<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    Form 10-K

               Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended September 30, 1998. Commission
file number 0-21018.

                            TUFCO TECHNOLOGIES, INC.
                            ------------------------
             (Exact name of registrant as specified in its charter)

                Delaware                                       39-1723477
                --------                                       ----------
   (State of other jurisdiction                          (IRS Employer ID No.)
 of incorporation or organization)

                     4800 Simonton Road, Dallas, Texas 75244
                     ---------------------------------------
                    (Address of principal executive offices)
                                 (972) 789-1079
                                 --------------
                         (Registrant's telephone number)

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

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

                     Common Stock, par value $0.01 per share
               ---------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                Yes  X   No
                                    ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [XX]

The aggregate market value of the Common Stock of Tufco Technologies, Inc. held
by non-affiliates, as of December 11, 1998, was approximately $8,085,992. Such
aggregate market value was computed by reference to the closing price of the
Common Stock as reported on the NASDAQ National Market on December 11, 1998. For
purposes of making this calculation only, the registrant has defined affiliates
as including all directors and beneficial owners of more than ten percent of the
Common Stock of the Company. The number of shares of the registrant's Common
Stock outstanding as of December 11, 1998 was 3,786,223. The number of shares of
the registrant's Non-Voting Common Stock outstanding at December 11, 1998 was
709,870.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for its Annual Meeting
of Stockholders to be held in 1999 are incorporated by reference into Part III
of this report.



                                      -1-
<PAGE>   2

                                     PART I
ITEM 1 - BUSINESS

GENERAL

        Tufco Technologies, Inc. ("Tufco" or the "Company") manufactures and
distributes business imaging paper products and tissues, towels and wipes for
public use facilities, provides diversified custom converting and specialty
printing services, and distributes paint sundry products used in home
improvement projects. Since 1992 and until its organizational restructuring on
February 7, 1997, the Company operated as three wholly owned subsidiaries, Tufco
Industries, Inc., Executive Converting Corporation ("ECC") and Hamco Industries,
Inc. On January 28, 1994, the Company completed an initial public offering in
which the Company issued and sold 900,000 shares of its Common Stock, par value
$.01 per share ("Common Stock"), and certain stockholders of the Company sold
50,000 shares of Common Stock. Contemporaneously with the closing of the
Company's public offering, the Company acquired, through ECC, substantially all
of the assets of Executive Roll Manufacturing, Inc., d/b/a Executive Converting
Corporation for $7.5 million and 127,778 shares of Common Stock. On August 23,
1995, the Company acquired, through Hamco Industries, Inc., substantially all of
the assets of Hamco, Inc. for approximately $12.9 million in cash. On February
7, 1997, the Company reorganized its corporate structure to better serve its
business needs. Through this restructuring, the net assets of Tufco Industries,
Inc., Executive Converting Corporation and Hamco Industries, Inc. were
transferred to Tufco, L.P., a Nevada limited partnership, in which Tufco Tech,
Inc. is the sole managing general partner and is wholly owned by the Company. On
November 13, 1997 the Company purchased all of the outstanding common stock of
Foremost Manufacturing Company, Inc. for $5.7 million and 25,907 shares of
Common Stock.

        Tufco manufactures a wide range of printed and unprinted business
imaging paper products for a variety of business needs and offers a wide array
of custom converting services for industrial uses including thermal laminating,
precision slitting and rewinding, folding, precision sheeting and packaging for
delivery to the end user. Its specialty printing services provide wide web,
multi-color flexographic and letterpress printing and adhesive laminations to
industrial users and resale distributors. Tufco also manufactures a complete
line of tissues, towels and wipes which are sold through its Away-From-Home
sector, and the Company's Paint Sundries sector manufactures and distributes
products used by professional painters and do-it-yourself home owners.

        The Company was incorporated in the state of Delaware in 1992 to acquire
Tufco Industries, Inc. Although the Company was organized in 1992, the business
conducted by Tufco Industries, Inc. has been in continuous operation since 1974.
The Company has become a leading manufacturer of value-added custom paper
products and specialty printing services, and it has the most complete line of
paint sundry products in the industry. The Company's principal executive offices
are located at 4800 Simonton Road, Dallas, Texas 75244, and its telephone number
is (972) 789-1079.

PRODUCTS AND SERVICES

        The Company markets its products and services through four market
sectors: Business Imaging paper products, Custom Converting services,
Away-From-Home products, and Paint Sundry products. Tufco conducts operations
from five manufacturing and distribution locations in Green Bay, Wisconsin;
Manning, South Carolina; Dallas, Texas; Newton, North Carolina and St. Louis,
Missouri.

     Business Imaging Market Sector

        The Company produces and distributes a wide variety of printed and
unprinted paper products used in business imaging equipment in market sectors
including architectural and engineering design, high speed data processing,
point of sale, automatic teller machines and a variety of office equipment. The
Company's products include roll products ranging in length from 150 feet to 3500
feet and in widths from 1 inch to 54 inches. Additionally, the Company produces
precision-sheeted products ranging in size from 11 by 17 inches to 65 by 65
inches. The Company's products are available in a wide range of paper grades
including a variety of weights of bond paper, thermal imaging papers, fine
vellums and films and multi-part forms.



                                      -2-
<PAGE>   3


Custom Converting Market Sector

        Tufco Technologies has custom converting capability at three locations:
Green Bay, Wisconsin; Dallas, Texas; and Newton, North Carolina.

        The Company's converting capabilities at its Green Bay facilities
include thermal and adhesive laminating, slitting, rewinding, cutting, folding
and custom packaging. These facilities custom convert a wide array of materials,
including polyethylene films, non-woven materials, paper, and tissue and
toweling for the industrial converting market. Products include operating room
towels, reinforced towels (towels with a polyethylene or polypropylene mesh to
provide strength and durability), industrial and consumer wipes, medical drapes,
feminine hygiene components, specialty roll and large roll tissue and toweling
products, polyethylene and paper dropcloths, and window insulation products. The
Company's winders can convert rolls of material up to 132 inches wide and slit
widths as narrow as 3 inches. The Company has also invested in equipment to
perform thermal lamination to bond various material substrates up to 120 inches
wide, such as multi-ply dropcloths, reinforced material and breathable moisture
barrier wraps. Machinery and equipment at the Green Bay facility have the
capability, developed by the Company's in-house engineers and technical
personnel, to combine or modify various substrates through the use of precise
temperature and pressure control.

        The Company's Green Bay facility offers value-added specialty printing
and related graphic arts services, including pre-press work, sheeting,
calendering, printing, finishing, and thermal and adhesive laminating. The
Company provides multi-color printing that uses computerized control to maintain
a high level of print quality. The Company focuses on specialty printing
projects such as paper tablecovers, food and gift-wraps, feminine hygiene
components, printed release liners, and novelty and holiday bathroom tissue.

        Green Bay's pre-press staff prepares projects for printing to customer
specifications. The Company uses the customer's preliminary artwork and arranges
or performs all preparatory processes for camera ready art, plate making,
layout, plate mounting, and other related services.

        The Green Bay presses use flexographic and letterpress processes and can
print on a wide range of media from lightweight tissue or non-wovens to
heavyweight paperboard. The Company utilizes five wide-web presses of various
sizes, three of which are capable of six-color printing. The Company uses
water-based and oil-based inks. The presses can accommodate widths up to 82
inches for one-sided printing and are capable of simultaneous two-sided printing
for widths up to 51 inches. The Company also uses a web press system that
includes in-line operations to produce thermal and adhesive composite lamination
or to apply specialty coatings. The presses have a variety of print cylinders
that provide the Company with the flexibility to meet customer needs, utilizing
lower cost rubber printing plates that allow the Company to maintain quality and
achieve a competitive pricing advantage for low volume jobs relative to printers
using engraved printing cylinders.

        The Company's Dallas facility has converting capabilities that include
precision slitting, rewinding, sheeting, specialty packaging, folding,
perforating, and trimming. These capabilities are directed toward converting
fine paper materials including specialty and fine printing papers and
paperboards, thermal papers, polyester films, and coated products.

        The Dallas facility's custom converting services include final packaging
of products, including items on which the Company has performed other converting
or specialty printing services. Packaging capabilities include high quality bulk
skid wrapping, vacuum-sealed carton packed sheets, poly-paper and poly-film
wrapping, and shrink-film packaging. The flexibility of the equipment at the
Dallas facility and the packaging alternatives that the Company can provide its
customers produce finished products that meet and exceed a varied range of
customer specifications and requirements. The Company's Dallas custom converting
services have grown due to the addition of a state-of-the-art Jagenberg sheeter
with specialty paper and paperboard sheeting capabilities and the investment in
a custom designed rewinder for thermal papers and films.

        The Company's Newton facility has converting capabilities which include
precision slitting and rewinding of paper rolls in a large variety of sizes
which include variables in width, diameter, core size, single or multi-ply, and
occasionally color. All of the rolls can be printed on one side or both,
providing the customer with advertising, promotional or security features.




                                      -3-
<PAGE>   4

      Custom Converting Market Sector (continued)

        The Company's Newton facility also produces a full range of papers for
use in bank proof or teller machines, including fan-fold forms, cards and
printed rolls of various sizes and types. Additionally, the Company produces an
extensive selection of standard and customized guest checks for use in the
restaurant industry, and the Company's Newton facility owns equipment which
enables the Company to produce a wide variety of multi-part business forms.

      Away-From-Home Market Sector

        The Company's Away-From-Home market sector manufactures and distributes
a complete line of tissues, towels and wipes used in washrooms and workstations
in public facilities such as hotels, offices, restaurants, stadiums,
manufacturing plants and home improvement centers. The Company does not intend
to compete against the large national integrated paper companies. Instead,
Tufco's strategy is to provide regional distributors with a high quality,
reasonably priced line of products which can be sold to small local or regional
customers who are currently serviced by regional converters. Because of its
investment in winding and folding assets, the Company believes it is the only
converter which can offer a complete array of away-from-home products to these
customers, and by taking advantage of its greater national distribution
capabilities, Tufco can offer improved levels of service and responsiveness.

      Paint Sundry Market Sector

        The Company's Manning and St. Louis facilities manufacture and
distribute home improvement products that are sold to paint and hardware
distributors, home centers, and retail paint stores. To provide its customers
with the industry's most complete line of paint sundry products, the Company
supplements the products it manufactures by distributing products manufactured
for the Company by others. Consumer disposable products include polyethylene,
paper and canvas dropcloths, painters' coveralls, latex and vinyl gloves, paint
strainers, and other allied items. These products are often used by homeowners
performing do-it-yourself home improvement projects, contractors and painting
professionals. The Company also sells a line of masking paper products for the
automotive aftermarket. The Company has increased sales of consumer disposables
by continually broadening and improving its product line, thereby allowing
customers to consolidate their orders with a single vendor. In addition, the
Company has attracted large buying groups through various volume incentives. To
further increase sales, the Company developed a proprietary point of sale
display, the "TUFPRO Paint Management System" that places in one location all of
the necessary supplies (other than paint and brushes) for a typical home
painting project.

MANUFACTURING AND OPERATIONS

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

        The Company's growth has been supported by its substantial capital
investment in new facilities and machinery and equipment. During the past three
years, the Company spent over $8 million on capital expenditures at its five
locations. Through the Company's expenditures on new equipment, it has increased
both its manufacturing capacity and the range of its capabilities. Principal
capital additions include equipment which expand the Company's custom folding
and packaging capabilities, and presses which enable the Company to print
poly-laminate and thermal coated substrates. The Company has also expanded and
modernized its roll-to-roll winding capacity. The Company believes it has
sufficient capacity to meet its growth expectations.



                                      -4-
<PAGE>   5

Manufacturing and Operations (continued)

        The Company's equipment can produce a wide range of sizes of production
output to meet unique customer specifications. The custom converting equipment
can accommodate web widths from 3 inches to 132 inches. Its folding equipment
can fold from 6 inches to 120 inches by 240 inches, in one-inch increments. The
Company's printing presses perform flexographic and letterpress processes and
print from one to six colors on webs as wide as 82 inches. Its fine printing
paper and paperboard converting equipment includes state-of-the-art rewinders,
sheeters, folders, perforators, and equipment that performs extensive packaging
functions.

SALES AND MARKETING

        Tufco Technologies markets its products and services nationally through
its 31 full-time sales and service employees and 114 manufacturer's
representatives and distributors. The Company's sales and service personnel are
compensated on a base salary plus incentive bonus. The Company generally
utilizes referrals and its industry reputation and presence to attract
customers, and advertises on a limited basis in industry periodicals and shelter
media and through cooperative advertising arrangements with its suppliers and
customers.

        Customers generally purchase the Company's goods and services under
project-specific purchase orders rather than long-term contracts; however, long
term contracts are customary when the Company is required to purchase special
machinery or materials to complete an order. The Company has recently reached
agreements with several companies including Hallmark Cards, Inc., Procter &
Gamble Manufacturing and Amoco Fabrics and Fibers, for specialized contract
converting services focused on printing and packing. The Company's sales volume
by quarter is subject to a limited amount of seasonal fluctuation. Generally,
Tufco's sales volume and operating income are at their lowest levels in the
first and second fiscal quarters and are generally higher in the third and
fourth fiscal quarters.

        The customer base consists of approximately 1,000 companies, including
large integrated paper companies, dealers and distributors of business imaging
papers and away-from-home tissues and towels, and resellers of paint sundry
products. There were no customers accounting for more than 10% of consolidated
sales in fiscal 1998. Sales are generally made on a credit basis within limits
set by the Company's executive management. The Company generally requires
payment to be made within 30 days following shipment of goods.

COMPETITION

        The Company believes the primary areas of competition for its goods and
services are price, quality, production capacity and capability, capacity for
prompt and consistent delivery, service, and continuing relationships. The
Company believes that its key competitive advantages are product quality, quick
response, rapid equipment set-up and turnaround time, long-standing customer
relationships, broad customer base, highly engineered machinery and processes,
production diversity and capacity, continuity of management, and experienced
personnel. Management believes that there is no single competitor that offers
the breadth and variety of products and services offered by the Company. In
addition, customers benefit from the Company's ability to perform its multiple
services and distribute from its national asset base, which reduces freight
costs and increases product and service reliability through use of single source
supplier on a national basis.

        Competitors for the Company's products and services vary based upon the
products and services offered. In Business Imaging Products, raw materials are
inexpensive and readily available, and converting equipment is easily purchased.
As a result, competition for Business Imaging customers is very strong,
primarily from small regional suppliers and a few large national companies.
Based on management's assessment of the market, no single firm offers the
breadth of products offered by Tufco on a national basis. In the Company's
industrial custom converting services, the Company believes that relatively few
competitors offer a wider range of services or can provide them from a single
source. With respect to the Company's specialty printing services and fine paper
converting products, the competition consists primarily of numerous small
regional companies. Management believes that the Company's capabilities in
custom converting and specialty printing give it the flexibility, diversity, and
capacity to compete effectively on a national basis with large companies and
locally with smaller regional companies. The Company does not believe foreign
competition is significant at this time in the custom converting and specialty
printing lines. There is strong domestic competition and a modest amount of
foreign competition in the manufacturing of Away-From-Home and paint sundry
products.



                                      -5-
<PAGE>   6

Competition (continued)

        Although the Company does not engage in a significant amount of direct
competition with large integrated paper companies that are its customers,
management believes that there are inherent business risks in the expansion of
sales to these customers, given their significant in-house production
capabilities. The Company typically serves as a product development accelerator
to these customers because as sales of specific converting services to these
customers have grown, the customer may discontinue purchases from the Company
and move production in-house due to the economies of scale having been attained.
The Company believes that it is able to evaluate and anticipate adequately the
timing of such changes. Moreover, the Company's strategy has been to emphasize
the development of its product market sectors (Business Imaging, Away-From-Home
and Paint Sundry) and to establish longer term contractual relationships in its
Custom Converting sector in order to reduce the future exposure to sudden
revenue loss due to the development of customers' in-house production capacity.

PRODUCT DEVELOPMENT AND QUALITY CONTROL

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

        The Company maintains a quality control laboratory that constantly
monitors its production using statistical process controls (SPC) to observe and
measure quality effectiveness of its production processes, such as temperature,
speed, tension, and pressure. The Company's rigid standards and use of SPC have
allowed it to qualify for the GMP (Good Manufacturing Practices) designation
from several customers, a quality control standard that these companies require
before they will use a company for outsourcing. In addition, several of the
Company's customers perform periodic audits at the Company's Green Bay facility
to ensure that adequate quality control practices are in place at all times. The
Company's Dallas quality control laboratory is part of a collaborative of 33
laboratories sponsored by a large original equipment manufacturer that utilizes
the Dallas facility for its production. The collaborative is utilized by that
company to help set quality standards and ensure that its suppliers, like the
Dallas facility, have in places the process reviews and controls necessary to
ensure that quality products are being manufactured consistently.

RAW MATERIALS AND SUPPLIERS

        The Company is not dependent on any particular supplier or group of
affiliated suppliers for raw materials or for equipment needs. The Company feels
it has excellent relationships with its primary suppliers, and the Company has
not experienced difficulties in obtaining raw materials in the past. The
Company's raw materials fall into four general groups: various paper stocks,
inks for specialty printing, non-woven materials, and polyethylene films. There
are numerous suppliers of all of these materials. To ensure quality control and
consistency of its raw material supply, the Company's Dallas and Newton
facilities receive fine paper stock primarily from two major paper companies
instead of a greater number of companies.

        The Company's primary raw material, base paper, is subject to periodic
price fluctuations. In the past, the Company has been successful in passing most
of the price increases on to its customers, but management cannot guarantee that
the Company will be able to do this in the future.



                                      -6-
<PAGE>   7

ENVIRONMENTAL MATTERS

        The Company is subject to federal, state, and local environmental laws
and regulations concerning emissions into the air, discharges into waterways,
and the generation, handling, and disposal of waste materials. These laws and
regulations are constantly evolving, and it is impossible to predict accurately
the effect they may have upon the capital expenditures, earnings, and
competitive position of the Company in the future. The Company believes that it
complies with these laws and regulations in all material respects. The Company
does not maintain environmental impairment insurance.

        The Company's past expenditures relating to environmental compliance
have not had a material effect on the Company, nor does the Company expect that
such expenditures relating to the Company's recently completed addition to its
manufacturing facility will be material. Further growth in the Company's
production capacity with a resultant increase in discharges and emissions may
require capital expenditures for environmental control facilities in the future.
The Company does not expect such expenditures to be material. No assurance can
be given that future changes to environmental laws or their application will not
have a material adverse effect on the Company's business or results of
operations.

EMPLOYEES

        At September 30, 1998, the Company had approximately 500 employees, of
whom 150 were employed at its Green Bay facility, 100 at its Manning facility,
90 at its Dallas facility, 100 at its Newton facility, and 60 at its St. Louis
facility. The Company has a non-union workforce and believes that its
relationship with its employees is good.

ITEM 2 - PROPERTIES

        The Company's main production and distribution facilities for industrial
converting, specialty printing, and away-from-home products manufacturing are
located in Green Bay, Wisconsin. The 188,000 square foot facility (of which
approximately 10,000 square feet are used for offices) was built in stages from
1980 to 1996 and is owned by the Company. The Company has approximately seven
additional acres on which to expand in the future.

        The Company leases 44,000 square feet of space in a facility contiguous
to its Green Bay, Wisconsin, facility, which is currently used for certain
warehouse, distribution, and packaging operations. This facility is leased from
a partnership of which Samuel Bero and Patrick Garland, both directors of the
Company, are two of several partners. The lease for this facility expires March,
2003. The Company has an option to renew this lease for an additional three
years.

        The Company's corporate headquarters are located in facilities which it
leases in Dallas, Texas, in the same building in which the Company produces and
distributes business imaging products and provides custom converting of various
fine paper and board grade papers. The lease for the 173,000 square foot
facility expires in February, 2003.

        The Company owns a 120,000 square foot facility in Newton, North
Carolina, used in the production and distribution of business imaging products
and in the printing of custom forms.

        In June 1996, the Company leased for five years and in October of 1996
occupied a new 62,000 square foot facility in Clarendon County, South Carolina,
which was designed and constructed to house the production and distribution
operations for the Company's paint sundry business. The Company has guaranteed
to the lessor that, if the lease is not renewed, the residual market value of
the building which was constructed at a cost of $1.5 million, will be at least
$0.9 million. Management expects the building value will be at least $0.9
million; however, the Company cannot provide assurances as to the impact of
future economic factors influencing the future value of the building. The
Company also owns a 42,000 square foot facility in Manning, South Carolina that
it is using for storage of bulk raw materials as well as the manufacturing of
some away-from-home products. Operations in this facility will end effective
December 31, 1998, and the Company will market the building for sale.



                                      -7-
<PAGE>   8

ITEM 2 - PROPERTIES (CONTINUED)

        The Company leases a 60,000 square foot building in St. Louis, Missouri
from the former owners of Foremost Manufacturing Company in which it packages
and distributes paint sundry products. This lease expires in November 2000.

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

ITEM 3 - LEGAL PROCEEDINGS

        The Company is involved in various legal proceedings in the ordinary
course of its business, which are not anticipated to have a material adverse
effect on the Company's results of operations or financial condition.

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

        None.


                                      -8-
<PAGE>   9

                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

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

<TABLE>
<CAPTION>
                                                          High          Low           Close
                                                          ----          ---           -----

<S>                   <C>                                <C>           <C>           <C>
        Fiscal 1994:
                      Quarter ended March 31, 1994       $ 9.56        $7.50         $ 7.50

                      Quarter ended June 30, 1994        $ 8.25        $6.50         $ 7.00

                      Quarter ended September 30, 1994   $ 7.25        $3.00         $ 6.00
        Fiscal 1995:
                      Quarter ended December 31, 1994    $ 7.25        $5.00         $ 6.50

                      Quarter ended March 31, 1995       $ 6.50        $4.25         $ 4.75

                      Quarter ended June 30, 1995        $ 5.50        $4.00         $ 5.50

                      Quarter ended September 30, 1995   $ 5.50        $4.13         $ 4.75
        Fiscal 1996:
                      Quarter ended December 31, 1995    $ 8.25        $4.50         $ 7.00

                      Quarter ended March 31, 1996       $ 8.00        $6.25         $ 7.25

                      Quarter ended June 30, 1996        $ 7.25        $5.25         $ 6.75

                      Quarter ended September 30, 1996   $ 7.25        $6.00         $ 6.25
        Fiscal 1997:
                      Quarter ended December 31, 1996    $ 8.25        $6.25         $ 7.25

                      Quarter ended March 31, 1997       $ 7.63        $6.00         $ 6.88

                      Quarter ended June 30, 1997        $ 7.50        $5.75         $ 6.38

                      Quarter ended September 30, 1997   $10.75        $6.00         $10.38
        Fiscal 1998:
                      Quarter ended December 31, 1997    $12.00        $9.50         $10.06

                      Quarter ended March 31, 1998       $11.25        $8.25         $ 8.75

                      Quarter ended June 30, 1998        $10.00        $6.50         $ 7.00

                      Quarter ended September 30, 1998   $ 8.00        $6.50         $ 7.00
</TABLE>

        As of December 11, 1998, there were approximately 148 holders of record
of the Common Stock. On December 11, 1998, the last reported sale price of the
Common Stock as reported on the NASDAQ National Market was $6.13 per share.

        The Company has never paid dividends on its Common Stock. All notes
except the Industrial Development Revenue Bonds are supported by loan agreements
which contain certain restrictive covenants, including requirements to maintain
certain levels of cash flow and restriction on the payment of dividends. The
Company does not intend to pay any cash dividends in the foreseeable future.




                                      -9-
<PAGE>   10
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER 
         SHARE DATA)

<TABLE>
<CAPTION>
                                                                       Years Ended September 30,
                                                   ----------------------------------------------------------------------
                                                     1998          1997          1996            1995(1)         1994 (2)
                                                   --------      --------      --------         --------         --------
<S>                                                <C>           <C>           <C>              <C>              <C>     
STATEMENT OF OPERATIONS DATA:
   Net sales .................................     $ 76,973      $ 65,750      $ 68,374         $ 47,987         $ 36,204
   Cost of sales .............................       65,903        53,835        56,042           39,796           29,724
                                                   --------      --------      --------         --------         --------

   Gross profit ..............................       11,070        11,915        12,332            8,191            6,480
   Selling, general, and
     administrative expenses .................        7,803         6,396         6,753            4,906            3,797
   Amortization and other post-
     acquisition expenses ....................        1,025           706           724              437              454
     Write-down of property ..................          250            --            --               --               --
                                                   --------      --------      --------         --------         --------

   Operating income ..........................        1,992         4,813         4,855            2,848            2,229
   Interest expense, net .....................       (1,151)         (849)       (1,093)            (885)            (575)
   Miscellaneous income ......................            3           327             5               46               64
                                                   --------      --------      --------         --------         --------

   Income before income taxes
     and extraordinary item ..................          844         4,291         3,767            2,009            1,718
   Income tax expense ........................          452         1,638         1,507              808              690
                                                   --------      --------      --------         --------         --------

   Net income before extraordinary item ......          392         2,653         2,260            1,201            1,028
   Extraordinary item-loss from early
     repayment of debt, net of income
     tax benefit of $32 ......................           62            --            --               --               --
                                                   --------      --------      --------         --------         --------

     Net income ..............................     $    330      $  2,653      $  2,260         $  1,201         $  1,028
                                                   ========      ========      ========         ========         ========

   Earnings per share:
   Income before extraordinary item
      Basic ..................................     $    .09      $    .61      $    .52         $    .37         $    .37
      Diluted ................................     $    .09      $    .60      $    .51         $    .37         $    .37
   Net income
      Basic ..................................     $    .07      $    .61      $    .52         $    .37         $    .37
      Diluted ................................     $    .07      $    .60      $    .51         $    .37         $    .37

   Weighted average common shares outstanding:
      Basic ..................................        4,420         4,384         4,386            3,247            2,789
      Diluted ................................        4,518         4,448         4,438            3,248            2,790

OTHER DATA:
   Depreciation and
     amortization(3) .........................     $  2,605      $  2,363      $  2,279         $  1,647         $  1,337
   Capital expenditures ......................        2,629         3,234         2,371            1,280            1,386

BALANCE SHEET DATA: (AT SEPTEMBER 30)
   Working capital ...........................     $ 12,594      $ 10,225      $ 10,553         $ 13,914         $  6,577
   Total assets ..............................       58,767        49,045        50,038           51,060           34,004
   Long-term debt ............................       17,697        10,498        13,350           18,897           10,369
   Stockholders' equity ......................       32,250        31,368        28,719           26,445           19,164
</TABLE>

---------------

                                    FOOTNOTES

     (1) The results of operations of Hamco, Inc. are included since acquisition
         in August 1995.

     (2) The results of operations of ECC are included since acquisition in
         January 1994.

     (3) Depreciation and amortization include amortization of goodwill and
         organizational expenses.



                                      -10-


<PAGE>   11

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

FORWARD LOOKING STATEMENTS

         Management's discussion of the Company's 1998 year in comparison to
1997, contains forward-looking statements regarding current expectations, risks
and uncertainties for 1999 and beyond. The actual results could differ
materially from those discussed here. As well as those factors discussed in the
section entitled Business in this report, other factors that could cause or
contribute to such differences include, among other items, significant changes
in the cost of base paper stock, competition in the Company's product areas, or
an inability of management to successfully reduce operating expenses in relation
to net sales without damaging the long-term direction of the Company. Therefore,
the selected financial data for the periods presented may not be indicative of
the Company's future financial condition or results of operations.

GENERAL

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

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

         In January 1994, the Company completed an initial public offering of
its stock and concurrently purchased substantially all of the assets of
Executive Converting Corporation (ECC). The Company issued 900,000 shares of its
common stock on the NASDAQ Market at $9.00 per share, resulting in net proceeds
of $6.8 million. The total cost of the ECC acquisition was $8.7 million
consisting of $7.5 million in cash and 127,778 shares of the Company's common
stock.

         In August 1995, the Company purchased substantially all of the assets
of Hamco Industries, Inc. for a total cost of $14.2 million funded by the
issuance of 1.2 million shares of the Company's common stock and additional bank
borrowings.

         In November 1997, the Company purchased all of the outstanding common
stock of Foremost Manufacturing Company, Inc. for a total cost of $6.2 million,
including transaction costs, funded by the issuance of 25,907 shares of the
Company's common stock and additional bank borrowings.

RESULTS OF OPERATIONS

         The following discussion relates to the financial statements of the
Company for the fiscal year ended September 30, 1998 (current year or fiscal
1998), in comparison to the fiscal year ended September 30, 1997 (prior year or
fiscal 1997), as well as the fiscal year ended September 30, 1996 (fiscal 1996).



                                      -11-
<PAGE>   12
RESULTS OF OPERATIONS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                    PERCENTAGE OF NET SALES               YEAR-TO-YEAR CHANGE
                                                    -----------------------               -------------------
                                                                                           1997 TO    1996 TO
                                                1998           1997           1996         1998       1997
                                                ----           ----           ----         ----       ----
<S>                                            <C>            <C>            <C>            <C>         <C>
Net sales ..................................   100.0%         100.0%         100.0%         17%        -4%
Cost of sales ..............................    85.6           81.9           82.0          22         -4
                                               -----          -----          -----       

     Gross margin ..........................    14.4           18.1           18.0          -7         -3

Selling and administrative expenses ........    10.1            9.7            9.9          22         -5
Amortization and post-
acquisition expenses .......................     1.4            1.1            1.1          45         -2
Write-down of property .....................     0.3            0.0            0.0          --         --
                                               -----          -----          -----       

     Operating income ......................     2.6            7.3            7.1         -59         -1

Interest expense, net ......................    -1.5           -1.3           -1.6          36        -23
Miscellaneous income .......................     0.0            0.5            0.0         -99         --
                                               -----          -----          -----       
     Income before income taxes
     and extraordinary item ................     1.1            6.5            5.5         -80         14
Income tax expense .........................     0.6            2.5            2.2         -72          9
                                               -----          -----          -----       

Net income before extraordinary item .......     0.5            4.0            3.3         -85         17
Extraordinary item..........................     0.1             --             --          --         --
                                               -----          -----          -----       

Net income .................................     0.4%           4.0%           3.3%        -88%        17%
                                               =====          =====          =====       =====      =====
</TABLE>


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

<TABLE>
<CAPTION>
                                                       1998                     1997                    1996
                                                -----------------        -----------------        -----------------
                                                            % of                     % of                     % of
                                                Amount      Total        Amount      Total        Amount      Total
                                                -----------------        -----------------        -----------------
                                                                      (Dollars in millions)
<S>                                             <C>           <C>        <C>           <C>        <C>           <C>
Business imaging paper products                 $  32.5       42%        $  33.4       51%        $  34.9       51%
Custom converting and specialty printing           19.2       25            20.2       30            22.4       33
Away-from-home products                             7.3        9             3.2        5             1.9        3
Paint sundry products                              18.0       24             9.0       14             9.2       13
                                                -------      ----        -------      ----        -------      ----

Net sales                                       $  77.0      100%        $  65.8      100%        $  68.4      100%
                                                =======      ====        =======      ====        =======      ====
</TABLE>



                                      -12-



<PAGE>   13

FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997

         NET SALES for fiscal 1998 increased $11.2 million, or 17%, primarily
due to the additive impact on the Paint Sundries sector of Foremost acquisition
as well as growth in the Company's Away-From-Home market sector. Since the date
of its acquisition by the Company in November of 1997, Foremost had net sales of
$9.1 million. Adjusted for this fact, the Company's net sales increased $2.1
million. Sales of the Company's Away-From-Home (AFH) products increased $4.0
million or 122% in fiscal 1998 as the Company continued to penetrate this
market. Due to the competitive nature of the AFH market and to the lack of an
established base of customers, Tufco utilized aggressive pricing to secure new
sales, resulting in low margins. Sales in Tufco's Business Imaging market sector
declined $0.9 million or 3% from fiscal year 1997 due to reduced selling prices
which were a result of increased competition in this market. Raw materials costs
continued to decline in fiscal 1998, and the combination of low cost raw
materials and the availability of used production assets allowed several new
competitors to enter the market place for Business Imaging products. While the
Company did not lose significant business volumes to these competitive
intrusions, it did sacrifice margin and sales dollars due to the lower selling
prices. Custom Converting sales declined $1.1 million or 5% due to the continued
decline in service revenue from the outsourced converting of tissue and towels
products, a trend which began in fiscal 1997 as several of the Company's
customers merged, thereby decreasing their need to outsource these services.
Tufco management has chosen to pursue multi-year agreements with companies who
are seeking high quality technical printing and packaging services as a
replacement of the sales lost as the tissue and towel producers internalized
their converting needs. Establishment of these longer-term agreements generally
requires an investment of one to two years in order to establish relationships
and reach quality and productivity certifications which these customers require.
As a result, the Company did not have significant sales or profit gains in
Custom Converting in fiscal 1998. However, subsequent to the end of the 1998
fiscal year, the Company reached an agreement with Procter & Gamble
Manufacturing whereby the Company will provide custom packaging and procurement
support services for the introduction of three new products in the U.S. market.
Additionally, the Company has reached a multi-year agreement with Hallmark
Cards, Inc. to produce printed and unprinted tablecovers. Both of these
agreements were the result of trial work which began in fiscal 1998.

         GROSS PROFIT decreased $0.8 million or 7% to $11.1 million in fiscal
1998. Adjusted for the effect of the Foremost acquisition, gross profit
decreased $2.5 million or 21%. Gross margin decreased to 14.4% in fiscal 1998
from 18.1% in fiscal 1997. Gross margin was 13.8% in the current year after
adjusting for the Foremost acquisition. The primary cause for the decline is the
reduction in selling prices for products sold in the Company's Business Imaging
market sector. In order to combat competitive intrusions into its customer base,
the Company has lowered its prices and corresponding profit margins on its
Business Imaging products. While management believes it is effectively retaining
its customer base, profitability is still depressed and management cannot offer
assurance that Business Imaging selling prices will rebound in the near term.
Margins in the Custom Converting sector declined due to lower sales volume as
well as higher raw material costs without corresponding increases in selling
prices resulting in reduced coverage of fixed costs. Management believes the new
contract converting agreements with Procter & Gamble Manufacturing and Hallmark
Cards, Inc. will help increase margins in the Custom Converting sector. In
addition to pricing concessions in Business Imaging and volume reductions in
Custom Converting, the Company incurred higher than normal costs in employee
benefit and worker's compensation expense. In both cases, the Company is
responsible for paying all the claims up to a designated stop-loss. In fiscal
1998, the Company's cost for payment of health insurance claims increased $0.6
million or 100% over the prior year. Similarly, the cost of the Company paid
workers' compensation claims increased $0.1 million or 32%. While management
cannot be assured that these costs will decline in future years, historical
trends indicate that the claims expense in 1998 was abnormal. Finally, margins
in the Away-From-Home sector remained low due to low selling prices charged by
the Company as it built its customer base. Management plans to increase its
selling prices in fiscal 1999, and utilize its expanded volumes to negotiate
lower casts of raw materials, thus improving margins in this sector.

         SELLING AND ADMINISTRATIVE EXPENSES increased $1.4 million or 22% over
fiscal 1997. Selling and administrative costs for Foremost from the date of
acquisition totaled $1.0 million, so the adjusted increase for the Company was
$0.4 million or 6% over fiscal 1997. The increase was the result of annual wage
increases and additional sales personnel added at the end of fiscal 1997.
Included in the fiscal 1998 expense, the Company incurred $0.4 million in
severance costs, primarily for certain executive positions which were eliminated
during the year.



                                      -13-
<PAGE>   14

FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO SEPTEMBER 30, 1997 (CONTINUED)

         GOODWILL AMORTIZATION AND POST-ACQUISITION EXPENSES increased $0.3
million in fiscal 1998 due to the amortization of Goodwill related to the
acquisition of Foremost ($0.2 million) and to the establishment of a $0.1
million reserve for potential costs relating to an Indemnification Agreement
with a related party.

         WRITE-DOWN OF PROPERTY relates to the $0.3 million reduction in the
carrying value of certain property, which the Company owns in South Carolina, to
its estimated market value as the Company prepares to list the property for
sale. The Company has occupied a new leased facility in Manning, South Carolina,
and by December 1998, the Company will cease all remaining operations in the
property, which it owns.

         NET INTEREST EXPENSE increased $0.3 million due to the debt incurred to
finance the acquisition of Foremost. Adjusted for this fact, interest expense
declined $0.1 million due to reduced average borrowings throughout fiscal 1998.

          MISCELLANEOUS INCOME decreased $0.3 million in fiscal 1998. The income
in fiscal 1997 related to the gain on the sale of converting assets ($0.1
million) and a favorable settlement of litigation ($0.2 million).

         INCOME TAXES were 54% of pretax earnings for fiscal 1998 compared to
38% for the prior year. The primary cause for the increase in the effective tax
rate is the non-deductibility of amortization of Goodwill associated with the
Foremost acquisition.

         EXTRAORDINARY ITEM in fiscal 1998 relates to loss on the early
repayment of debt incurred by the Company to refinance virtually all of its
debt. In August 1998, the Company signed a new syndicated debt agreement with
First Union National Bank and Chase Bank of Texas which provided $10.7 million
in term loans and up to $9.0 million in revolving loans.

         BASIC AND DILUTED EARNINGS PER SHARE after the effect of the 
extraordinary item were both 7 cents in fiscal 1998 compared to 61 and 60 cents
respectively in fiscal 1997.

FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996

         NET SALES for fiscal 1997 decreased $2.6 million, or 4%, primarily due
to lower custom converting revenue from the manufacturing of tissue and towel
products for large integrated paper companies. Historically, sales of the
Company's tissue and towel converting services have produced a large part of the
custom converting sector revenue, but in fiscal 1997, mergers involving four of
the Company's largest customers created excess internal production capacity and
reduced the need for those companies to out-source. As a result, sales of custom
converting services declined $2.2 million in fiscal 1997. In addition to reduced
custom converting revenue, reductions in the cost which the Company pays for
certain grades of paper used in its business imaging sector were passed through
to Tufco's customers in the form of lower selling prices. The lower selling
prices had the effect of reducing revenue in that sector by 8% in fiscal 1997;
however, unit sales volume of business imaging products increased 4% resulting
in a net revenue reduction of 4% from fiscal 1996. Finally, sales in the
Company's Away-From-Home sector (tissues, towels and wipes sold for use in
facilities outside of the home) increased in the current year by $1.3 million
(68%) over fiscal 1996.



                                      -14-
<PAGE>   15

FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996 (CONTINUED)

         GROSS MARGIN increased to 18.1% in fiscal 1997 from 18.0% in fiscal
1996. The reduction in sales of custom converting services had the effect of
reducing the fiscal 1997 gross margin at the Company's Green Bay operating
facility by $0.5 million compared to fiscal 1996. Additionally, the Company
established a $0.3 million inventory reserve for excess stock, which reduced
gross margin by 0.4 points, in fiscal 1997 primarily associated with certain
products in the paint sundries sector. These two factors were offset by
additional margin due to the portion of the lower paper cost retained by the
Company in the Business Imaging sector, and due to increased margin from the
Away-From-Home sector. Finally, during fiscal year 1996, approximately 36% of
the Company's inventory was valued using the last in first out (LIFO) method,
and sharp reductions in paper prices resulted in a reduction in the LIFO reserve
and a corresponding increase in gross profit of $0.5 million (0.7 points of
margin) for that year.

         In the first quarter of fiscal 1997, the Company's management elected
to conform the valuation of all of the Company's inventories to the first in
first out (FIFO) method which is used predominantly for its recently acquired
subsidiaries. The FIFO method, in management's opinion, is preferable to
facilitate inventory transfers and the integration of all locations, and to
minimize the effects of temporary paper price integration of all locations, and
to minimize the effects of temporary paper price fluctuations (which to date
have been offsetting). This change has no material effect on the results of
operations for fiscal 1997.

         SELLING AND ADMINISTRATIVE EXPENSES as a percentage of net sales,
decreased to 9.7% in fiscal 1997 from 9.9% in fiscal 1996. Selling and
administrative expenses decreased $0.4 million in fiscal 1997. In 1996, the
Company accrued approximately $0.6 million in post employment costs associated
with the resignation of its Chief Executive Officer and other management. After
adjustment for this factor, selling and administrative costs increased $0.2
million (3%) from comparable operations for fiscal 1996. The increase was the
result of additional sales personnel in the Away-From-Home sector.

         GOODWILL AMORTIZATION AND POST-ACQUISITION EXPENSES did not change
materially from fiscal 1996.

         NET INTEREST EXPENSE decreased by $0.3 million to $0.8 million in
fiscal 1997 from $1.1 million in fiscal 1996. The Company worked with its
primary lender to revise its outstanding debt and its cash management in the
second quarter of fiscal 1996. The debt revisions resulted in reducing the
weighted average interest rate which the Company pays on its debt, the benefit
of which was realized for the full year of fiscal 1997. The fiscal 1996
restructuring of cash management along with improved cash flow from operations
in fiscal 1997 allowed the Company to lower its total borrowings under its
working capital line of credit during fiscal 1997.

         MISCELLANEOUS INCOME increased by $0.3 million in fiscal 1997 due to a
gain on the sale of converting assets ($0.1 million) and to a favorable
settlement of litigation ($0.2 million).

         INCOME TAXES were 38% of pretax earnings for fiscal 1997 compared to
40% for fiscal 1996. In the second quarter of fiscal 1997, the Company
reorganized its corporate structure to better serve its business needs. As a
result of this reorganization, the Company's effective tax rate for the current
year was reduced to 38% due to reductions in income based state tax expense.
While current state tax laws support this form of corporate structure, Company
management cannot be assured that these laws will not change in the future.

         BASIC AND DILUTED EARNINGS PER SHARE were 61 and 60 cents respectively
in fiscal 1997 compared to 52 and 51 cents for fiscal 1996. The establishment of
the reserve for inventory overstock had the effect of reducing earnings per
share by 4 cents in fiscal 1997.



                                      -15-
<PAGE>   16
SELECTED QUARTERLY FINANCIAL DATA

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

FISCAL 1998 (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                      First         Second          Third          Fourth
                                                     Quarter        Quarter        Quarter         Quarter
<S>                                                  <C>            <C>            <C>            <C>     
Net sales ...................................        $16,690        $19,006        $19,921        $ 21,356
Gross profit ................................          2,670          2,572          3,102           2,726
Operating expenses ..........................          1,909          1,920          1,884           3,365
Operating income (loss) .....................            761            652          1,218            (639)
Income (loss) before income taxes and
 extraordinary item .........................            553            358            877            (944)
Income tax expense (benefit) ................            221            124            311            (204)
Income (loss) before extraordinary item .....            332            234            566            (740)
Net income (loss) ...........................            332            234            566            (802)
Earnings (loss) per share:
         Basic ..............................            .08            .05            .13            (.18)
         Diluted ............................            .07            .05            .13            (.18)
</TABLE>

FISCAL 1997 (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                      First         Second          Third         Fourth
                                                     Quarter        Quarter        Quarter        Quarter
<S>                                                  <C>            <C>            <C>            <C>    
Net sales ...................................        $15,697        $15,032        $17,233        $17,788
Gross profit ................................          3,002          2,792          3,369          2,752
Operating expenses ..........................          1,813          1,908          1,906          1,475
Operating income ............................          1,189            884          1,463          1,277
Income before income taxes ..................            979            752          1,456          1,104
Income tax expense ..........................            383            305            548            402
Net income ..................................            596            447            908            702
Earnings per share:
         Basic ..............................            .14            .10            .20            .17
         Diluted ............................            .13            .10            .21            .16
</TABLE>

         The Company's sales volume by quarter is subject to a limited amount of
seasonal fluctuation. Generally, the Company's sales volume is at its lowest
levels in the first and second fiscal quarters. Sales are generally at higher
levels in the third and especially the fourth fiscal quarters.

         In the fourth quarter of fiscal 1998, the Company reported diminished
gross profit and gross margin on sales as well as higher operating expenses.
Gross profit and operating expenses were negatively impacted by higher health
benefit and workers' compensation costs incurred under the Company's self funded
programs. Expenses for these two programs increased by $0.8 million over the
same period a year ago. These costs, combined with other unusual or
extraordinary cost discussed previously, totaled $1.5 million in the fourth
quarter of fiscal 1998. Additionally, the impact of strong competition in the
Company's Business Imaging sector had a negative impact on gross profit in the
fourth quarter of fiscal 1998 as selling prices for the Company's products were
at their lowest point for the year. Operating expenses were also negatively
impacted by higher costs of sales commissions paid to independent paint sundries
sales representatives, higher than normal travel and meeting costs and the
write-down of the South Carolina real property.



                                      -16-


<PAGE>   17

LIQUIDITY AND CAPITAL RESOURCES

         Cash flow from operations decreased $3.4 million to $2.4 million in
fiscal 1998. Cash generated from net income plus non-cash expenses was $3.4
million compared to $4.9 million in the prior year. Additionally, accounts
receivable at September 30, 1998 were $1.6 million higher than at September 30,
1997, due to higher sales volumes in August and September of fiscal 1998. The
average days of sales outstanding and reported in accounts receivable did not
increase materially in 1998.

         Cash used in investing activities totaled $9.6 million in fiscal 1998
resulting from the cash acquisition costs of Foremost ($6.0 million), purchases
of and deposits on production equipment and continued development and
implementation of the Company's centralized Enterprise Resource Planning
Computer System ($3.7 million). Cash provided by financing activities totaled
$7.5 million and was used to fund the Foremost acquisition and to purchase
production equipment.

         The Company's primary need for capital resources is to finance
inventories, accounts receivable, capital expenditures, and acquisitions. On
August 28, 1998, the Company entered into a syndicated financing arrangement
with First Union National Bank (First Union) and Chase Bank of Texas, N.A. with
First Union acting as agent. The agreement provides $10.7 million in term debt
repayable in equal quarterly payments maturing in August 2005 and up to $9.0
million under a revolving credit agreement through June 2001. The Company paid
approximately $0.1 million to its former lender to exit the prior credit
agreement, principally in the form of prepayment penalties on the early
repayment of term debt. Simultaneous with the refinancing, the Company entered
into an interest rate swap arrangement with First Union which had the effect of
creating a fixed rate of interest on the Company's term debt. As a result of
this arrangement, the rate of interest on the term debt is fixed at 5.87%, plus
a profit spread for the syndicated banks of between 100 and 150 basis points,
depending on certain financial ratios achieved by the Company. Management
believes that this hedge arrangement creates a desirable stability of future
cash flows. At December 11, 1998, the Company had approximately $13.7 million in
total borrowings outstanding, with $6.0 million available under the revolving
credit agreement. Management believes its operating cash flow is adequate to
service its long-term obligations as of September 30, 1998, and any budgeted
capital expenditures.

         The new credit facility is secured by substantially all of the
Company's assets and contains certain restrictive covenants, including minimum
required net worth, minimum required cash flow, maximum allowable indebtedness
and maximum allowable capital expenditures. At September 30, 1998 the Company
failed to achieve the required Indebtedness to EBITDA financial covenant as
defined by the bank resulting in a violation of its loan agreement. Management
believes that the violation was the result of the transition of the financing
and treasury management relationships under its former lender to the new
arrangement with First Union. In December 1998, the violation was waived by
the bank as of September 30, 1998, and management believes the Company will meet
its covenants during fiscal 1999. At December 11, 1998, the Company was in 
compliance with all of its debt covenants.

         On November 13, 1997, the Company purchased all of the outstanding
stock of Foremost Manufacturing, Inc. ("Foremost"), a St. Louis-based
manufacturer and distributor of paint sundry products, for $5.25 million in cash
and 25,907 shares of the Company's common stock valued at $0.25 million. The
total cash purchase price of $5.25 million is subject to specified reductions to
be finalized by January 1999, and to additional consideration of up to $900,000
based on specified sales levels through October 1998. The Company has calculated
that the additional consideration will be $400,000 which has been reflected in
the Company's September 30, 1998 financial statements, however, the former
owners of Foremost have not yet reviewed or agreed to that calculation.

         The Company intends to retain earnings to finance future operations and
expansion and does not expect to pay any dividends within the foreseeable
future. In addition, the Company's primary lender must approve the payment of
any dividends.

         The Company's allowance for uncollectible accounts receivable was
$230,000 at December 11, 1998. Management believes that this allowance is
adequate to provide for losses inherent in its accounts receivable.



                                      -17-
<PAGE>   18
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

         Sharp increases or decreases in the costs of key commodities, such as
paper or polyethylene, periodically impact the Company's inventory values and
net income. This was the case in fiscal years 1996 and 1997, when the prices of
these commodities dropped. In fiscal 1998, the impact of inflation was minimal
on the Company's inventory and net income. The Company is generally successful
in passing these fluctuations in raw material prices to its customers through
increases or decreases in the selling price of the Company's products. Prior to
these periods, the impact of inflation has been minimal on the Company's
inventory and net income.

RECENTLY ISSUED ACCOUNTING STANDARDS

         Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per
Share" was effective for the Company's year ending September 30, 1998, and all
prior-period EPS data was restated to conform with this Statement.

         SFAS 130, "Reporting Comprehensive Income" will be effective for the
Company's year ending September 30, 1999; this Statement establishes standards
for reporting and displaying comprehensive income and its components in the
financial statements; SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" will be effective for the Company's year ending September
30, 2000; this Statement establishes standards for the valuation, classification
and accounting of derivative instruments. The Company expects that the
implementation of these standards will have no material effect on the financial
statements.

         SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information" will be effective for the Company's year ending September 30, 1999;
this Statement redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about the Company's
reportable operating segments. The Company has not yet completed its analysis of
which operating segments it will report on.

YEAR 2000 SYSTEMS ISSUES

         Many existing computer programs use only two digits to identify a year
in the date field, and if not corrected, many computer applications could fail
or create erroneous results by or at the year 2000. Left uncorrected, year 2000
systems issues could have a material negative impact on the Company's operations
and its profitability.

         In response to ongoing business needs, Tufco has begun implementing a
new Enterprise Resource Planning system, and the year 2000 issue was one of the
design pre-requisites for this new system. As of September 30, 1998, the Company
has spent $1.6 million for hardware, software and consulting services related to
the project, and management estimates it will spend an additional $0.2 million
for completion of the conversion to the new system which began in fiscal 1998
and is scheduled to be completed in fiscal 1999. While the Company has taken
every precaution to ensure that the new information system will operate properly
in the year 2000, management has relied on assurances and warranties by its
hardware and software vendors. The Company will continue to test its new systems
for year 2000 compliance throughout the implementation process. The Company is
in the process of evaluating the possible negative impact on the Company of year
2000 issues relating to its significant vendors and customers, and management
anticipates completing that analysis by March 1999. The Company is also nearing
completion on its analysis of the potential impact of embedded date sensitive
programs included in any software used to operate its production equipment.
While management has not uncovered any specific instances where year 2000 issues
have not been addressed, the Company cannot rule out the possibility of
difficulties arising from year 2000 issues.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Financial statements are attached as Appendix to this report.

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

         Not applicable.


                                      -18-
<PAGE>   19

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers, directors, and key employees of the Company
are:

<TABLE>
<CAPTION>
Name                                        Age               Positions With the Company
----                                        ---               --------------------------

<S>                                         <C>               <C>
Louis LeCalsey, III                         59                President and Chief Executive Officer
Gregory L. Wilemon                          38                Chief Financial Officer, Chief Operating
Officer and Secretary/Treasurer
Robert J. Simon (1)(2)(3)                   40                Chairman of the Board of Directors
Samuel J. Bero (1)(3)                       63                Director
Patrick J. Garland (1)(3)                   67                Director
C. Hamilton Davison, Jr.                    39                Director
Edward A. Leinss (2)                        57                Director
William J. Malooly (2)                      56                Director
</TABLE>


--------------------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee

         Each director holds office until the next annual meeting of
stockholders of the Company and until his successor has been elected and
qualified. Each director with the exception of Mr. Bero and Mr. LeCalsey has
served on the Board of Directors since Tufco's inception in February 1992. Mr.
Bero was elected to the Board in 1994 and Mr. LeCalsey was elected in 1996.
Executive officers of the Company are elected by the Board of Directors and
serve at the discretion of the Board. There are no family relationships between
any executive officers or directors of the Company.

EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES

         Louis LeCalsey, III--Mr. LeCalsey assumed the positions of President
and Chief Executive Officer of Tufco in September 1996. Previously he was
President of Tufco Industries, Inc. since April 1996 and prior to that he served
as Vice President of Worldwide Logistics for Scott Paper Company, the
culmination of a 20-year career with Scott in various leadership positions.

         Gregory L. Wilemon--Mr. Wilemon has been Chief Financial Officer since
September 18, 1995 and was appointed Secretary/Treasurer by the board effective
November 12, 1995 and Chief Operating Officer in September 1996. Mr. Wilemon had
been Chief Operating Officer at Executive Roll Manufacturing from 1991 until May
of 1993. From 1993 until he rejoined the Company, Mr. Wilemon was Vice President
of Finance at Great North American Companies. Prior to his earlier tenure with
the Company, Mr. Wilemon was a Senior Business Planner with PepsiCo from 1987 to
1991.

         Robert J. Simon--Mr. Simon has been Chairman of the Board of Directors
of Tufco since February 1992. Mr. Simon has been a Senior Managing Director of
Bradford Ventures, Ltd., a private investment firm, since 1992 and a General
Partner of Bradford Associates since 1989. Prior to that time, Mr. Simon held
the following positions with Bradford Ventures Ltd.: Managing Director from 1990
to 1992; Senior Vice President from 1987 to 1990, and Vice President from 1985
to 1987. Mr. Simon is Chairman of the Board of HoloPak Technologies, Inc., a
public company. Mr. Simon is either Chairman of the Board or a director of
Paramount Cards, Inc., Parmarco Technologies, Inc., Overseas Equity Investors
Ltd., Overseas Private Investors Ltd., Overseas Callander Fund, Ampco Metals,
Inc. and several other privately held companies.



                                      -19-
<PAGE>   20

EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES (CONTINUED)

         Samuel J. Bero--Mr. Bero had been President and Chief Executive Officer
from November 1993 until he retired in July 1995, Executive Vice President since
November 1992, and General Manager of Tufco since 1974, when he co-founded the
Predecessor with Mr. Garland and two other individuals. Mr. Bero has over 33
years of experience in the converting industry.

         Patrick J. Garland--Mr. Garland was the President of Tufco from 1974,
when he co-founded the Predecessor with Mr. Bero and two other individuals,
until November 1993. Mr. Garland retired from Tufco Industries in February 1994
when his employment agreement expired. He continues to serve as a director of
Tufco Technologies, Inc. Mr. Garland has over 33 years of experience in the
converting industry.

         C. Hamilton Davison, Jr.--Mr. Davison has been the President and a
director of Paramount Cards, Inc., a manufacturer of greeting cards, since 1988.
Prior to that time, Mr. Davison was Vice President, International and Marketing
of Paramount Cards, Inc. since 1986. Mr. Davison is also a director and serves
on the executive committee of the greeting card industry trade association and
is a Director on the Board of Valley Resources.

         Edward A. Leinss--Mr. Leinss has been President and Chief Executive
Officer of Ahlstrom Filtration, Inc., a manufacturer of filtration media, since
1989 and of its predecessor, Filtration Sciences, Inc., from 1981 to 1989.

         William J. Malooly--Mr. Malooly has been the Chairman and Chief
Executive Officer of Bank One, Green Bay since 1977.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

The information called for by Item 10 with respect to compliance with Section 16
(a) of the Securities Exchange Act is incorporated by reference from the Proxy
Statement relating to the Company's annual meeting to be held in 1999 (the
"Proxy Statement"), which Proxy Statement is to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days of the end of the
fiscal year covered by this report.

ITEM 11 - EXECUTIVE COMPENSATION

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

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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



                                      -20-
<PAGE>   21


                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1. Financial  Statements.  Financial  statements are attached as Appendix 
        to this report.  The index to the financial statements is found on F-1 
        of the Appendix.

(a)  2. Financial Statement Schedules. All schedules are omitted since the
        required information is not present or is not present in amounts
        sufficient to require a submission of the schedules, or because the
        information required is included in the financial statements and notes
        thereto.

(a)  3. Exhibits. See Exhibit Index in part (c), below.

(b)     The Company did not file any reports on Form 8-K during the quarter 
        ended September 30, 1998.

<TABLE>
<CAPTION>
(c)      Exhibit
         Number            Description
         ------            -----------

<S>                   <C>
           2.1        Stock Purchase Agreement dated as of November 12, 1997 by
                      and among Tufco Technologies, Inc. (the "Company"),
                      Charles Cobaugh and James Barnes (filed as exhibit 2.1 to
                      the Company's Form 8-K dated November 13, 1997 filed with
                      the Commission on November 26, 1997 file number 0-21018),
                      incorporated by reference herein.

           3.1        Restated Certificate of Incorporation (1) (Exhibit 3.1)

           3.2        Bylaws (1) (Exhibit 3.2)

           10.1       Stock Purchase and Contribution Agreement, dated as of
                      February 25, 1992, among the Company, Tufco Industries,
                      Inc. ("Tufco"), and the Stockholders of Tufco. (1)
                      (Exhibit 10.1)

           10.2       Amended and Restated Consulting Agreement with Bradford
                      Investment Partners, L.P. (3) (Exhibit 10)

           10.3       Loan Agreement, dated May 1, 1992, between the Village of
                      Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit
                      10.11)

           10.4       1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12)

           10.5       Form of Employee Stock Purchase Agreement between the
                      Company and certain key employees of the Company. (1)
                      (Exhibit 10.17)

           10.6       1993 Non-Employee Director Stock Option Plan. (2) (Exhibit
                      10.19)

           10.7       Amended Employment Agreement with Greg Wilemon, dated
                      September 18, 1995. (7) (Exhibit 10.11)

           10.8       Lease Agreement, dated as of March 1, 1995, between Bero,
                      Garland, Gebhardt and McClure, a Wisconsin partnership,
                      and Tufco. (6) (Exhibit 10.13)

           10.9       Stock Option Plan for Carl B. Francis dated April 21,
                      1995. (6) (Exhibit 10.14)

           10.10      Lease Agreement dated as of April 1, 1996, between Bero,
                      Garland, Gebhardt and McClure, a Wisconsin partnership,
                      and Tufco. (7) (Exhibit 10.15)

           10.11      Separation Agreement dated October 1, 1996 between Carl B.
                      Francis and the Company. (7) (Exhibit 10.17)

           10.12      Employment Agreement with Louis LeCalsey, III dated
                      September 19, 1996. (7) (Exhibit 10.18)

           10.13*     Credit Agreement among Tufco L.P. as Borrower, the
                      Company as the Parent First Union National Bank as agent
                      and the banks named herein dated August 28, 1998.

           10.14*     ISDA Master Agreement and Schedule to the Master
                      Agreement dated as of July 30, 1998 between First Union
                      National Bank and Tufco, L.P.

           10.15*     First Amendment to Credit Agreement.

           21.1*      Subsidiaries of the Company.

           27.1*      Financial Data Schedule
</TABLE>

         ----------
         *   Filed Herewith

         (1) Incorporated by reference to the Company's Registration Statement
             on Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as
             filed with the Commission on December 16, 1992.

         (2) Incorporated by reference to Amendment No. 1 to the Registration
             Statement as filed with the Commission on November 23, 1993.

         (3) Incorporated by reference to the Company's Quarterly Report on Form
             10-Q for the quarterly period ended March 31, 1995.

         (4) As well as those factors discussed in the section entitled Business
             in this report, other factors.

         (5) Incorporated by reference to the Company's Current Report on Form
             8-K dated August 23, 1995.

         (6) Incorporated by reference to the Company's Annual Report on Form
             10-K for the period ended September 30, 1995.

         (7) Incorporated by reference to the Company's Annual Report on Form
             10-K for the period ended September 30, 1997.

(c)  See (a)(3) above for the list of exhibits required to be filed as part of
     the Annual Report on Form 10-K.



                                      -21-
<PAGE>   22



                                   SIGNATURES




         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Green Bay,
Wisconsin, on December 18, 1998.

                                  Tufco Technologies, Inc.



                                  By:   /s/ Louis LeCalsey, III
                                        ---------------------------------------
                                        Louis LeCalsey, III
                                        President and Chief Executive Officer

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

<TABLE>
<CAPTION>
              Signature                                         Title                         Date
              ---------                                         -----                         ----


<S>                                                 <C>                                   <C> 
/s/ Louis LeCalsey, III                             President, Chief Executive Officer    December 18, 1998
-----------------------------------                 and Director (Principal Executive
Louis LeCalsey, III                                 Officer)

/s/ Robert J. Simon                                 Chairman of the Board                 December 18, 1998
-----------------------------------
Robert J. Simon


/s/ Gregory L. Wilemon                              Chief Financial Officer, Chief        December 18, 1998
-----------------------------------                 Operating Officer and Secretary
Gregory L. Wilemon                                  (Principal Financial and
                                                    Accounting Officer)

/s/ Samuel J. Bero                                  Director                              December 18, 1998
-----------------------------------
Samuel J. Bero


/s/ Patrick J. Garland                              Director                              December 18, 1998
-----------------------------------
Patrick J. Garland


/s/ C. Hamilton Davison Jr.                         Director                              December 18, 1998
-----------------------------------
C. Hamilton Davison, Jr.


/s/ Edward A. Leinss                                Director                              December 18, 1998
-----------------------------------
Edward A. Leinss


/s/ William J. Malooly                              Director                              December 18, 1998
-----------------------------------
William J. Malooly
</TABLE>



                                      -22-
<PAGE>   23

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS - ITEM 8 OF FORM 10-K
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                                                                      PAGE
                                                                                                                      ----
<S>                                                                                                                   <C>
INDEPENDENT AUDITORS' REPORT..........................................................................................F-2

FINANCIAL STATEMENTS AND NOTES:

   Consolidated Balance Sheets as of September 30, 1998 and 1997......................................................F-3

   Consolidated Statements of Income
      for the Years Ended September 30, 1998, 1997 and 1996...........................................................F-4

   Consolidated Statements of Stockholders' Equity
      for the Years Ended September 30, 1998, 1997 and 1996...........................................................F-5

   Consolidated Statements of Cash Flows
      for the Years Ended September 30, 1998, 1997 and 1996...........................................................F-6

   Notes to Consolidated Financial Statements.........................................................................F-7
</TABLE>




                                      F-1
<PAGE>   24


INDEPENDENT AUDITORS' REPORT


To the Directors and Stockholders of
   Tufco Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of Tufco
Technologies, Inc. and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Tufco Technologies, Inc. and
subsidiaries at September 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1998, in conformity with generally accepted accounting principles.


/s/ Deloitte & Touche LLP
    ----------------------------
    Deloitte & Touche LLP

Dallas, Texas

December 10, 1998


                                      F-2
<PAGE>   25

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
ASSETS                                                                                  1998              1997
<S>                                                                                 <C>               <C>         
CURRENT ASSETS:
   Cash and cash equivalents                                                        $  1,006,110      $    747,404
   Restricted cash (Note 9)                                                               20,328            60,128
   Accounts receivable - net (Notes 3 and 7)                                          10,351,740         7,637,121
   Inventories (Notes 4 and 7)                                                         8,956,949         8,550,888
   Prepaid expenses and other current assets                                             303,605           320,109
   Deferred income taxes (Note 8)                                                        596,678           419,000
                                                                                    ------------      ------------

           Total current assets                                                       21,235,410        17,734,650

PROPERTY, PLANT AND EQUIPMENT - Net (Notes 5 and 7)                                   17,360,302        16,990,227

GOODWILL - Net (Note 1)                                                               18,423,999        13,732,074

OTHER ASSETS - Net (Note 6)                                                            1,747,486           588,414
                                                                                    ------------      ------------

TOTAL                                                                               $ 58,767,197      $ 49,045,365
                                                                                    ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Current portion of long-term debt (Note 7)                                       $  1,670,810      $  1,910,357
   Accounts payable                                                                    4,559,341         3,137,177
   Accrued payroll, vacation and payroll taxes                                           681,236           824,995
   Other current liabilities                                                           1,629,519           987,290
   Income taxes payable (Note 8)                                                          64,367           649,570
                                                                                    ------------      ------------

           Total current liabilities                                                   8,605,273         7,509,389

LONG-TERM DEBT - Less current portion (Note 7)                                        16,025,796         8,587,999

DEFERRED INCOME TAXES (Note 8)                                                         1,885,653         1,580,000

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY (Note 11):
   Voting common stock; $.01 par value; 9,000,000 shares authorized;
      3,786,223 and 3,733,830 shares issued, respectively                                 37,862            37,338
   Nonvoting common stock; $.01 par value;  2,000,000 shares authorized;
      709,870 shares issued and outstanding                                                7,099             7,099
   Additional paid-in capital                                                         23,961,301        23,539,420
   Retained earnings (Note 7)                                                          8,878,453         8,548,543
   Treasury stock at cost, 78,497 and 59,804 voting common shares, respectively         (534,045)         (349,371)
   Stock purchase plan notes                                                            (100,195)         (415,052)
                                                                                    ------------      ------------

             Total stockholders' equity                                               32,250,475        31,367,977
                                                                                    ------------      ------------

TOTAL                                                                               $ 58,767,197      $ 49,045,365
                                                                                    ============      ============
</TABLE>


See notes to consolidated financial statements.



                                      F-3
<PAGE>   26

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                           1998              1997              1996
<S>                                                    <C>               <C>               <C>         
NET SALES                                              $ 76,972,776      $ 65,750,571      $ 68,373,654
COST OF SALES                                            65,902,280        53,835,318        56,042,088
                                                       ------------      ------------      ------------
GROSS PROFIT                                             11,070,496        11,915,253        12,331,566

OPERATING EXPENSES:
   Selling, general and administrative                    7,803,493         6,395,727         6,752,663
   Amortization and other postacquisition expenses        1,024,620           706,180           723,966
   Write-down of property                                   250,000
                                                       ------------      ------------      ------------
           Total                                          9,078,113         7,101,907         7,476,629
                                                       ------------      ------------      ------------
OPERATING INCOME                                          1,992,383         4,813,346         4,854,937

OTHER INCOME (EXPENSE):
   Interest expense                                      (1,176,623)         (888,566)       (1,134,489)
   Interest income                                           26,055            38,928            41,628
   Miscellaneous                                              2,116           327,181             4,671
                                                       ------------      ------------      ------------
           Total                                         (1,148,452)         (522,457)       (1,088,190)
                                                       ------------      ------------      ------------

INCOME BEFORE INCOME TAXES
   AND EXTRAORDINARY ITEM                                   843,931         4,290,889         3,766,747

INCOME TAX EXPENSE (Note 8)                                 451,790         1,637,603         1,507,230
                                                       ------------      ------------      ------------
INCOME BEFORE EXTRAORDINARY ITEM                            392,141         2,653,286         2,259,517

EXTRAORDINARY ITEM - Loss from early
   repayment of debt, net of income tax
   benefit of $32,059 (Note 7)                               62,231
                                                       ------------      ------------      ------------
NET INCOME                                             $    329,910      $  2,653,286      $  2,259,517
                                                       ============      ============      ============

EARNINGS PER SHARE:
   Income before extraordinary item:
      Basic                                            $        .09      $        .61      $        .52
                                                       ============      ============      ============
      Diluted                                          $        .09      $        .60      $        .51
                                                       ============      ============      ============

   Net income:
      Basic                                            $        .07      $        .61      $        .52
                                                       ============      ============      ============
      Diluted                                          $        .07      $        .60      $        .51
                                                       ============      ============      ============
WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING:
   Basic                                                  4,419,763         4,383,752         4,386,412
                                                       ============      ============      ============
   Diluted                                                4,517,849         4,447,727         4,437,702
                                                       ============      ============      ============
</TABLE>


See notes to consolidated financial statements.


                                      F-4
<PAGE>   27
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                        COMMON STOCK
                                                                ---------------------------------------------------------------
                                                                            VOTING                          NONVOTING
                                                                -----------------------------     -----------------------------
                                                                   SHARES           AMOUNT           SHARES           AMOUNT
<S>                                                                <C>           <C>                   <C>         <C>         
BALANCES AT OCTOBER 1, 1995                                        3,700,363     $     37,004          709,870     $      7,099

   Exercise of employee stock options                                  6,285               63                                  

   Issuance of common stock                                           16,937              169                                  

   Repayment of stock purchase plan notes                                                                                      

   Purchase of treasury stock, 23,057 shares                                                                                   

   Net income                                                                                                                  
                                                                ------------     ------------     ------------     ------------
BALANCES AT SEPTEMBER 30, 1996                                     3,723,585           37,236          709,870            7,099

   Exercise of employee stock options                                 10,245              102                                  

   Repayment of stock purchase plan notes                                                                                      

   Purchase of treasury stock, 16,172 shares                                                                                   

   Net income                                                                                                                  
                                                                ------------     ------------     ------------     ------------
BALANCES AT SEPTEMBER 30, 1997                                     3,733,830           37,338          709,870            7,099

   Exercise of employee stock options                                 26,486              265                                  

   Issuance of common stock - Foremost acquisition (Note 2)           25,907              259                                  

   Repayment of stock purchase plan notes                                                                                      

   Purchase of treasury stock, 18,693 shares                                                                                   

   Net income                                                                                                                  
                                                                ------------     ------------     ------------     ------------
BALANCES AT SEPTEMBER 30, 1998                                     3,786,223     $     37,862          709,870     $      7,099
                                                                ============     ============     ============     ============
<CAPTION>
                                                                 ADDITIONAL
                                                                  PAID-IN          RETAINED          TREASURY
                                                                  CAPITAL          EARNINGS           STOCK
<S>                                                             <C>              <C>              <C>          
BALANCES AT OCTOBER 1, 1995                                     $ 23,375,176     $  3,635,740     $   (112,568)

   Exercise of employee stock options                                 29,421                                  

   Issuance of common stock                                           86,533                                  

   Repayment of stock purchase plan notes                                                                     

   Purchase of treasury stock, 23,057 shares                                                          (123,506)

   Net income                                                                       2,259,517                 
                                                                ------------     ------------     ------------
BALANCES AT SEPTEMBER 30, 1996                                    23,491,130        5,895,257         (236,074)

   Exercise of employee stock options                                 48,290                                  

   Repayment of stock purchase plan notes                                                                     

   Purchase of treasury stock, 16,172 shares                                                          (113,297)

   Net income                                                                       2,653,286                 
                                                                ------------     ------------     ------------
BALANCES AT SEPTEMBER 30, 1997                                    23,539,420        8,548,543         (349,371)

   Exercise of employee stock options                                172,140                                  

   Issuance of common stock - Foremost acquisition (Note 2)          249,741                                  

   Repayment of stock purchase plan notes                                                                     

   Purchase of treasury stock, 18,693 shares                                                          (184,674)

   Net income                                                                         329,910                 
                                                                ------------     ------------     ------------
BALANCES AT SEPTEMBER 30, 1998                                  $ 23,961,301     $  8,878,453     $   (534,045)
                                                                ============     ============     ============
<CAPTION>

                                                                   STOCK              TOTAL
                                                                  PURCHASE        STOCKHOLDERS'
                                                                 PLAN NOTES          EQUITY   
<S>                                                             <C>               <C>         
BALANCES AT OCTOBER 1, 1995                                     $   (497,747)     $ 26,444,704

   Exercise of employee stock options                                                   29,484

   Issuance of common stock                                          (75,000)           11,702

   Repayment of stock purchase plan notes                             97,494            97,494

   Purchase of treasury stock, 23,057 shares                                          (123,506)

   Net income                                                                        2,259,517
                                                                ------------      ------------
BALANCES AT SEPTEMBER 30, 1996                                      (475,253)       28,719,395

   Exercise of employee stock options                                                   48,392

   Repayment of stock purchase plan notes                             60,201            60,201

   Purchase of treasury stock, 16,172 shares                                          (113,297)

   Net income                                                                        2,653,286
                                                                ------------      ------------
BALANCES AT SEPTEMBER 30, 1997                                      (415,052)       31,367,977

   Exercise of employee stock options                                                  172,405

   Issuance of common stock - Foremost acquisition (Note 2)                            250,000

   Repayment of stock purchase plan notes                            314,857           314,857

   Purchase of treasury stock, 18,693 shares                                          (184,674)

   Net income                                                                          329,910
                                                                ------------      ------------
BALANCES AT SEPTEMBER 30, 1998                                  $   (100,195)     $ 32,250,475
                                                                ============      ============
</TABLE>



See notes to consolidated financial statements.


                                      F-5
<PAGE>   28
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                             1998             1997             1996
<S>                                                                      <C>              <C>              <C>        
OPERATING ACTIVITIES:
   Net income                                                            $   329,910      $ 2,653,286      $ 2,259,517
   Noncash items in net income:
      Depreciation and amortization of property, plant and equipment       2,057,458        1,918,895        1,884,719
      Amortization of goodwill and other assets                              547,322          444,519          394,517
      Deferred income taxes                                                  127,975          (20,748)         114,651
      Increase in allowance for doubtful accounts                             36,957              927           44,476
      (Gain) loss on disposition of equipment                                 36,925         (101,327)          (4,671)
      Write-down of property                                                 250,000                                  
   Changes in operating working capital:
      Accounts receivable                                                 (1,641,425)         722,863          (32,322)
      Inventories                                                            424,124        1,005,135         (463,826)
      Prepaid expenses and other assets                                      (60,076)        (208,517)          71,650
      Accounts payable                                                       541,150          780,872          (94,916)
      Accrued and other current liabilities                                  372,939       (1,389,546)       1,323,717
      Income taxes payable                                                  (626,841)          36,896          214,364
                                                                         -----------      -----------      -----------
           Net cash from operations                                        2,396,418        5,843,255        5,711,876
                                                                         -----------      -----------      -----------

INVESTING ACTIVITIES:
   Acquisition of Foremost - net of cash acquired                         (5,985,019)                                 
   Acquisition of Hamco, Inc. - net of cash acquired                                                           (11,725)
   Additions to property, plant and equipment                             (2,628,927)      (2,777,594)      (2,371,334)
   Deposits made on purchase of equipment                                 (1,068,286)                                 
   Proceeds from disposition of property, plant and equipment                 26,103          169,466          106,799
   Advances to directors and former owners                                   (22,221)         (29,121)         (31,389)
   Collection of advances to directors and former owners                                       65,979                 
   Decrease in certificates of deposit                                                                         843,218
   (Increase) decrease in restricted cash                                     39,800          (60,128)                
                                                                         -----------      -----------      -----------
           Net cash used in investing activities                          (9,638,550)      (2,631,398)      (1,464,431)
                                                                         -----------      -----------      -----------

FINANCING ACTIVITIES:
   Issuance of long-term debt                                              8,797,280                                  
   Repayment of long-term debt                                            (1,599,030)      (3,304,364)      (5,547,386)
   Issuance of common stock                                                  172,405           48,392           41,186
   Purchase of treasury stock                                               (184,674)         (71,239)        (123,506)
   Repayment of stock purchase plan notes                                    314,857           18,143           97,494
                                                                         -----------      -----------      -----------
           Net cash from (used in) financing activities                    7,500,838       (3,309,068)      (5,532,212)
                                                                         -----------      -----------      -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         258,706          (97,211)      (1,284,767)

CASH AND CASH EQUIVALENTS:
   Beginning of year                                                         747,404          844,615        2,129,382
                                                                         -----------      -----------      -----------
   End of year                                                           $ 1,006,110      $   747,404      $   844,615
                                                                         ===========      ===========      ===========

SUPPLEMENTAL INFORMATION (Note 13)
</TABLE>


See notes to consolidated financial statements.



                                      F-6
<PAGE>   29
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
--------------------------------------------------------------------------------


1.    SIGNIFICANT ACCOUNTING POLICIES

      CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Tufco
      Technologies, Inc. and its wholly owned subsidiaries (the "Company").
      Significant intercompany transactions and balances are eliminated in
      consolidation. The organizational structure of the Company's subsidiaries
      was changed in February 1997 by transferring to Tufco, L.P., a Nevada
      limited partnership, all of the assets and liabilities of Tufco
      Industries, Inc., Executive Converting Corporation and Hamco Industries,
      Inc., acquired in 1992, 1994 and 1995, respectively. Tufco Tech, Inc.,
      wholly owned subsidiary of Tufco Technologies, Inc., is the sole managing
      general partner of Tufco, L.P. Foremost Manufacturing Company, Inc.
      ("Foremost") was acquired in November 1997 and is included in the
      consolidated financial statements of the Company since the date of
      acquisition. The Company markets its own line of business imaging paper
      products, tissues, towels and wipes for public-use facilities, and
      performs specialty printing, custom converting and packaging. The Company
      also manufactures and distributes a wide variety of consumer disposables
      that are sold in the home improvement and paint retailing industries.

      FINANCIAL STATEMENT PREPARATION requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingencies at the date of the financial statements and
      the reported amounts of revenues and expenses for the period. Differences
      from those estimates are recognized in the period they become known.

      CASH EQUIVALENTS represent liquid investments with maturities at
      acquisition of three months or less.

      INVENTORIES are stated at the lower of cost or market. Cost of all
      inventories is determined by the first-in, first-out ("FIFO") method.
      Prior to fiscal 1997, cost of raw materials and finished goods inventories
      at Tufco's Wisconsin division was determined by the last-in, first-out
      ("LIFO") method. The effect of this change in fiscal 1997 was not
      material.

      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
      and the shorter of the lease term or the asset's useful life for leasehold
      improvements.  Management periodically reviews asset carrying values for
      recoverability and, where appropriate, provides for write-downs to
      estimated fair value.

      GOODWILL represents the excess of cost over fair value of net assets
      acquired in business combinations, is amortized on a straight-line basis
      over 25 to 40 years and is stated net of accumulated amortization of
      $2,052,678 and $1,505,356 at September 30, 1998 and 1997, respectively.

      FINANCIAL INSTRUMENTS consist of cash, receivables, payables, debt and
      letters of credit. Their carrying values or disclosed values are estimated
      to approximate their fair values unless otherwise indicated due to their
      short maturities, variable interest rates or fixed rates approximating
      current rates available for similar instruments.


                                      F-7
<PAGE>   30

      OTHER ASSETS include loan origination fees, which are amortized on a
      straight-line basis over the terms of the related long-term debt, and
      organization costs, which are amortized on a straight-line basis over five
      to seven years.

      DEFERRED INCOME TAXES are provided under the asset and liability method
      for temporary differences in the recognition of certain revenues and
      expenses for tax and financial reporting purposes.

      REVENUES are recognized as sales when goods are shipped and title
      transfers to the customer.

      STOCK-BASED COMPENSATION arising from stock option grants is accounted for
      by the intrinsic value method under Accounting Principles Board ("APB")
      Opinion No. 25. Statement of Financial Accounting Standards ("SFAS") No.
      123, encourages (but does not require) the cost of stock-based
      compensation arrangements with employees to be measured based on the fair
      value of the equity instrument awarded. As permitted by SFAS No. 123, the
      Company applies APB Opinion No. 25 to its stock-based compensation awards
      to employees and discloses in Note 11 the required pro forma effect on net
      income and earnings per share.

      BASIC EARNINGS PER SHARE is based on the weighted average number of common
      voting and nonvoting shares outstanding, and diluted earnings per share
      includes common equivalent shares from dilutive stock options outstanding
      during the year.

2.    ACQUISITION

      Effective November 13, 1997, the Company acquired all of the outstanding
      stock of Foremost Manufacturing Company, Inc. in St. Louis, Missouri,
      which is engaged primarily in the manufacture and distribution of paint
      sundry products. The Foremost stock was acquired for $5,250,000 in cash,
      which the Company financed with additional bank borrowings, and 25,907
      common shares of the Company valued at $250,000. The former owners of
      Foremost could also earn up to an additional $900,000 predicated upon
      certain sales for the first year subsequent to the acquisition. At
      September 30, 1998, the Company has accrued $400,000 as additional
      purchase price consideration under this earn-out provision. The total cost
      of the acquisition, $6,235,019, including transaction costs, exceeded the
      fair value of the net assets acquired by $5,239,247, which was recorded as
      goodwill. Any additional amounts paid under the earn-out provision will
      also be recorded as goodwill.



                                      F-8

<PAGE>   31

      This acquisition was accounted for under the purchase method. The results
      of the acquired operations are included in the consolidated financial
      statements from the acquisition date. The unaudited consolidated results
      of operations on a pro forma basis as though Foremost were acquired and
      the related common shares were issued as of the beginning of the Company's
      fiscal year 1997 is as follows:

<TABLE>
<CAPTION>
                                                    1998             1997
<S>                                             <C>              <C>        
Net sales                                       $ 77,702,435     $73,298,145
                                                ============     ===========

Income before extraordinary item                $    401,070     $ 2,792,638
                                                ============     ===========
Net income                                      $    338,839     $ 2,792,638
                                                ============     ===========

Earnings per share:
   Income before extraordinary item:

      Basic                                     $        .09     $       .63
                                                ============     ===========

      Diluted                                   $        .09     $       .62
                                                ============     ===========
   Net Income:

      Basic                                     $        .08     $       .63
                                                ============     ===========

      Diluted                                   $        .08     $       .62
                                                ============     ===========

Weighted average common shares outstanding:
      Basic                                        4,421,922       4,409,659
                                                ============     ===========

      Diluted                                      4,520,008       4,473,634
                                                ============     ===========
</TABLE>

3.    ACCOUNTS RECEIVABLE AND SIGNIFICANT CUSTOMER

      Accounts receivable are stated net of allowances for doubtful accounts of
      $218,360 and $150,403 at September 30, 1998 and 1997, respectively.
      Amounts due from a significant customer represent 7% and 8% of total
      accounts receivable at September 30, 1998 and 1997, respectively.

4.    INVENTORIES

      Inventories at September 30 consist of the following:

<TABLE>
<CAPTION>
                                                   1998             1997
<S>                                             <C>              <C>
Raw materials                                   $4,766,165       $4,711,780
Finished goods                                   4,190,784        3,839,108
                                                ----------       ----------

Total inventories                               $8,956,949       $8,550,888
                                                ==========       ==========
</TABLE>




                                      F-9

<PAGE>   32

5.    PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment at September 30 consist of the following:

<TABLE>
<CAPTION>
                                                                                      1998            1997
<S>                                                                                <C>             <C>        
Land and land improvements                                                         $   517,928     $   518,404
Buildings                                                                            6,651,006       6,868,043
Leasehold improvements                                                                 957,702         708,366
Machinery and equipment                                                             18,355,693      16,964,326
Furniture and fixtures                                                               1,495,749       1,381,259
Vehicles                                                                                97,255          92,780
                                                                                   -----------     -----------

                                                                                    28,075,333      26,533,178

Less accumulated depreciation and amortization                                      12,899,385      10,983,096
                                                                                   -----------     -----------

Net depreciated value                                                               15,175,948      15,550,082

Construction in progress related primarily to a             
   new Centralized Computer System being implemented:

      Hardware and Software under Capital Lease                                        420,360         420,360

      Other hardware and software costs                                              1,763,994       1,019,785
                                                                                   -----------     -----------
                                                                                     2,184,354       1,440,145
                                                                                   -----------     -----------
Property, plant and equipment - net                                                $17,360,302     $16,990,227
                                                                                   ===========     ===========
</TABLE>

      Costs of internal-use software are capitalized when the project is
      authorized for funding and evaluated as probable for completion and use
      for the functions intended. These costs consist of the external direct
      costs of acquisition and the related consulting services for
      implementation of the software.

6.    OTHER ASSETS

      Other assets at September 30 consist of the following:

<TABLE>
<CAPTION>
                                                       1998           1997
<S>                                                 <C>            <C>       
Loan origination and other fees                     $  281,645     $  189,254
Less accumulated amortization                           73,460         81,159
                                                    ----------     ----------

Subtotal                                               208,185        108,095

Note receivable bearing interest at 7%, due in
   variable monthly installments through 2001           27,520         43,399
Advances to certain directors and former owners        250,661        228,440
Cash value of life insurance                             8,317          8,317
Deposits on equipment to be acquired and other       1,252,803        200,163
                                                    ----------     ----------

Other assets - net                                  $1,747,486     $  588,414
                                                    ==========     ==========
</TABLE>




                                      F-10
<PAGE>   33
7.    LONG-TERM DEBT

      Long-term debt at September 30 consists of the following:

<TABLE>
<CAPTION>
                                                                         1998           1997
<S>                                                                  <C>             <C>      
Note payable to bank, collateralized by substantially all
assets of the Company, bearing at September 30, 1998
variable interest at 6.64%; (fixed at 6.87% under an 
interest rate swap arrangement discussed below) 
installments are due quarterly at $380,358, with final 
payment due on August 1, 2005                                        $10,650,000     $      --

Notes payable to bank, under a revolving line-of-credit
agreement (not to exceed maximum borrowings of
$9 million, reduced by outstanding letters of credit
see Note 9), collateralized by substantially all assets of
the Company, bearing interest at a combination of 100
basis points over LIBOR or .75% below the bank's
reference rate (effective rate of 6.85% at September 30,
1998), payable quarterly, due on June 1, 2001                          5,013,230                

Note payable to bank, collateralized by substantially all assets
of the Company, bearing interest at 7.03%; installments were
due monthly at $112,439, decreasing to $91,606 in February
2000, and $95,833 in August 2000, with final payment due on
July 31, 2001                                                                          4,766,667

Notes payable to bank, under a revolving line-of-credit
agreement, collateralized by accounts receivable and certain
other elements of working capital, bearing interest at a
effective rate of 7.09% at September 30, 1997, payable 
monthly, due March 31, 1999                                                            2,500,000

Variable rate (4.25% at September 30, 1998 and
1997, respectively) note payable underlying Industrial
Development Revenue Bonds, collateralized by substantially
all assets of the Company, due in annual installments of
$250,000 beginning 2000 through 2006, interest payable
monthly                                                                1,750,000       1,750,000
</TABLE>


                                      F-11
<PAGE>   34
<TABLE>
<CAPTION>
                                                                                     1998            1997
<S>                                                                              <C>             <C>        
Note payable to bank, collateralized by substantially all assets
of the Company, due in monthly installments of $41,666 plus
interest at 7.23%, with final payment due May 30, 1999                           $      --       $ 1,057,610

Capital lease obligation, payable in monthly installments of 
$13,109 through 2000, net of $28,859 discount based on interest
at 3.88%, collateralized by computer hardware and software                           283,376         424,079
                                                                                 -----------     -----------

Total                                                                             17,696,606      10,498,356

Less current portion                                                               1,670,810       1,910,357
                                                                                 -----------     -----------

Long-term debt - less current portion                                            $16,025,796     $ 8,587,999
                                                                                 ===========     ===========
</TABLE>

      Long-term debt - less current portion matures as follows:

<TABLE>
<CAPTION>
<S>                                                                 <C>        
2000                                                                $ 1,905,430
2001                                                                  6,784,662
2002                                                                  1,771,432
2003                                                                  1,771,432
2004                                                                  1,771,432          
Thereafter                                                            2,021,408
                                                                    -----------

Total                                                               $16,025,796
                                                                    ===========
</TABLE>

      In connection with the $10,650,000 term debt, the Company paid $94,000 to
      its former lender to exit the prior credit agreement, principally in the
      form of prepayment penalties on the early repayment of term debt. These
      costs are reflected as an extraordinary item in the consolidated
      statements of income. With the refinancing, the Company entered into an
      interest rate swap agreement, as a hedge, under which the interest rate
      on the term debt is fixed at 5.87%, plus a profit spread for the lender of
      between 100 and 150 basis points, depending on certain financial ratios
      achieved by the Company.  The fair value of this swap agreement is
      estimated to be a net payable position of $75,000 at September 30, 1998.

      Loan agreements for all notes except those underlying the Industrial
      Development Revenue Bonds contain certain restrictive covenants, including
      requirements to maintain minimum fixed charge coverage, minimum tangible
      net worth, and restrictions on maximum allowable debt, capital purchases,
      stock purchases, mergers and payment of dividends. At September 30, 1998,
      the ratio of the Company's indebtedness to earnings before interest,
      taxes, depreciation and amortization, as defined, exceeded the allowable
      ratio, resulting in a violation of the loan agreement, under which
      outstanding debt totaled $10,650,000. Subsequently, the violation was
      waived by the bank as of September 30, 1998. Management believes that the
      violation was a temporary condition, and as of December 10, 1998, the
      Company was in compliance with this covenant. Management believes that the
      Company will meet these covenants during fiscal 1999. The Company has a
      standby letter of credit for the outstanding balance associated with the
      Industrial Development Revenue Bonds (see Note 9).


                                      F-12

<PAGE>   35

8.    INCOME TAXES

      The tax effects of significant items composing the Company's net deferred
      tax liability as of September 30 are as follows:

<TABLE>
<CAPTION>
                                                                        1998             1997
<S>                                                                  <C>              <C>        
Current deferred tax asset:
   Valuation allowances for accounts receivable and inventories,
      not currently deductible                                       $   251,252      $   163,000
   Inventory costs capitalized for tax purposes                           68,225           87,000
   Vacation and severance accruals, not currently deductible             122,291           94,000
   Other accruals, not currently deductible                               96,385           48,000
   Other                                                                  58,525           27,000
                                                                     -----------      -----------

Total                                                                    596,678          419,000

Noncurrent deferred tax liability:
   Accelerated tax depreciation on property and equipment             (1,497,149)      (1,150,000)
   Accelerated tax amortization of goodwill                             (439,732)        (452,000)
   Other                                                                  51,228           22,000
                                                                     -----------      -----------

Total                                                                 (1,885,653)      (1,580,000)
                                                                     -----------      -----------

Net deferred tax liability                                           $(1,288,975)     $(1,161,000)
                                                                     ===========      ===========
</TABLE>

      The resulting components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
                                                 1998             1997             1996
<S>                                           <C>              <C>              <C>        
Current tax expense:
   Federal                                    $   301,474      $ 1,512,810      $ 1,147,439
   State                                           22,341          145,541          245,140
                                              -----------      -----------      -----------

Total                                             323,815        1,658,351        1,392,579

Deferred tax expense (benefit):
   Federal                                        119,210           75,717           98,463
   State                                            8,765           12,946           16,188
   Adjustment for tax rate changes due to
      corporate restructuring (Note 1)                            (109,411)
                                              -----------      -----------      -----------

Total                                             127,975          (20,748)         114,651
                                              -----------      -----------      -----------

Income tax expense                            $   451,790      $ 1,637,603      $ 1,507,230
                                              ===========      ===========      ===========
</TABLE>



                                      F-13
<PAGE>   36

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

<TABLE>
<CAPTION>
                                                        1998            1997            1996
<S>                                                  <C>             <C>             <C>        
Federal income taxes computed at statutory rates     $   286,937     $ 1,458,902     $ 1,280,694
State income taxes, net of federal tax benefit            20,530          32,390         172,476
Certain goodwill amortization and other
   nondeductibles                                        114,182          81,789          77,659
Other                                                     30,141          64,522         (23,599)
                                                     -----------     -----------     -----------

Income tax expense                                   $   451,790     $ 1,637,603     $ 1,507,230
                                                     ===========     ===========     ===========
</TABLE>

9.    COMMITMENTS AND CONTINGENCIES

      LEASES - Tufco Industries, Inc. leases warehouse facilities in Green Bay,
      Wisconsin, from a partnership composed of certain current and former
      stockholders. The lease expires in 2003, is classified as an operating
      lease and requires monthly rental payments of $9,255. The Company has the
      option of renewing the lease for a three-year period with rental amounts
      renegotiated. Rental expense for the lease totaled $111,060, $111,060 and
      $105,843 for fiscal 1998, 1997 and 1996, respectively.

      In June 1996, the Company entered into an agreement with a third party to
      construct and lease a 62,000-square-foot facility in Manning, South
      Carolina, which the Company occupied in October 1996. Under an amendment
      in fiscal 1997, the five-year agreement is an operating lease with rental
      payments of $11,489 per month. At the end of the fifth year, the Company
      has the option of purchasing the building for $1,100,000. If the purchase
      option is not exercised, the Company may be required to pay the lessor a
      residual amount of up to $900,000, depending upon the extent, if any, that
      the facility's value has diminished during the lease term. A portion of
      the scheduled lease payments is placed in escrow and is included in
      restricted cash of $20,328 and $60,128 at September 30, 1998 and 1997,
      respectively.

      The Company also leases other facilities and equipment under operating
      leases. Office and warehouse leases expire in November 2000, and
      February 2003. 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, 1998, are as
      follows:

<TABLE>
<S>                                                                <C>        
1999                                                               $ 1,122,429
2000                                                                 1,086,487
2001                                                                   941,084
2002                                                                 1,704,845
2003                                                                   341,268
Thereafter                                                               2,596 
                                                                   ----------- 

Total                                                              $ 5,198,709 
                                                                   =========== 
</TABLE>

      Net rental expense for all operating leases totaled $1,123,912, $898,497
      and $692,765 for fiscal 1998, 1997 and 1996, respectively. The Company
      charges its customers for storage, which is netted against rental expense.


                                      F-14
<PAGE>   37


      LETTERS OF CREDIT - The Company has outstanding commercial import letters
      of credit of $57,543 and $30,080 as of September 30, 1998 and 1997,
      respectively. These letters of credit collateralize the Company's
      obligations to third parties for the purchase of inventory. The Company
      has unused letters of credit of $692,457 available at September 30, 1998.

      LITIGATION - The Company is subject to lawsuits, investigation 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.

10.   PROFIT SHARING PLANS

      The Company has a defined contribution profit sharing 401(k) plan covering
      substantially all employees. The Company makes annual contributions at the
      discretion of the board of directors. In addition, the Company matches
      certain amounts of employees' contributions. Profit sharing plan expense
      relating to the defined contribution profit sharing 401(k) plan totaled
      $186,818, $132,788 and $42,017 for fiscal 1998, 1997 and 1996,
      respectively.

11.   STOCKHOLDERS' EQUITY

      NONVOTING COMMON STOCK AND PREFERRED STOCK - Each record holder of
      nonvoting common stock is entitled at any time to convert any or all of
      such shares into the same number of shares of voting common stock. The
      Company has 1,000,000 shares authorized and unissued $.01 par value
      preferred stock.

      STOCK COMPENSATION ARRANGEMENTS - The Non-Qualified Stock Option Plan
      currently reserves 400,000 shares of common stock for grants to selected
      employees through April 30, 2002, and provides that the price and exercise
      period be determined by the board of directors. Options vest primarily
      over three years and expire five years from date of grant. During fiscal
      1998, 1997 and 1996, options to purchase 86,000, 104,000 and 77,635
      shares, respectively, of voting common stock were granted.

      The Non-Employee Director Stock Option Plan for nonemployee members of the
      board of directors reserves 100,000 shares of common stock for grant and
      provides that the purchase price be fair market value at the date of
      grant. Options are exercisable immediately and for a period of ten years.
      The plan terminates in 1999. During fiscal 1998, 1997 and 1996, options to
      purchase 12,000, 14,000 and 14,000 shares, respectively, of voting common
      stock were granted.


                                      F-15
<PAGE>   38

      The following information summarizes the shares subject to options:

<TABLE>
<CAPTION>
                                                                                         WEIGHTED AVERAGE EXERCISE
                                                       NUMBER OF SHARES                        PRICE PER SHARE
                                            -----------------------------------      ----------------------------------
                                             1998          1997          1996          1998         1997         1996
<S>                                         <C>           <C>           <C>          <C>          <C>          <C>     
Options outstanding, beginning of year      364,127       256,372       187,865      $   6.01     $   5.61     $   5.54

Granted                                      98,000       118,000        91,635          9.62         6.82         5.88

Exercised                                   (37,396)      (10,245)       (6,285)         6.50         4.72         4.69

Terminated                                  (12,290)                    (16,843)        10.07                      6.65
                                            -------      --------       -------

Options outstanding, end of year            412,441       364,127       256,372          6.69         6.01         5.61
                                            =======       =======       ======

Options exercisable, end of year            261,332       225,136       188,315          5.89         5.68         5.59
                                            =======       =======       ======


Reserved for future options at
   September 30, 1998                        87,559
                                            =======
</TABLE>

      The following table summarizes additional information about stock options
      outstanding and exercisable at September 30, 1998:

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                             --------------------------------------          ------------------------
                                            WEIGHTED
                                             AVERAGE       WEIGHTED                          WEIGHTED
  RANGE OF                                  REMAINING      AVERAGE                           AVERAGE
  EXERCISE                   NUMBER OF     CONTRACTUAL     EXERCISE          NUMBER OF       EXERCISE
   PRICES                     SHARES          LIFE          PRICE             SHARES          PRICE
<S>                          <C>           <C>             <C>               <C>             <C>
$4.50 - 6.75                  185,387       2.3 years       $ 5.23            175,796        $ 5.26
 7.00 - 9.50                  227,054       5.2               7.88             85,536          7.18
                              --------                                        -------

 4.50 - 9.50                  412,441       3.9               6.69            261,332          5.89
                              ========                                        =======
</TABLE>

      The Company applies APB No. 25 and related Interpretations in accounting
      for its stock option plans.  No compensation cost has been recognized for
      the Company's stock option plans because the quoted market price of the
      common stock at the date of grant was not in excess of the option exercise
      price. SFAS No. 123, prescribes a method to record compensation cost for
      stock-based employee compensation plans at the fair value of the options
      granted. Pro forma disclosures as if the Company had adopted the cost
      recognition requirements under SFAS No. 123 in 1998, 1997 and 1996 are
      presented below. Because the SFAS No. 123 method of accounting has not
      been applied to


                                      F-16
<PAGE>   39



      options granted prior to October 1, 1995, the resulting pro forma
      compensation cost may not be representative of that expected in future
      years.

<TABLE>
<CAPTION>
                                     1998            1997              1996
<S>                             <C>             <C>               <C>          
Net income:
   As reported                  $     329,910   $   2,653,286     $   2,259,517
   Pro forma                          129,000       2,450,000         2,121,000

Basic earnings per share:
   As reported                            .07             .61               .52
   Pro forma                              .03             .56               .48

Diluted earnings per share:
   As reported                            .07             .60               .51
   Pro forma                              .03             .55               .48
</TABLE>

      In the pro forma calculations, the weighted average fair value of options
      granted during 1998, 1997 and 1996 was estimated at $3.67, $2.96 and $2.60
      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 1998, 1997 and
      1996: risk-free interest rates of 6.2%, 6.2% and 6.0% respectively;
      dividend yield of 0.0% for all years; expected lives of four to five
      years; and expected volatility of 50%, 55% and 55%, respectively, based on
      the historical weekly trading ranges of the Company's stock since its
      initial public offering in January 1994.

      The Company sold shares to management employees under various stock
      purchase agreements, which included 16,937 shares at $4.80 to $6.75 per
      share in 1996. The purchases are financed by the Company through notes
      with the employees at 5% interest payable annually and are due as follows:
      $35,195 in 2000 and $65,000 in 2001. The outstanding balances of $100,195
      and $415,052 at September 30, 1998 and 1997, respectively, are presented
      as a reduction of stockholders' equity.

12.   RELATED-PARTY TRANSACTIONS

      The Company has an agreement with Bradford Ventures, Ltd., an affiliate of
      the two largest stockholders of the Company, under which Bradford
      Ventures, Ltd. provides various financial and management consulting
      services until January 2004, when the agreement will be automatically
      renewed unless terminated by either party. The agreement calls for an
      annual fee of $210,000 with annual increases of 5% plus reimbursement of
      reasonable out-of-pocket expenses. The Company believes the terms of its
      consulting agreement are comparable to those available from unaffiliated
      third parties for similar services. Consulting expense was $236,440,
      $226,931 and $210,000 for fiscal 1998, 1997 and 1996, respectively.


                                      F-17
<PAGE>   40


13.   SUPPLEMENTAL CASH FLOW INFORMATION

      The following is provided as supplemental information to the consolidated
      statements of cash flows:

<TABLE>
<CAPTION>
                                                              1998            1997           1996
<S>                                                       <C>             <C>             <C>       
Interest paid                                             $ 1,098,538     $   873,366     $1,125,036
                                                          ===========     ===========     ==========

Income taxes paid                                         $   927,431     $ 1,621,455     $1,178,215
                                                          ===========     ===========     ==========

Noncash investing and financing activities:
   Issuance of common stock - Foremost acquisition        $   250,000     $      --       $     --
                                                          ===========     ===========     ==========

   Issuance of common stock for stock
      purchase plan notes                                 $      --       $      --       $   75,000
                                                          ===========     ===========     ==========

   Increase in goodwill for other assets and increase
      in other current liabilities                        $      --       $      --       $  453,251
                                                          ===========     ===========     ==========

   Addition to property, plant and equipment and
      other assets for capital lease obligation           $      --       $   452,938     $     --
                                                          ===========     ===========     ==========

   Purchase of treasury stock by reduction in
      stock purchase plan notes                           $   160,962     $    42,058     $     --
                                                          ===========     ===========     ==========
</TABLE>

                                     ******




                                      F-18
<PAGE>   41

                               INDEX TO EXHIBITS



<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                                            EXHIBIT
-------                                                           -------

<S>              <C>
    2.1          Stock Purchase Agreement dated as of November 12, 1997 by and among Tufco Technologies, Inc. (the "Company"),
                 Charles Cobaugh and James Barnes (filed as exhibit 2.1 to the Company's Form 8-K dated November 13, 1997 filed
                 with the Commission on November 26, 1997 file number 0-21018), incorporated by reference herein.

    3.1          Restated Certificate of Incorporation (1) (Exhibit 3.1)

    3.2          Bylaws (1) (Exhibit 3.2)

    10.1         Stock Purchase and Contribution Agreement, dated as of February 25, 1992, among the Company, Tufco Industries,
                 Inc. ("Tufco"), and the Stockholders of Tufco. (1) (Exhibit 10.1)

    10.2         Amended and Restated Consulting Agreement with Bradford Investment Partners, L.P. (3) (Exhibit 10)

    10.3         Loan Agreement, dated May 1, 1992, between the Village of Ashwaubenon, Wisconsin, and the Company. (1) (Exhibit
                 10.11)

    10.4         1992 Non-Qualified Stock Option Plan (1) (Exhibit 10.12)

    10.5         Form of Employee Stock Purchase Agreement between the Company and certain key employees of the Company. (1)
                 (Exhibit 10.17)

    10.6         1993 Non-Employee Director Stock Option Plan. (2) (Exhibit 10.19)

    10.7         Amended Employment Agreement with Greg Wilemon, dated September 18, 1995. (7) (Exhibit 10.11)

    10.8         Lease Agreement, dated as of March 1, 1995, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership,
                 and Tufco. (6) (Exhibit 10.13)

    10.9         Stock Option Plan for Carl B. Francis dated April 21, 1995. (6) (Exhibit 10.14)

    10.10        Lease Agreement dated as of April 1, 1996, between Bero, Garland, Gebhardt and McClure, a Wisconsin partnership,
                 and Tufco. (7) (Exhibit 10.15)

    10.11        Separation Agreement dated October 1, 1996 between Carl B. Francis and the Company. (7) (Exhibit 10.17)

    10.12        Employment Agreement with Louis LeCalsey, III dated September 19, 1996. (7) (Exhibit 10.18)

    10.13*       Credit Agreement among Tufco L.P. as Borrower, the Company as the Parent First Union National Bank as agent and
                 the banks named herein dated August 28, 1998.

    10.14*       ISDA Master Agreement and Schedule to the Master Agreement dated as of July 30, 1998 between First Union National
                 Bank and Tufco, L.P.

    10.15*       First Amendment to Credit Agreement.

    21.1*        Subsidiaries of the Company.

    27.1*        Financial Data Schedule
</TABLE>

    ----------
    *   Filed Herewith

    (1) Incorporated by reference to the Company's Registration Statement on
        Form S-1 (Reg. No. 33-55828) (the "Registration Statement") as filed
        with the Commission on December 16, 1992.

    (2) Incorporated by reference to Amendment No. 1 to the Registration
        Statement as filed with the Commission on November 23, 1993.

    (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
        for the quarterly period ended March 31, 1995.

    (4) As well as those factors discussed in the section entitled Business in
        this report, other factors.

    (5) Incorporated by reference to the Company's Current Report on Form 8-K
        dated August 23, 1995.

    (6) Incorporated by reference to the Company's Annual Report on Form 10-K
        for the period ended September 30, 1995.

    (7) Incorporated by reference to the Company's Annual Report on Form 10-K
        for the period ended September 30, 1997.