiscal 2007 under the 2003 Plan.The 2004 Non-Employee Director Stock Option Plan (2004 Plan) for non-employee members of the
board of directors reserves 150,000 shares of common stock for grants through March 2014 and
provides that the exercise 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 2008,
and 2007, options to purchase 20,000 and 17,000 shares, respectively, of voting common stock
were granted under the 2004 Plan.The Company estimates fair value on the date of grant using the Black-Scholes option valuation
model. The Company uses historical data regarding stock option exercise behaviors to estimate
the expected term of options granted based on the period of time that options granted are
expected to be outstanding. Compensation expense is recognized only on awards expected to vest.
Expected volatilities are based on the historical volatility of the Companys stock. The
expected dividend yield is based on the Companys historical dividend payments. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect on the grant date for the
length of time corresponding to the expected term of the option.For the years ended September 30, 2008 and 2007, the total stock compensation expense
recognized by the Company was $69,790 and $75,615, respectively. The total income tax benefit
recognized in the income statement for share-based compensation arrangements was $27,358 and
$29,641 for the years ended September 30, 2008 and 2007, respectively. There was $37,841 of
unrecognized compensation cost related to 2008 share-based compensation awards as of September
30, 2008.
 F-15




---



##### 



Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateExercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Contractual Term
    
    
    ValueOutstanding at September 30, 2006
    
    
    460,950
    
    
    $
    7.74New grants
    
    
    17,000
    
    
    
    7.90Exercised
    
    
    (400
    )
    
    
    5.71Forfeited or expired
    
    
    (181,250
    )
    
    
    8.72Outstanding at September 30, 2007
    
    
    296,300
    
    
    $
    6.74New grants
    
    
    58,850
    
    
    
    6.64Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (32,000
    )
    
    
    7.75Outstanding at September 30, 2008
    
    
    323,150
    
    
    $
    6.62
    
    
    
    5.4
    
    
    $
    53,834Exercisable at September 30, 2008
    
    
    284,300
    
    
    $
    6.64
    
    
    
    4.9
    
    
    $
    47,234
  2008
    
    2007Risk-free interest rate
    
    
    2.48
    %
    
    
    4.64
    %Expected volatility
    
    
    61.1
    %
    
    
    47.8
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected option life, standard option
(years)
    
    
    3.0
    
    
    
    2.0
 In fiscal 2008, no employee stock options were exercised. In fiscal 2007, 400 shares of
employee stock options were exercised. The aggregate intrinsic value in the table above is
before income taxes, based on
the Companys closing stock price of $5.89 on the last business day for the year ended
September 30, 2008. Cash proceeds received from the exercise of options during 2007 were
$2,284. The total intrinsic value of options exercised during 2007 was $968. The realized tax benefit is recognized, when material, as an
increase to additional paid-in capital or a decrease to income tax expense with an offset to
deferred tax assets, depending on the accumulation of windfalls and shortfalls under SFAS No. 123(R).
 11.
    
    RELATED-PARTY TRANSACTIONSThe 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 which was initially set to expire in January 2004, and is
thereafter automatically renewable on an annual basis if not 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. Consulting expense was $389,706 and $371,149 for fiscal 2008
and 2007, respectively.As discussed in footnote 8 Commitments and Contingencies, the Company leases facilities from
a partnership composed of current and former stockholders.
 F-16




---



##### 



12.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONThe following is provided as supplemental information to the consolidated statements of cash
flows:
 2008
    
    
    2007Interest paid
    
    $
    283,892
    
    
    $
    524,350Income taxes paid
    
    $
    200,000
    
    
    $
    32,140
 13.
    
    MAJOR CUSTOMER AND SEGMENT INFORMATIONTwo significant customers of the Contract Manufacturing segment are multinational consumer
products companies with whom the Company has confidentiality and non-disclosure agreements,
accounted for the following percentage of total sales:
 2008
    
    2007Contract Manufacturing segmentCustomer A
    
    
    36
    %
    
    
    41
    %Customer B
    
    
    32
    %
    
    
    30
    %
 The manufacturing contract with Customer A expires April 2009 and the manufacturing contract
with Customer B expires June 2011. The Company is currently negotiating an extension to the
manufacturing contracts with Customer A.
 The Company operates in a single industry since it manufactures and distributes custom
paper-based and nonwoven products, and provides contract manufacturing, specialty printing and
related services on these types of products. The Company does, however, separate its operations
and prepares information for management use by the market segment aligned with the Companys
products and services. Corporate costs, such as interest income, interest expense and income
tax expense are recorded under the Corporate and Other segment. Such market segment
information is summarized below. The Contract Manufacturing segment provides services to
multinational consumer products companies while the Business Imaging segment manufactures and
distributes printed and unprinted business imaging paper products for a variety of business
needs.Substantially all of the Companys revenues are attributed to domestic external customers.
There are no long-lived assets located outside of the United States.
 F-17




---



##### 



Contract
    
    
    Business
    
    
    CorporateFiscal 2008
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    86,786,047
    
    
    $
    24,530,203
    
    
    $
    
    
    
    $
    111,316,250Gross profit
    
    
    4,102,737
    
    
    
    1,249,917
    
    
    
    
    
    
    
    5,352,654Operating income (loss)
    
    
    1,490,523
    
    
    
    383,348
    
    
    
    (736,459
    )
    
    
    1,137,412Depreciation and amortization
expense
    
    
    1,956,682
    
    
    
    214,557
    
    
    
    4,850
    
    
    
    2,176,089Capital expenditures
    
    
    972,936
    
    
    
    137,516
    
    
    
    
    
    
    
    1,110,452Assets:Inventoriesnet
    
    $
    12,209,659
    
    
    $
    2,730,309
    
    
    $
    
    
    
    $
    14,939,968Property, plant, and
equipmentnet
    
    
    15,939,041
    
    
    
    2,090,473
    
    
    
    7,250
    
    
    
    18,036,764Accounts receivable and other
(including goodwill)
    
    
    13,425,593
    
    
    
    5,977,200
    
    
    
    881,268
    
    
    
    20,284,061Total assets
    
    $
    41,574,293
    
    
    $
    10,797,982
    
    
    $
    888,518
    
    
    $
    53,260,793
 Contract
    
    
    Business
    
    
    CorporateFiscal 2007
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    95,652,581
    
    
    $
    24,055,645
    
    
    $
    
    
    
    $
    119,708,226Gross profit
    
    
    4,339,916
    
    
    
    1,774,564
    
    
    
    
    
    
    
    6,114,480Operating income (loss)
    
    
    1,658,699
    
    
    
    789,221
    
    
    
    (391,139
    )
    
    
    2,056,781Depreciation and amortization
expense
    
    
    1,905,543
    
    
    
    220,204
    
    
    
    46,991
    
    
    
    2,172,738Capital expenditures
    
    
    1,693,204
    
    
    
    45,919
    
    
    
    
    
    
    
    1,739,123Assets:Inventoriesnet
    
    $
    14,023,642
    
    
    $
    2,331,174
    
    
    $
    
    
    
    $
    16,354,816Property, plant, and
equipmentnet
    
    
    16,822,787
    
    
    
    2,167,514
    
    
    
    12,100
    
    
    
    19,002,401Accounts receivable and other
(including goodwill)
    
    
    17,687,370
    
    
    
    5,659,972
    
    
    
    668,381
    
    
    
    24,015,723Total assets
    
    $
    48,533,799
    
    
    $
    10,158,660
    
    
    $
    680,481
    
    
    $
    59,372,940
 F-18