##### 



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, 2007
 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
  o o þ
 o þ




---



##### 



PART I
 ITEM 1  BUSINESS
 General
     Products and Services
  1




---



##### 



Contract Manufacturing
     Business Imaging
    2




---



##### 



Business Imaging (Continued)
  Manufacturing and Operations
      ,
 Sales and Marketing
  3




---



##### 



Sales and Marketing (Continued)
     Competition
   4




---



##### 



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




---



##### 



Environmental Matters
    Employees
  Working Capital
  Class of Products
  6




---



##### 



ITEM 1A  RISK FACTORS
 The Company depends on two customers for a significant portion of its business.
  Cyclical Demand for Product
  Additional increases in the Companys cost of goods sold, including the costs of raw materials or
labor expenses, could have an adverse effect on the Companys financial conditions.
   Competition in the Companys industries may hinder its ability to execute its business strategy,
maintain profitability, or maintain relationships with existing customers
  
    
    maintain its relationships with key customers;
    
    maintain strict quality standards; and
    
    deliver products on a reliable basis at competitive prices
  7




---



##### 



Unexpected equipment failures may lead to production curtailments or shutdowns.
 
 The loss of key senior management personnel could negatively affect the Companys business.
   The Companys business is subject to many regulations and noncompliance could be costly.
    If the Company fails to achieve and maintain effective internal controls, it could have a material
adverse effect on the Companys business in the future.
  8




---



##### 



The products that the Company manufactures could expose it to product liability claims, and its
manufacturing process may pose additional risks.
   Insiders continue to have substantial control over the Company.
  Item 1B  UNRESOLVED STAFF COMMENTS
  9




---



##### 



ITEM 2  PROPERTIES
     ITEM 3  LEGAL PROCEEDINGS
  ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  10




---



##### 



PART II
 ITEM 5  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
  High
    
    Low
    
    CloseFiscal 2006:Quarter ended December 31, 2005
    
    $
    7.56
    
    
    $
    5.50
    
    
    $
    5.65Quarter ended March 31, 2006
    
    $
    7.20
    
    
    $
    5.54
    
    
    $
    6.99Quarter ended June 30, 2006
    
    $
    7.85
    
    
    $
    5.60
    
    
    $
    7.04Quarter ended September 30, 2006
    
    $
    7.20
    
    
    $
    6.00
    
    
    $
    6.83Fiscal 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
    
    
    $
    7.50
   Issuer Purchases of Equity Securities
  11




---



##### 



ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) (1)
 Years Ended September 30,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Statement of Operations Data:Net sales
    
    $
    119,708
    
    
    $
    100,284
    
    
    $
    79,781
    
    
    $
    77,854
    
    
    $
    55,207Cost of sales
    
    
    113,594
    
    
    
    95,240
    
    
    
    74,447
    
    
    
    70,164
    
    
    
    47,465Gross profit
    
    
    6,114
    
    
    
    5,044
    
    
    
    5,334
    
    
    
    7,690
    
    
    
    7,742Selling, general and administrative
expenses
    
    
    4,057
    
    
    
    3,977
    
    
    
    4,587
    
    
    
    4,998
    
    
    
    4,885Employee severance cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    333(Gain) loss on asset sales
    
    
    
    
    
    
    
    
    
    
    (442
    )
    
    
    3
    
    
    
    109Operating income
    
    
    2,057
    
    
    
    1,067
    
    
    
    1,189
    
    
    
    2,689
    
    
    
    2,415Interest expense
    
    
    (519
    )
    
    
    (309
    )
    
    
    (63
    )
    
    
    (48
    )
    
    
    (202
    )Interest income and other income (expense)
    
    
    21
    
    
    
    59
    
    
    
    26
    
    
    
    (3
    )
    
    
    (49
    )Income from continuing operations before
income taxes
    
    
    1,559
    
    
    
    817
    
    
    
    1,152
    
    
    
    2,638
    
    
    
    2,164Income tax expense
    
    
    576
    
    
    
    254
    
    
    
    452
    
    
    
    1,076
    
    
    
    916Income from continuing operations
    
    
    983
    
    
    
    563
    
    
    
    700
    
    
    
    1,562
    
    
    
    1,248Gain (loss) from discontinued operationsLoss from operations of discontinued segment,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225
    )Gain (loss) from sale of discontinued operations,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400
    
    
    
    (244
    )Net income
    
    $
    983
    
    
    $
    563
    
    
    $
    700
    
    
    $
    1,962
    
    
    $
    779Basic Earnings (Loss) Per Share:Income from continuing operations
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27Loss from operations of discontinued segment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.05
    )Gain (loss) from sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.09
    
    
    
    (0.05
    )Net income
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.17Diluted Earnings (Loss) Per Share:Income from continuing operations
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.34
    
    
    $
    0.27Loss from operations of discontinued segment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.05
    )Gain (loss) from sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.09
    
    
    
    (0.05
    )Net income
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.15
    
    
    $
    0.43
    
    
    $
    0.17Weighted average common shares outstanding:Basic
    
    
    4,535
    
    
    
    4,538
    
    
    
    4,565
    
    
    
    4,582
    
    
    
    4,616Diluted
    
    
    4,564
    
    
    
    4,550
    
    
    
    4,583
    
    
    
    4,608
    
    
    
    4,626Other Data:Depreciation and amortization (2)
    
    $
    2,173
    
    
    $
    2,006
    
    
    $
    2,019
    
    
    $
    2,401
    
    
    $
    2,812Capital expenditures
    
    $
    1,739
    
    
    $
    5,177
    
    
    $
    1,502
    
    
    $
    4,189
    
    
    $
    2,373Balance Sheet Data (at September 30):Working capital
    
    $
    19,989
    
    
    $
    19,409
    
    
    $
    15,409
    
    
    $
    14,422
    
    
    $
    12,035Total assets
    
    
    59,373
    
    
    
    56,689
    
    
    
    44,486
    
    
    
    46,983
    
    
    
    38,026Total  current and long-term debt
    
    
    6,383
    
    
    
    7,073
    
    
    
    1,113
    
    
    
    2,500
    
    
    
    750Stockholders equity
    
    
    37,600
    
    
    
    36,540
    
    
    
    35,917
    
    
    
    35,449
    
    
    
    33,487
  12




---



##### 



ITEM 6  SELECTED CONSOLIDATED FINANCIAL DATA (Continued)
 (1)
    
    Financial data for fiscal 2003 through 2007 reflects the sale of the Paint Sundries segment
on March 31, 2003, effective for
financial purposes as of February 28, 2003.(2)
    
    Includes depreciation and amortization of other assets. ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward Looking Statements
  General
   Results of Operations
  13




---



##### 



Results of Operations (continued)
  Year-to-YearPercentage of Net Sales
    
    Percentage Change2007
    
    2006
    
    2005
    
    2007 to 2006
    
    2006 to 2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    19
    %
    
    
    26
    %Cost of sales
    
    
    94.9
    
    
    
    95.0
    
    
    
    93.3
    
    
    
    19
    
    
    
    28Gross profit
    
    
    5.1
    
    
    
    5.0
    
    
    
    6.7
    
    
    
    21
    
    
    
    -5Selling, general and administrative
expenses
    
    
    3.4
    
    
    
    4.0
    
    
    
    5.7
    
    
    
    2
    
    
    
    -13Loss (gain) on asset sales
    
    
    0.0
    
    
    
    0.0
    
    
    
    -0.6
    
    
    
    0
    
    
    
    -100Operating income
    
    
    1.7
    
    
    
    1.0
    
    
    
    1.6
    
    
    
    93
    
    
    
    -10Interest expense
    
    
    -0.4
    
    
    
    -0.3
    
    
    
    -0.1
    
    
    
    68
    
    
    NMInterest income and other income
(expense)
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.0
    
    
    NM
    
    NMIncome before income taxes
    
    
    1.3
    
    
    
    0.8
    
    
    
    1.5
    
    
    
    91
    
    
    
    -29Income tax expense
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    127
    
    
    
    -44Net income
    
    
    0.8
    %
    
    
    0.5
    %
    
    
    0.9
    %
    
    
    75
    %
    
    
    -20
    %
  2007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars in millions)Net
SalesContract manufacturing and printing
    
    $
    95.6
    
    
    
    80
    %
    
    $
    74.1
    
    
    
    74
    %
    
    $
    55.2
    
    
    
    69
    %Business imaging paper products
    
    
    24.1
    
    
    
    20
    %
    
    
    26.2
    
    
    
    26
    %
    
    
    24.6
    
    
    
    31
    %Net sales
    
    $
    119.7
    
    
    
    100
    %
    
    $
    100.3
    
    
    
    100
    %
    
    $
    79.8
    
    
    
    100
    %
 Margin
    
    
    
    
    
    
    Margin
    
    
    
    
    
    
    MarginAmount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Gross
ProfitContract manufacturing and printing
    
    $
    4.3
    
    
    
    4
    %
    
    $
    2.6
    
    
    
    4
    %
    
    $
    3.4
    
    
    
    6
    %Business imaging paper products
    
    
    1.8
    
    
    
    7
    %
    
    
    2.4
    
    
    
    9
    %
    
    
    1.9
    
    
    
    8
    %Gross profit
    
    $
    6.1
    
    
    
    5
    %
    
    $
    5.0
    
    
    
    5
    %
    
    $
    5.3
    
    
    
    7
    %
 14




---



##### 



Fiscal Year Ended September 30, 2007 Compared to September 30, 2006
 Net Sales
  Gross
profit
 Selling, general and administrative expenses
 Interest expense
 Income taxes
 Basic and diluted net earnings per share
 15




---



##### 



Fiscal Year Ended September 30, 2006 Compared to September 30, 2005
 Net Sales
 Gross profit
 Selling, general and administrative expenses
 (Gain) loss on asset sales
 Interest expense
 Income taxes
 Basic and diluted net earnings per share
 16




---



##### 



Selected Quarterly Financial Data
  Fiscal 2007 (
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    27,017
    
    
    $
    27,587
    
    
    $
    29,815
    
    
    $
    35,289Gross profit
    
    
    1,292
    
    
    
    1,186
    
    
    
    1,650
    
    
    
    1,986Operating expenses
    
    
    1,001
    
    
    
    951
    
    
    
    1,075
    
    
    
    1,030Operating income
    
    
    291
    
    
    
    235
    
    
    
    575
    
    
    
    956Income before income taxes
    
    
    217
    
    
    
    77
    
    
    
    443
    
    
    
    822Income tax expense
    
    
    85
    
    
    
    30
    
    
    
    156
    
    
    
    305Net income
    
    
    132
    
    
    
    47
    
    
    
    287
    
    
    
    517Net income per share:Basic
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.06
    
    
    
    0.12Diluted
    
    
    0.03
    
    
    
    0.01
    
    
    
    0.06
    
    
    
    0.12
 Fiscal 2006 (
 First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterNet sales
    
    $
    21,313
    
    
    $
    23,089
    
    
    $
    27,428
    
    
    $
    28,454Gross profit
    
    
    1,000
    
    
    
    1,360
    
    
    
    1,651
    
    
    
    1,033Operating expenses
    
    
    967
    
    
    
    1,044
    
    
    
    1,101
    
    
    
    865Operating income
    
    
    33
    
    
    
    316
    
    
    
    551
    
    
    
    168Income before income taxes
    
    
    38
    
    
    
    292
    
    
    
    440
    
    
    
    47Income tax expense
    
    
    15
    
    
    
    95
    
    
    
    126
    
    
    
    18Net income
    
    
    23
    
    
    
    198
    
    
    
    314
    
    
    
    28Net income per share:Basic
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.07
    
    
    
    0.01Diluted
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.07
    
    
    
    0.01
  17




---



##### 



Liquidity and Capital Resources
        18




---



##### 



Liquidity and Capital Resources (Continued)
     Inflation
  Credit Environment
  Off Balance Sheet Arrangements
  19




---



##### 



Contractual Obligation Data
  Payments Due By PeriodLess
    
    
    
    
    
    
    
    
    
    MoreThan 1
    
    2-3
    
    4-5
    
    ThanTotal
    
    Year
    
    Years
    
    Years
    
    5 YearsLong Term Debt Obligations(1)
    
    $
    6,191,666
    
    
    
    
    
    
    $
    6,191,666
    
    
    
    
    
    
    
    Capital Lease Obligations and Other
Long Term Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    4,053,234
    
    
    
    1,306,764
    
    
    
    2,120,849
    
    
    
    514,468
    
    
    
    111,153Unconditional Purchase Obligations (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Contractual Cash Obligations
    
    $
    10,244,900
    
    
    $
    1,306,764
    
    
    $
    8,312,515
    
    
    $
    514,468
    
    
    $
    111,153
 
 (1)
    
    Based on the rates and the current amount of debt outstanding at December 18, 2007 cash payments for
interest on long-term debt would be approximately $0.6 million for 2008 and 2009.(2)
    
    As of December 18, 2007 the Company had unconditional purchase obligations of approximately $0.1 million
relating to normal capital requirements. Critical Accounting Policies
    20




---



##### 



Critical Accounting Policies (Continued)
    Goodwill and Other Intangible Assets
 Accounting for the Impairment for Disposal of Long-Lived
Assets,
  Recently Issued Accounting Standards
 The Fair Value Option for Financial Assets
and Financial Liabilities
 21




---



##### 



Recently Issued Accounting Standards (Continued)
    ,
    22




---



##### 



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Foreign Currency Exchange Risk
 Commodity Price Risk
 Other Relevant Market Risks-
 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
    ITEM 9B  OTHER INFORMATION
  23




---



##### 



PART III
 ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 THE DIRECTORS OF THE COMPANY
  Name
    
    Age
    
    Position HeldRobert J. Simon.
    
    
    49
    
    
    Chairman of the Board of DirectorsSamuel J. Bero.
    
    
    72
    
    
    DirectorC. Hamilton Davison, Jr.
    
    
    48
    
    
    DirectorBrian Kelly.
    
    
    64
    
    
    DirectorLouis LeCalsey, III.
    
    
    68
    
    
    Director, President and Chief Executive OfficerSeymour S. Preston, III.
    
    
    74
    
    
    Director
 Mr. Simon
 Mr. Bero
 Mr. Davison
 Mr. Kelly
 Mr. LeCalsey
 24




---



##### 



THE DIRECTORS OF THE COMPANY (Continued)
 Mr. Preston
  THE EXECUTIVE OFFICERS OF THE COMPANY
 Name
    
    Age
    
    Positions With the CompanyLouis LeCalsey, III
    
    68
    
    Director, President and Chief Executive OfficerMichael B. Wheeler
    
    62
    
    Executive Vice President, Chief Financial Officer andChief Operating OfficerMadge J. Joplin
    
    60
    
    Vice President, Sales and OperationsMichele M. Cherney
    
    39
    
    Sr. Vice President, Sales and Marketing
  Executive Officers
 Louis LeCalsey, III
 Michael B. Wheeler,
 Madge J. Joplin
 Michele M. Cherney
 25




---



##### 



CERTAIN CORPORATE GOVERNANCE MATTERS
  Audit Committee Composition
   Code of Ethics
  Compliance with Section 16(a) of the Securities Exchange Act
   ITEM 11  EXECUTIVE COMPENSATION
 Compensation Discussion and Analysis
   26




---



##### 



ITEM 11  EXECUTIVE COMPENSATION (Continued)
 Overview of Compensation Programs and Objectives
  1.
    
    Attract, motivate and retain talented and dedicated executives;2.
    
    Motivate performance to achieve our specific strategic and operating objectives; and3.
    
    Provide both cash and equity incentives that align the interests of the executive officers
with the long-term interests of our stockholders.
    Current Material Elements
 Base Salary.
 e
 27




---



##### 



Current Material Elements (Continued)
 Bonuses.
 Long-Term Incentive Compensation.
 Other Benefits.
 
    
    Medical benefits
    
    Vacation and personal days
    
    Group term life insurance
    
    Short-term and long-term disability protection
  Severance Protection and Change-in-Control Benefits.
 Stock Ownership Guidelines
  28




---



##### 



Compliance with Section 162(m)
  COMPENSATION COMMITTEE REPORT
  
 COMPENSATION COMMITTEES INTERLOCKS AND INSIDER PARTICIPATION
  29




---



##### 



SUMMARY COMPENSATION TABLE
  Name and Principal
    
    
    
    
    
    
    
    
    
    Option
    
    All OtherPosition
    
    Year
    
    Salary
    
    Awards
    

Compensation  (1)
    
    TotalLouis LeCalsey, III
    
    
    2007
    
    
    $
    276,000
    
    
    $
    14,481
    
    
    $
    15,157
    
    
    $
    305,638Director, President
and CEOMichael B. Wheeler
    
    
    2007
    
    
    $
    195,000
    
    
    $
    10,861
    
    
    $
    13,708
    
    
    $
    219,569Executive Vice
President,CFO, COO, Secretary
and TreasurerMichele M. Cherney
    
    
    2007
    
    
    $
    164,500
    
    
    $
    3,620
    
    
    $
    18,963
    
    
    $
    187,083Sr. Vice President, 
Sales and
MarketingMadge Joplin
    
    
    2007
    
    
    $
    129,800
    
    
    $
    3,620
    
    
    $
    16,482
    
    
    $
    149,902Vice President,
Sales and Operations
 
 (1)
    
    The compensation reported represents contributions to the 401(k) Plan, car allowances and
country club dues. Grants of Plan Based Awards
  Employment Agreements
   30




---



##### 



Employment Agreements (Continued)
    31




---



##### 



Outstanding Equity Awards at Fiscal Year-End
  Number of SecuritiesNumber of Securities
    
    Underlying
    
    OptionUnderlying Unexercised
    
    Unexercised Options
    
    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
    
    
    
    11/26/138,000
    
    
    
    4,000
    
    
    $
    7.87
    
    
    
    11/19/14Michael B. Wheeler
    
    
    15,000
    
    
    
     
   
    
    $
    5.70
    
    
    
    3/27/1212,500
    
    
    
    
    
    
    $
    4.92
    
    
    
    10/01/1211,000
    
    
    
    
    
    
    $
    5.71
    
    
    
    11/26/136,000
    
    
    
    3,000
    
    
    $
    7.87
    
    
    
    11/19/14Madge Joplin
    
    
    4,000
    
    
    
    
    
    
    $
    7.00
    
    
    
    10/01/114,500
    
    
    
    
    
    
    $
    4.92
    
    
    
    10/01/124,000
    
    
    
    
    
    
    $
    5.71
    
    
    
    11/26/132,000
    
    
    
    1,000
    
    
    $
    7.87
    
    
    
    11/19/14Michele M. Cherney
    
    
    4,000
    
    
    
    
    
    
    $
    7.00
    
    
    
    10/01/114,500
    
    
    
    
    
    
    $
    4.92
    
    
    
    10/01/124,000
    
    
    
    
    
    
    $
    5.71
    
    
    
    11/26/132,000
    
    
    
    1,000
    
    
    $
    7.87
    
    
    
    11/19/14
 Options Exercised and Stock Vested
 ,
 32




---



##### 



POTENTIAL PAYMENT OF TERMINATION OR CHANGE IN CONTROL
  Compensation
    
    Compensation of Individual ifFollowing
    
    Terminated Within 180 DaysTermination Without
    
    Following Change inName
    
    Cause (2)
    
    Control(2)Louis LeCalsey, III
    
    $
    276,000
    
    
    $
    552,000Michael B. Wheeler
    
    $
    195,000
    
    
    
    Michele M. Cherney
    
    $
    164,500
    
    
    
    Madge Joplin (1)
    
    $
    129,800
    
    
    
    
 
 (1)
    
    Ms. Joplin accepted Long-Term Disability as of November 14, 2007.(2)
    
    Some officers would receive a bonus based upon a target for operating income determined by the
Compensation Committee. 33




---



##### 



Director Compensation
  
    
    an annual fee of $8,000 (increased to $12,000 effective 1/1/2008),
    
    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 Paid
    
    OptionName
    
    in Cash
    
    Awards
    
    TotalRobert J. Simon
    
    $
    17,000
    
    
    $
    5,428
    
    
    $
    22,428Samuel J. Bero
    
    $
    17,500
    
    
    $
    5,428
    
    
    $
    22,928C. Hamilton Davison, Jr.
    
    $
    20,500
    
    
    $
    5,428
    
    
    $
    25,928Brian Kelly
    
    $
    14,500
    
    
    $
    13,193
    
    
    $
    27,693Seymour S. Preston, III
    
    $
    20,000
    
    
    $
    5,428
    
    
    $
    25,428William J. Malooly
    
    $
    14,000
    
    
    $
    
    
    
    $
    14,000
 34




---



##### 



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)
    
    
    2,659,543
    
    
    
    58.3
    %Barbara M. Henagan(1)(3)
    
    
    2,621,661
    
    
    
    57.8
    %Bradford Venture Partners, L.P. (1)(2)
    
    
    2,619,740
    
    
    
    57.8
    %Overseas Equity Investors Partners(3)(6)
    
    
    2,619,740
    
    
    
    57.8
    %Other Directors And Executive OfficersSamuel J. Bero(7)
    
    
    205,500
    
    
    
    4.5
    %Louis LeCalsey III(8)
    
    
    190,078
    
    
    
    4.1
    %C. Hamilton Davison, Jr. (5)
    
    
    31,842
    
    
    
    *Seymour S. Preston III(9)
    
    
    29,000
    
    
    
    *Brian Kelly(15)
    
    
    5,000
    
    
    
    *Michael B. Wheeler(10)
    
    
    48,500
    
    
    
    1.1
    %Madge Joplin(11)
    
    
    19,667
    
    
    
    *Michele M. Cherney (12)
    
    
    23,000
    
    
    
    *Directors and Executive Officers as a Group (9 persons)(1)(3)(13)
    
    
    3,212,130
    
    
    
    66.9
    %
 
 *
    
    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. 35




---



##### 



Security Ownership of Certain Beneficial Owners (Continued)
 (4)
    
    The stockholder is also one of our directors.(5)
    
    The amount shown includes 28,000 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(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 28,000 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(8)
    
    The amount shown includes 73,500 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(9)
    
    The amount shown includes 24,000 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(10)
    
    The amount shown includes 47,500 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(11)
    
    The amount shown includes 15,500 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(12)
    
    The amount shown includes 15,500 shares that may be acquired under options exercisable within
60 days of December 18, 2007.(13)
    
    The amount shown includes an aggregate of 265,000 shares that may be acquired under options
exercisable within 60 days of December 18, 2007.(14)
    
    The amount shown includes 28,000 shares that may be acquired under options exercisable
within 60 days of December 18, 2007.(15)
    
    The amount shown includes 5,000 shares that may be acquired under options exercisable
within 60 days of December 18, 2007.
 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)
    
    
    296,300
    
    
    $
    6.74
    
    
    
    321,200Equity 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. 36




---



##### 



ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
       ITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICES
  McGladrey &
    
    Deloitte &
    
    Deloitte &Pullen
    
    Touche
    
    ToucheFY 2007
    
    FY 2007
    
    FY 2006Audit Fees
    
    $
    154,344
    
    
    $
    38,182
    
    
    $
    192,625Audit-Related Fees
    
    
    8,590
    
    
    
    5,718
    
    
    
    0Tax Fees
    
    
    0
    
    
    
    0
    
    
    
    0All Other Fees
    
    
    0
    
    
    
    0
    
    
    
    0
 37




---



##### 



ITEM 14  PRINCIPAL ACCOUNTING FEES AND SERVICES (Continued)
    38




---



##### 



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 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 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).
 39




---



##### 



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 Deloitte & Touche, LLP23.2
    
    
    *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 40




---



##### 



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 28, 2007.
 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 28, 2007/s/ Robert J. Simon

Robert J. Simon
    
    Chairman of the Board
    
    December 28, 2007/s/ Michael B. Wheeler

Michael B. Wheeler
    
    Executive VP, Chief Financial
Officer and Chief Operating
Officer (Principal Financial Officer
and Principal Accounting Officer)
    
    December 28, 2007/s/ Samuel J. Bero

Samuel J. Bero
    
    Director
    
    December 28, 2007/s/ C. Hamilton Davison, Jr.

C. Hamilton Davison, Jr.
    
    Director
    
    December 28, 2007/s/ Brian Kelly

Brian Kelly
    
    Director
    
    December 28, 2007/s/ Seymour S. Preston, III

Seymour S. Preston, III
    
    Director
    
    December 28, 2007
 41




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PageREPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
    
    
    F-1  F-2CONSOLIDATED FINANCIAL STATEMENTS:Balance Sheets as of September 30, 2007 and 2006
    
    
    F-3Statements of Income for the
Years Ended September 30, 2007, 2006, and 2005
    
    
    F-4Statements of Stockholders Equity for the Years Ended
September 30, 2007, 2006, and 2005
    
    
    F-5Statements of Cash Flows for the Years Ended
September 30, 2007, 2006, and 2005
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7  F-20




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ McGladrey & Pullen, LLPSchaumburg, IllinoisDecember 28, 2007
 F-1




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ Deloitte & Touche LLPMilwaukee, WisconsinDecember 18, 2006
 F-2




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2007 AND 2006
 2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    6,663
    
    
    $
    5,267Accounts receivablenet
    
    
    15,301,870
    
    
    
    15,078,707Inventories
    
    
    16,354,816
    
    
    
    14,125,417Prepaid expenses and other current assets
    
    
    833,896
    
    
    
    635,243Income taxes receivable
    
    
    
    
    
    
    46,893Deferred income taxes
    
    
    534,990
    
    
    
    490,637Total current assets
    
    
    33,032,235
    
    
    
    30,382,164PROPERTY, PLANT, AND EQUIPMENTNet
    
    
    19,002,401
    
    
    
    18,940,513GOODWILL
    
    
    7,211,575
    
    
    
    7,211,575OTHER ASSETSNet
    
    
    126,729
    
    
    
    154,466TOTAL
    
    $
    59,372,940
    
    
    $
    56,688,718LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    11,706,586
    
    
    $
    9,922,742Accrued payroll, vacation, and payroll taxes
    
    
    513,331
    
    
    
    507,923Income taxes payable
    
    
    107,182
    
    
    
    Other current liabilities
    
    
    716,620
    
    
    
    542,366Total current liabilities
    
    
    13,043,719
    
    
    
    10,973,031LONG-TERM DEBT
    
    
    6,191,666
    
    
    
    7,073,011DEFERRED INCOME TAXES
    
    
    2,537,154
    
    
    
    2,102,950COMMITMENTS
AND CONTINGENCIESSTOCKHOLDERS EQUITY:Common stock, $.01 par value9,000,000 shares authorized;
4,708,741 and 4,708,341 shares issued
    
    
    47,087
    
    
    
    47,083Additional paid-in capital
    
    
    25,304,421
    
    
    
    25,226,526Retained earnings
    
    
    13,390,699
    
    
    
    12,407,923Treasury stock173,097 common shares at cost
    
    
    (1,141,806
    )
    
    
    (1,141,806
    )Total stockholders equity
    
    
    37,600,401
    
    
    
    36,539,726TOTAL
    
    $
    59,372,940
    
    
    $
    56,688,718
 F-3




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006, AND 2005
 2007
    
    
    2006
    
    
    2005NET SALES
    
    $
    119,708,226
    
    
    $
    100,283,686
    
    
    $
    79,780,793COST OF SALES
    
    
    113,593,746
    
    
    
    95,239,456
    
    
    
    74,447,053GROSS PROFIT
    
    
    6,114,480
    
    
    
    5,044,230
    
    
    
    5,333,740OPERATING EXPENSES:Selling, general, and administrative
    
    
    4,057,699
    
    
    
    3,976,671
    
    
    
    4,586,999Gain on asset sales
    
    
    
    
    
    
    
    
    
    
    (441,670
    )Total
    
    
    4,057,699
    
    
    
    3,976,671
    
    
    
    4,145,329OPERATING INCOME
    
    
    2,056,781
    
    
    
    1,067,559
    
    
    
    1,188,411OTHER (EXPENSE) INCOME:Interest expense
    
    
    (519,227
    )
    
    
    (309,552
    )
    
    
    (62,965
    )Interest income and other income
    
    
    21,287
    
    
    
    58,957
    
    
    
    26,310Total
    
    
    (497,940
    )
    
    
    (250,595
    )
    
    
    (36,655
    )INCOME BEFORE INCOME TAXES
    
    
    1,558,841
    
    
    
    816,964
    
    
    
    1,151,756INCOME TAX EXPENSE
    
    
    576,065
    
    
    
    254,193
    
    
    
    451,488NET INCOME
    
    $
    982,776
    
    
    $
    562,771
    
    
    $
    700,268NET INCOME PER SHARE:Basic
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.15Diluted
    
    $
    0.22
    
    
    $
    0.12
    
    
    $
    0.15WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:Basic
    
    
    4,535,443
    
    
    
    4,538,109
    
    
    
    4,564,664Diluted
    
    
    4,563,984
    
    
    
    4,550,439
    
    
    
    4,582,716
  F-4




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006, AND 2005
 Common Stock
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalVoting
    
    
    Paid-In
    
    
    Retained
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    EquityBALANCESSeptember 30, 2004
    
    
    4,706,341
    
    
    
    47,063
    
    
    
    25,088,631
    
    
    
    11,144,884
    
    
    
    (831,385
    )
    
    
    35,449,193Exercise of director stock option
    
    
    2,000
    
    
    
    20
    
    
    
    9,280
    
    
    
    
    
    
    
    
    
    
    
    9,300Purchase of treasury stock37,200
common shares at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (241,882
    )
    
    
    (241,882
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,268
    
    
    
    
    
    
    
    700,268BALANCESSeptember 30, 2005
    
    
    4,708,341
    
    
    
    47,083
    
    
    
    25,097,911
    
    
    
    11,845,152
    
    
    
    (1,073,267
    )
    
    
    35,916,879Purchase of treasury stock11,900
common shares at cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (68,539
    )
    
    
    (68,539
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    128,615
    
    
    
    
    
    
    
    
    
    
    
    128,615Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    562,771
    
    
    
    
    
    
    
    562,771BALANCES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
    )
    
    $
    37,600,401
 F-5




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2007, 2006, AND 2005
 2007
    
    
    2006
    
    
    2005OPERATING ACTIVITIES:Net income
    
    $
    982,776
    
    
    $
    562,771
    
    
    $
    700,268Noncash items in net income:Depreciation and amortization of property, plant, and equipment
    
    
    2,156,880
    
    
    
    1,984,882
    
    
    
    1,998,146Amortization
    
    
    15,858
    
    
    
    21,145
    
    
    
    21,145Non-monetary reimbursement of cost
    
    
    (480,000
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    389,851
    
    
    
    374,943
    
    
    
    1,450,318Gain on asset salesnet
    
    
    (145
    )
    
    
    
    
    
    
    (441,670
    )Stock-based compensation expense
    
    
    75,615
    
    
    
    128,615
    
    
    
    Changes in operating working capital:Accounts receivable
    
    
    (223,163
    )
    
    
    (5,350,289
    )
    
    
    2,910,971Inventories
    
    
    (2,229,399
    )
    
    
    (3,987,646
    )
    
    
    (512,808
    )Prepaid expenses and other assets
    
    
    (186,774
    )
    
    
    (150,637
    )
    
    
    (130,352
    )Accounts payable
    
    
    2,184,762
    
    
    
    5,142,186
    
    
    
    (1,353,023
    )Accrued and other current liabilities
    
    
    (12,005
    )
    
    
    19,990
    
    
    
    (603,992
    )Income taxes payable/receivable
    
    
    154,075
    
    
    
    538,497
    
    
    
    (1,566,467
    )Net cash provided by (used in) operating activities
    
    
    2,828,331
    
    
    
    (715,543
    )
    
    
    2,472,536INVESTING ACTIVITIES:Additions to property, plant, and equipment
    
    
    (1,739,123
    )
    
    
    (4,867,449
    )
    
    
    (1,316,962
    )Payment of construction payable
    
    
    (400,918
    )
    
    
    (309,249
    )
    
    
    (184,690
    )Proceeds from disposition of property, plant and equipment
    
    
    500
    
    
    
    
    
    
    
    647,042Net cash used in investing activities
    
    
    (2,139,541
    )
    
    
    (5,176,698
    )
    
    
    (854,610
    )FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (689,678
    )
    
    
    
    
    
    
    (1,387,364
    )Borrowings of long-term debt
    
    
    
    
    
    
    5,960,375
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    (68,539
    )
    
    
    (241,882
    )Issuance of common stock
    
    
    2,284
    
    
    
    
    
    
    
    9,300Net cash (used in) provided by financing activities
    
    
    (687,394
    )
    
    
    5,891,836
    
    
    
    (1,619,946
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,396
    
    
    
    (405
    )
    
    
    (2,020
    )CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    5,267
    
    
    
    5,672
    
    
    
    7,692End of year
    
    $
    6,663
    
    
    $
    5,267
    
    
    $
    5,672NONCASH SUPPLEMENTAL INFORMATION:Deferred gain on sale of equipment
    
    $
    
    
    
    $
    
    
    
    $
    95,000Construction payable
    
    
    25,823
    
    
    
    400,918
    
    
    
    309,249
  F-6




---



##### 



TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2007 AND 2006, AND FOR THE YEARS ENDED
SEPTEMBER 30, 2007, 2006, AND 2005
 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.Cash and cash equivalentsCash and cash equivalents represents liquid investments with
maturities at acquisition of three months or less.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-7




---



##### 



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 segment for the years ended
September 30, 2007 and 2006. Goodwill by segment 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-8




---



##### 



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. Effective October 1, 2005, the Company
adopted SFAS No. 123(R), Share Based Payment. In accordance with this standard, the Company
has elected to recognize the compensation cost of all share-based awards on a straight-line
basis over the vesting period of the award. The Company adopted the fair value recognition
provisions of SFAS No. 123(R), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in fiscal 2006 includes: (a) compensation cost
for all share-based payments granted prior to, but not yet vested as of October 1, 2005, based
on the grant date fair value estimated in accordance with the original provisions of SFAS No.
123, and (b) compensation cost for all share-based payments granted subsequent to October 1,
2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS
No. 123(R). Results for prior periods have not been restated.Prior to October 1, 2005, the Company accounted for employee stock-based compensation under the
intrinsic value method prescribed by Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees. Under APB No. 25, no employee stock-option based
compensation expense was recorded in the income statement prior to October 1, 2005.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 28,541, 12,330, and
18,052 shares in fiscal 2007, 2006, and 2005, respectively. During fiscal 2007, 2006, and 2005,
options to purchase 82,500 shares, 295,750 shares, and 317,454 shares, respectively, were
excluded from the diluted earnings per share computation, as the effects of such options would
have been out-of-the-money.Recently Issued Accounting Standards In February 2007, the FASB issued SFAS 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. This Statement is effective
for fiscal years beginning after November 15, 2007. The Company has not yet evaluated the
effect, if any, the adoption of SFAS No. 159 will have on its consolidated financial statements.In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No.
108 (SAB No. 108), Considering the Effects of Prior Year Misstatements in the Current Year
Financial Statements. SAB No. 108 addresses how the effects of prior year uncorrected
misstatements should be considered when quantifying misstatements in current year financial
statements. SAB No. 108 requires an entity to evaluate misstatements using a balance sheet and
income statement approach and evaluate whether either approach results in quantifying an error
that is material in light of relevant quantitative and qualitative factors. The requirements of
SAB No. 108 are effective for fiscal years ending after November 15, 2006. The Company has
determined that the adoption of SAB No. 108 did not have a material effect on its consolidated
financial statements.
 F-9




---



##### 



In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No.
48, Accounting For Uncertainty in Income Taxes-an interpretation of
FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires
that the Company recognize in its financial statements, the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the technical merits of
the position. The accounting provisions of FIN 48 will be effective for the Company beginning
October 1, 2007, with the cumulative effect of the change in accounting principle recorded as
an adjustment to opening retained earnings. The Company is currently
evaluating the effect that the adoption of
FIN 48 will have on its consolidated financial statements.In September 2006, the FASB issued Statement of Financial Accounting Standards 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 157 is effective for the Company
beginning October 1, 2008, with early adoption permitted. The Company has not yet evaluated
the effect, if any, the adoption of SFAS No. 157 will have on its consolidated financial statements.In November 2007, the SEC Staff issued SAB No. 109 to express its views on the identification
and measurement of a derivative in written loan commitments. SAB No. 109 is based on the
guidance in SAB No. 105, Application of Accounting Principles to Loan Commitments, which
refers to several pronouncements on derivatives and the fair value of other financial
instruments. SAB No. 109 is effective for all derivative loan commitments issued or modified
in fiscal quarters beginning after December 15, 2007. The Company has not yet evaluated the
effect, if any, the adoption of SAB No. 109 will have on its consolidated financial statements.In December 2007, the Financial Accounting Standards Board (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. The Company has not yet evaluated the effect, if any, the adoption of
SFAS No. 141(R) will have on its consolidated financial statements.In December 2007, the Financial Accounting Standards Board (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 lose 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 not
yet evaluated the effect, if any, the adoption of SFAS No. 160 will have on its consolidated financial statements.ReclassificationsCertain prior year amounts have been reclassified to conform to the current year presentation.
 F-10




---



##### 



2.
    
    ACCOUNTS RECEIVABLEAccounts receivable are stated net of allowances for doubtful accounts of $105,271 and $85,917
at September 30, 2007 and 2006, respectively. For the years ended September 30, 2007, 2006, and
2005, the Company recorded bad debt expense (income) of $12,000, ($50,000), and $139,146,
respectively, and had write-offs of ($2,354), $209,531, and $197,528, respectively. Amounts due
from two multinational consumer products customers represent 70% and 69% of total accounts
receivable at September 30, 2007 and 2006, respectively. Accounts receivable included $436,736
and $64,000 for the cost of equipment to be reimbursed by one of these customers at September 30, 2007 and 2006, respectively.3.
    
    INVENTORIESInventories at September 30, 2007 and 2006, consist of the following:
 2007
    
    
    2006Raw materials
    
    $
    11,448,432
    
    
    $
    11,021,598Finished goods
    
    
    4,906,384
    
    
    
    3,103,819Total inventories
    
    $
    16,354,816
    
    
    $
    14,125,417
 Finished goods inventories are stated net of allowance for inventory obsolescence and shrinkage
of $197,064 and $206,924 at September 30, 2007 and 2006, respectively. For the years ended
September 30, 2007, 2006, and 2005, the Company recorded obsolescence and shrinkage expense of
$333,066, $190,537, and $37,988, respectively, and had write-offs of $342,926, $140,311, and
$218,176, respectively.4.
    
    PROPERTY, PLANT, AND EQUIPMENTProperty, plant, and equipment at September 30, 2007 and 2006, consist of the following:
 2007
    
    
    2006Land and land improvements
    
    $
    631,042
    
    
    $
    631,042Buildings
    
    
    9,817,231
    
    
    
    9,817,231Leasehold improvements
    
    
    753,952
    
    
    
    753,952Machinery and equipment
    
    
    23,473,684
    
    
    
    21,131,923Computer equipment and software
    
    
    5,399,114
    
    
    
    5,343,799Furniture and fixtures
    
    
    542,355
    
    
    
    542,855Vehicles
    
    
    44,206
    
    
    
    44,20640,661,584
    
    
    
    38,265,008Less accumulated depreciation and amortization
    
    
    22,944,927
    
    
    
    20,794,537Net depreciated value
    
    
    17,716,657
    
    
    
    17,470,471Construction in progress
    
    
    1,285,744
    
    
    
    1,470,042Property, plant, and equipmentnet
    
    $
    19,002,401
    
    
    $
    18,940,513
 F-11




---



##### 



5.
    
    OTHER ASSETSOther assets at September 30, 2007 and 2006, consist of the following:
 2007
    
    
    2006Loan origination and other fees
    
    $
    138,267
    
    
    $
    138,267Less accumulated amortization
    
    
    (138,267
    )
    
    
    (122,409
    )Subtotal
    
    
    
    
    
    
    15,858Note receivable bearing interest at 7% to 10%, due in variable monthly installments through 2009
    
    
    5,205
    
    
    
    17,856Prepaid rent on leased equipment
    
    
    9,202
    
    
    
    16,611Deposits on equipment to be acquired and other
    
    
    22,805
    
    
    
    22,805Cash surrender value of life insurance
    
    
    89,517
    
    
    
    81,336Other assetsnet
    
    $
    126,729
    
    
    $
    154,466
 6.
    
    LONG-TERM DEBTLong-term debt at September 30, 2007 and 2006, consists of the following:
 2007
    
    
    2006Long-term note payable to banks, under a $15 million unsecured credit agreement
    
    $
    6,000,000
    
    
    $
    6,673,011Other Long-term Debt
    
    
    191,666
    
    
    
    400,000Total Long-term Debt
    
    $
    6,191,666
    
    
    $
    7,073,011
 On May 20, 2004, the Company signed a new credit agreement. The credit agreement, as amended on
February 9, 2007, includes a $14.0 million revolving line of credit facility as well as a $1.0
million swing line available for overdrafts. The agreement as amended on August 14, 2007
expires on May 18, 2009. 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, 2007, the Company had $500,000 outstanding under
the base rate account at a rate of 7.75%, $3,500,000 outstanding under one Eurodollar account
at a rate of 7.30% and $2,000,000 outstanding under a second Eurodollar account at a rate of
7.00%. 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, 2007. The Company has $9,000,000 available under the line
of credit as of September 30, 2007. 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 $191,666 of Other Long-term Debt relates to an amount due to a specific
customer for the purchase of new wipe converting equipment. Payment is due in April of 2009.
The current portion of $191,667 is due in April of 2008 and is included in other current liabilities.
 F-12




---



##### 



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, 2007 and 2006, are as follows:
 2007
    
    
    2006Current deferred tax asset:Valuation allowances for accounts receivable  and inventoriesnot currently deductible
    
    $
    115,764
    
    
    $
    112,129Inventory costs capitalized for tax purposes
    
    
    48,916
    
    
    
    42,250Vacation and severance accrualsnot currently deductible
    
    
    87,342
    
    
    
    87,342Other accrualsnot currently deductible
    
    
    282,968
    
    
    
    248,916Total current assets
    
    
    534,990
    
    
    
    490,637Noncurrent deferred tax liability:Accelerated tax depreciation on property and equipment
    
    
    (1,882,751
    )
    
    
    (1,694,104
    )Accelerated tax amortization of goodwill
    
    
    (654,403
    )
    
    
    (408,846
    )Total noncurrent liabilitynet
    
    
    (2,537,154
    )
    
    
    (2,102,950
    )Net deferred tax liability
    
    $
    (2,002,164
    )
    
    $
    (1,612,313
    )
  2007
    
    
    2006
    
    
    2005Current tax (benefit) expense:Federal
    
    $
    173,506
    
    
    $
    (99,975
    )
    
    $
    (809,147
    )State
    
    
    12,708
    
    
    
    (20,775
    )
    
    
    (189,683
    )Total
    
    
    186,214
    
    
    
    (120,750
    )
    
    
    (998,830
    )Deferred tax expense:Federal
    
    
    302,628
    
    
    
    302,154
    
    
    
    1,191,332State
    
    
    87,223
    
    
    
    72,789
    
    
    
    258,986Total
    
    
    389,851
    
    
    
    374,943
    
    
    
    1,450,318Income tax expense
    
    $
    576,065
    
    
    $
    254,193
    
    
    $
    451,488
 F-13




---



##### 



2007
    
    
    2006
    
    
    2005Federal income taxes computed at statutory rates
    
    $
    530,006
    
    
    $
    277,768
    
    
    $
    391,597State income taxesnet of federal tax benefit
    
    
    65,954
    
    
    
    34,330
    
    
    
    45,740Certain goodwill amortization and other nondeductibles
    
    
    5,109
    
    
    
    28,710
    
    
    
    17,780Other
    
    
    (25,004
    )
    
    
    (86,615
    )
    
    
    (3,629
    )Income tax expense
    
    $
    576,065
    
    
    $
    254,193
    
    
    $
    451,488
 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 $185,819
for fiscal 2007, $127,983 for fiscal 2006, and $124,861 for fiscal 2005, 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 in March 2008. 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, 2007, are as follows:
 2008
    
    $
    1,306,7642009
    
    
    1,282,4272010
    
    
    838,4222011
    
    
    270,1272012
    
    
    244,3412013
    
    
    111,153Total
    
    $
    4,053,234
  Litigation
 F-14




---



##### 



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 related to continuing operations totaled $167,237, $120,411,
and $188,184 for fiscal 2007, 2006, and 2005, respectively.10.
    
    STOCKHOLDERS EQUITYNon-voting Common Stock and Preferred StockAt September 30, 2007 and 2006, 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
321,200 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. No options were issued in fiscal 2007 or
fiscal 2006 under this plan. During fiscal 2005, options to purchase 30,000 shares of voting
common stock were granted.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 2007,
2006, and 2005, options to purchase 17,000, 15,000, and 15,000 shares, respectively, of voting
common stock were granted under the 2004 plan.
 F-15




---



##### 



The following table illustrates the effect on net income and related earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based
compensation, for the twelve months ended September 30, 2005. For purposes of this pro-forma
disclosure, the value of the options is estimated using a Black-Scholes option valuation model
and amortized to expense over the options vesting periods.
 2005Net income, as reported
    
    $
    700,268Less total stock-based employee
compensation expense determined under
fair value based method for all awardsnet
of related income taxes
    
    
    (164,406
    )Pro forma
net income
    
    $
    535,862Earnings per share:Basicas reported
    
    $
    0.15Basicpro forma
    
    
    0.12Dilutedas reported
    
    
    0.15Dilutedpro forma
    
    
    0.12
 Pro forma net income for the year ended September 30, 2005 includes $51,925, net of income
taxes, of compensation expense for retirement eligible stock option participants. Stock
compensation expense for retirement eligible participants is reported in pro forma net income
when the options are granted in accordance with the provisions of the Plan. Previously, the
Company reported compensation expense for these participants over the vesting period.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, 2007 and 2006, the total stock compensation expense
recognized by the Company was $75,615 and $128,615, respectively. The total income tax benefit
recognized in the income statement for share-based compensation arrangements was $29,641 and
$50,417 for the years ended September 30, 2007 and 2006, respectively. If the Company had not
adopted SFAS No. 123(R), income before income taxes would have
increased by $75,615 and $128,615 and
net income would have increased by $45,973 and $78,198 for the years ended September 30, 2007 and
2006, respectively. If the Company had not adopted SFAS No. 123 (R), basic and diluted
earnings per share for the years ended September 30, 2007 and
2006 would have increased by $0.01 and
$0.02, respectively. The adoption of SFAS No. 123 (R) did not affect the
Companys cash flows from operations or financing activities. As of September 30, 2007, there
is approximately $3,000 of unrecognized compensation cost related to
share-based compensation awards which will be recognized in the first
quarter of fiscal 2008.
 F-16




---



##### 



A summary of the stock option activity under the Companys share-based compensation plan for
the years ended September 30, 2006 and 2007 is presented below:
 WeightedWeighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at October 1, 2005
    
    
    541,800
    
    
    $
    7.40New grants
    
    
    15,000
    
    
    
    6.60Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (95,850
    )
    
    
    6.90Outstanding 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
    
    
    $
    6.74
    
    
    
    5.4
    
    
    $
    1,997,238Exercisable at September 30, 2007
    
    
    286,467
    
    
    $
    6.70
    
    
    
    5.4
    
    
    $
    1,919,850
 The weighted average grant date fair value of options granted during 2007, 2006, and 2005 was
estimated at $2.05, $3.86, and $4.55 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 2007, 2006, and 2005:
 2007
    
    2006
    
    2005Risk-free interest rate
    
    
    4.64
    %
    
    
    5.07
    %
    
    
    3.9  4.4
    %Expected volatility
    
    
    47.8
    %
    
    
    50.6
    %
    
    
    89.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected option life, standard option (years)
    
    
    2.0
    
    
    
    7.0
    
    
    
    7.0
 F-17




---



##### 



In fiscal 2005, 2,000 shares of director stock options were exercised. In fiscal 2006, 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 $7.50 on the last business day for the year ended
September 30, 2007. Cash proceeds received from the exercise of options during 2007 and 2005
were $2,284 and $9,300, respectively. The total intrinsic value of options exercised during
2007 was $968. There were no options exercised during 2006. 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 123 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 $371,149, $353,475, and $336,643 for
fiscal 2007, 2006 and 2005, respectively.As one of the terms of our purchase of Tufco Industries, Inc., in February 1992, we entered
into agreements with Mr. Bero and one other former stockholder of Tufco Industries, Inc.
pursuant to which we are required to pay the premiums on life insurance on their lives. The
policies were collectively assigned to us as security for the repayment of such amounts. On
April 19, 2006, the Company received $80,414 from Mr. Bero for premiums paid on his behalf and
the assignment on the policy was released.As discussed in footnote 8 Commitments and Contingencies, the Company leases facilities from
a partnership composed of current and former stockholders.12.
    
    SUPPLEMENTAL CASH FLOW INFORMATIONThe following is provided as supplemental information to the consolidated statements of cash
flows:
 2007
    
    
    2006
    
    
    2005Interest paid
    
    $
    524,350
    
    
    $
    282,650
    
    
    $
    68,050Income taxes (refunded) paid  net
    
    $
    32,140
    
    
    $
    (639,191
    )
    
    $
    567,637
 F-18




---



##### 



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:
 2007
    
    2006
    
    2005Contract Manufacturing segmentCustomer A
    
    
    41
    %
    
    
    17
    %
    
    
    5
    %Customer B
    
    
    30
    %
    
    
    45
    %
    
    
    51
    %
 The manufacturing contract with Customer A expires April 2009 and the manufacturing contract with Customer B
expires June 2008. Management notes that the Company is currently negotiating extensions to the manufacturing
contracts with these customers, and based on historical experience and these efforts, believes
it will renew these agreements for three year periods.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.
 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
    
    $
    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-19




---



##### 



Contract
    
    
    Business
    
    
    CorporateFiscal 2006
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    74,105,516
    
    
    $
    26,178,170
    
    
    $
    
    
    
    $
    100,283,686Gross profit
    
    
    2,654,927
    
    
    
    2,389,303
    
    
    
    
    
    
    
    5,044,230Operating income (loss)
    
    
    321,043
    
    
    
    1,452,657
    
    
    
    (706,141
    )
    
    
    1,067,559Depreciation and amortization
expense
    
    
    1,586,338
    
    
    
    235,245
    
    
    
    184,444
    
    
    
    2,006,027Capital expenditures
    
    
    4,808,709
    
    
    
    58,740
    
    
    
    
    
    
    
    4,867,449Assets:Inventories
    
    $
    12,162,242
    
    
    $
    1,963,175
    
    
    $
    
    
    
    $
    14,125,417Property, plant, and
equipmentnet
    
    
    16,556,278
    
    
    
    2,341,799
    
    
    
    42,436
    
    
    
    18,940,513Accounts receivable and other
(including goodwill)
    
    
    17,148,571
    
    
    
    5,776,954
    
    
    
    697,263
    
    
    
    23,622,788Total assets
    
    $
    45,867,091
    
    
    $
    10,081,928
    
    
    $
    739,699
    
    
    $
    56,688,718
 Contract
    
    
    Business
    
    
    CorporateFiscal 2005
    
    Manufacturing
    
    
    Imaging
    
    
    and Other
    
    
    ConsolidatedNet sales
    
    $
    55,209,396
    
    
    $
    24,571,397
    
    
    $
    
    
    
    $
    79,780,793Gross profit
    
    
    3,415,012
    
    
    
    1,918,728
    
    
    
    
    
    
    
    5,333,740Operating income (loss)
    
    
    1,543,470
    
    
    
    1,142,732
    
    
    
    (1,497,791
    )
    
    
    1,188,411Depreciation and amortization
expense
    
    
    1,405,474
    
    
    
    316,856
    
    
    
    296,961
    
    
    
    2,019,291Capital expenditures
    
    
    1,210,773
    
    
    
    95,415
    
    
    
    10,774
    
    
    
    1,316,962Assets:Inventories
    
    $
    7,905,186
    
    
    $
    2,232,585
    
    
    $
    
    
    
    $
    10,137,771Property, plant, and
equipmentnet
    
    
    12,932,529
    
    
    
    2,518,305
    
    
    
    206,194
    
    
    
    15,657,028Accounts receivable and other
(including goodwill)
    
    
    11,382,228
    
    
    
    5,728,320
    
    
    
    1,580,671
    
    
    
    18,691,219Total assets
    
    $
    32,219,943
    
    
    $
    10,479,210
    
    
    $
    1,786,865
    
    
    $
    44,486,018
 F-20