Tufco (TFCO) 10-Q 2010 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC

Form 10-Q

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

For the quarterly period ended December 31, 2009

Commission file number0-21018

TUFCO TECHNOLOGIES, INC.

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

PO BOX 23500 Green Bay, WI 54305

(Address of principal executive offices)(Zip code)

(920) 336-0054

(Registrant’s telephone number, including area code)

     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.

Yesþ     Noo

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yeso     Noo

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller Reporting Company þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso     Noþ

     Indicate the number of shares outstanding of each or the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of February 15, 2009
Common Stock, par value $0.01 per share	4,308,947

TUFCO TECHNOLOGIES, INC.

Index

		Page
		Number
PART I:	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, 2009 and September 30, 2009		3
	Condensed Consolidated Statements of Income for the three months ended December 31, 2009 and 2008		4
	Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2009 and 2008		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		14
Item 4(T).	Controls and Procedures		14
PART II:	OTHER INFORMATION
Item 1.	Legal Proceedings		14
Item 1A.	Risk Factors		14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 3.	Defaults Upon Senior Securities		14
Item 4.	Submission of Matters to Vote for Security Holders		14
Item 5.	Other Information		14
Item 6.	Exhibits		15
SIGNATURES			16
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	December 31,			September 30,
	2009			2009
Assets
CURRENT ASSETS:
Cash	$	6,571		$	4,092
Accounts receivable-net		11,106,112			11,077,258
Inventories-net		12,805,335			10,645,168
Prepaid expenses and other current assets		541,191			245,534
Income taxes receivable		604,144			604,144
Deferred income taxes		381,661			381,661
Total current assets		25,445,014			22,957,857
PROPERTY, PLANT AND EQUIPMENT-Net		18,452,413			17,892,453
GOODWILL		7,211,575			7,211,575
OTHER ASSETS-Net		130,730			128,684
TOTAL	$	51,239,732		$	48,190,569
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Current portion of long-term debt	$	3,610,978		$	1,270,099
Accounts payable		7,794,651			6,861,167
Accrued payroll, vacation and payroll taxes		488,053			542,534
Other current liabilities		439,339			463,736
Total current liabilities		12,333,021			9,137,536
DEFERRED INCOME TAXES		2,609,203			2,611,572
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common Stock: $.01 par value: 9,000,000 shares authorized; 4,708,741 shares issued		47,087			47,087
Non-voting common stock, $.01 par value — 2,000,000 shares authorized and unissued		—			—
Preferred stock, $.01 par value — 1,000,000 shares authorized and unissued		—			—
Additional paid-in capital		25,427,356			25,421,007
Retained earnings		12,980,522			13,130,824
Treasury stock, 399,794 common shares at cost		(2,157,457	)		(2,157,457	)
Total stockholders’ equity		36,297,508			36,441,461
TOTAL	$	51,239,732		$	48,190,569

3

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	THREE MONTHS ENDED
	December 31,
	2009			2008
NET SALES	$	20,042,056		$	23,185,787
COST OF SALES		18,997,829			21,904,180
GROSS PROFIT		1,044,227			1,281,607
OPERATING EXPENSES:
Selling, general & administrative		1,276,798			1,270,889
Gain on asset sales		—			(37,500	)
OPERATING (LOSS) INCOME		(232,571	)		48,218
OTHER (EXPENSE) INCOME:
Interest expense		(22,531	)		(42,606	)
Interest income and other income		15,387			13,439
(LOSS) INCOME BEFORE INCOME TAXES		(239,715	)		19,051
INCOME TAX (BENEFIT) EXPENSE		(89,413	)		7,467
NET (LOSS) INCOME	$	(150,302	)	$	11,584
BASIC EARNINGS PER SHARE:
Net (Loss) Income	$	(0.03	)	$	0.00
DILUTED EARNINGS PER SHARE:
Net (Loss) Income	$	(0.03	)	$	0.00
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		4,308,947			4,412,242
Diluted		4,308,947			4,412,242

See notes to condensed consolidated financial statements.

4

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	THREE MONTHS ENDED
	December 31,
	2009			2008
OPERATING ACTIVITIES
Net (loss) income	$	(150,302	)	$	11,584
Noncash items in net (loss) income:
Depreciation and amortization of property, plant and equipment		672,674			568,400
Deferred income taxes		(2,369	)		(1,521	)
Gain on sale of property, plant and equipment		—			(37,500	)
Stock-based compensation expense		6,349			3,879
Changes in operating working capital:
Accounts receivable		(28,854	)		(471,703	)
Inventories		(2,160,167	)		667,062
Prepaid expenses and other assets		(297,703	)		(105,333	)
Accounts payable		878,821			(1,028,610	)
Accrued and other current liabilities		10,167			(199,303	)
Income taxes payable/receivable		(89,045	)		6,988
Net cash used in operating activities		(1,160,429	)		(586,057	)
INVESTING ACTIVITIES
Additions to property, plant and equipment		(1,177,971	)		(467,487	)
Proceeds from disposals of property, plant and equipment		—			37,500
Net cash used in investing activities		(1,177,971	)		(429,987	)
FINANCING ACTIVITIES
Net borrowings (repayments) of debt		2,340,879			1,250,000
Purchase of treasury stock		—			(295,586	)
Net cash provided by financing activities		2,340,879			954,414
NET INCREASE (DECREASE) IN CASH		2,479			(61,630	)
CASH:
Beginning of period		4,092			68,397
End of period	$	6,571		$	6,767
NONCASH SUPPLEMENTAL INFORMATION:
Change in construction payable	$	54,663		$	106,819

5

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended December 31, 2009 and 2008
(Unaudited)

1.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared by Tufco Technologies, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of the Company, include all adjustments necessary for a fair statement of results for each period shown (unless otherwise noted herein, all adjustments are of a normal recurring nature). Operating results for the three month period ended December 31, 2009 are not necessarily indicative of results expected for the remainder of the year. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures made are adequate to prevent the financial information given from being misleading. The Company’s fiscal 2009 Annual Report on Form 10-K contains a summary of significant accounting policies and includes the consolidated financial statements and the notes to the consolidated financial statements. The same accounting policies are followed in the preparation of interim reports. The Company’s condensed consolidated balance sheet at September 30, 2009 was derived from the audited consolidated balance sheet. It is suggested that these condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2009.

2.	Recently Issued Accounting Standards
	On October 1, 2009, the Company adopted a new accounting standard issued by the FASB that establishes accounting and reporting standards for noncontrolling interests in a subsidiary in consolidated financial statements. This standard requires entities to record the acquisition of noncontrolling interests in subsidiaries initially at fair value. The adoption of this standard did not have an effect on the Company’s financial position, results of operations or cash flows.
	On October 1, 2009, the Company adopted a new accounting standard issued by the FASB related to accounting for business combinations using the acquisition method of accounting (previously referred to as the purchase method). This standard applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this standard did not have an effect on the Company’s financial position, results of operations or cash flows.
	On October 1, 2009, the Company adopted a new accounting standard issued by the FASB related to determining whether instruments granted in share-based payment transactions are participating securities. This standard provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The adoption of this standard did not have an effect on the Company’s financial position, results of operations or cash flows.

6

Notes to condensed consolidated financial statements—(continued)

3.

Earnings Per Share

Basic earnings per share is computed using the weighted average number of common shares outstanding. Diluted earnings per share includes common stock equivalents from dilutive stock options outstanding during the year. During the three months ended December 31, 2009 and 2008, options to purchase 310,650 and 300,150 shares, respectively, were excluded from the diluted earnings per share computation as the effects of including such options would have been anti-dilutive.

4.	Reclassifications
	Certain prior period amounts have been reclassified to conform to the current year presentation.

5.	Inventories
	Inventories consist of the following:

	December 31,		September 30,
	2009		2009
Raw materials	$	9,905,764	$	8,182,736
Finished goods		2,899,571		2,462,432
Total inventories	$	12,805,335	$	10,645,168

6.	Long-Term Debt
	The Company has a $10.0 million unsecured revolving line of credit facility that expires in May 2010. The Company currently intends to extend or replace the agreement at, or prior to, its expiry. Borrowings under the current credit facility bear interest at a rate equal to LIBOR plus 2.25%. The Company is required to pay a non-usage fee of .50% per annum on the unused portion of the facility.
	Availability under the facility is based upon specified percentages of eligible accounts receivable and inventory. The credit agreement is unsecured. If the Company fails to meet a specified funded debt to EBITDA ratio for two consecutive quarters, the Company’s lender will have the right to take a security interest in the Company’s accounts receivables and inventory. The credit agreement contains certain restrictive covenants, including requirements to maintain a minimum tangible net worth and after tax net income (or loss within specified levels).

7.

Stock Based Compensation

During the three months ended December 31, 2009, employees of Tufco Technologies, Inc. received discretionary grants on November 30, 2009 to acquire 14,000 shares of common stock under Tufco’s 2003 Non-Qualified Stock Option Plan at an exercise price of $3.19 per share, the closing price of the Company’s common stock on the NASDAQ market as of that date. The grant date fair value of these options was estimated at $2.26 using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 0.67%, expected volatility of 121.4%, no dividend yield and an expected life of three years.

7

Notes to condensed consolidated financial statements—(continued)

8.	Segment Information
	The Company operates in a single industry since it manufactures and distributes custom paper-based and nonwoven products, and provides contract manufacturing, specialty printing and related services on these types of products. The Company does, however, separate its operations and prepares information for management use by the market segment aligned with the Company’s products and services. Corporate costs, such as interest income, interest expense and income tax (benefit) expense are recorded under the Corporate and Other segment. Such market segment information is summarized below. The Contract Manufacturing segment provides services to multinational consumer products companies while the Business Imaging segment manufactures and distributes printed and unprinted business imaging paper products for a variety of business needs.
	Substantially all of the Company’s revenues are attributed to domestic external customers. There are no long-lived assets located outside of the United States.
	As previously disclosed, the Company tests goodwill annually at the reporting unit level for impairment as of June 30. The operating segments herein also represent the Company’s reporting units for goodwill purposes. The Company uses a discounted cash flow analysis to estimate reporting unit fair values and also considers multiples of relevant companies. Management has completed the Company’s annual impairment test, “Goodwill and Other Intangible Assets”, and determined there were no changes in the carrying amount of goodwill by reporting unit for the three months ended December 31, 2009. However, there can be no assurance that valuation multiples will not decline, growth rates will not be lower than expected, discount rates will not increase, or the projected cash flows of the individual reporting units will not decline. For example, lower than expected growth or an increase to the discount rate due to changes in risk premiums or other factors may suggest that an impairment has occurred under Step 1 and require the Company to proceed to Step 2 to measure the fair value of assets and liabilities of the reporting units. At the annual measurement date of June 30, 2009, the estimated fair value of Contract Manufacturing exceeded its carrying value by approximately 59%. The estimated fair value of Business Imaging exceeded its carrying value by approximately 74% at June 30, 2009.
	The Company recognizes that its common stock regularly trades below book value per share and will continue to monitor the relationship of its market capitalization to both its book value and tangible book value. While management plans to return the Company’s business fundamentals to levels that support the book value per share, there is no assurance that the plan will be successful, or that the market price of the common stock will increase to such levels in the foreseeable future.

8

Notes to condensed consolidated financial statements—(continued)

Three Months Ended	Contract		Business		Corporate
December 31, 2009	Manufacturing		Imaging		and Other			Consolidated
Net sales	$	13,947,418	$	6,094,638	$	—		$	20,042,056
Gross profit		678,243		365,984		—			1,044,227
Operating income (loss)		322,919		64,073		(619,563	)		(232,571	)
Depreciation and amortization expense		619,680		52,401		593			672,674
Capital expenditures		1,146,158		31,813		—			1,177,971

Three Months Ended	Contract		Business		Corporate
December 31, 2008	Manufacturing		Imaging		and Other			Consolidated
Net sales	$	17,436,202	$	5,749,585	$	—		$	23,185,787
Gross profit		943,249		338,358		—			1,281,607
Operating income (loss)		640,308		29,212		(621,302	)		48,218
Depreciation and amortization expense		515,141		52,666		593			568,400
Capital expenditures		467,487		—		—			467,487

	Contract		Business		Corporate
December 31, 2009	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories-net	$	10,208,985	$	2,596,350	$	—	$	12,805,335
Property, plant and equipment-net		16,550,318		1,897,812		4,283		18,452,413
Accounts receivable and other (including goodwill)		12,397,362	��	6,461,516		1,123,106		19,981,984
Total assets	$	39,156,665	$	10,955,678	$	1,127,389	$	51,239,732

	Contract		Business		Corporate
September 30, 2009	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories-net	$	8,642,397	$	2,002,771	$	—	$	10,645,168
Property, plant and equipment-net		15,969,177		1,918,400		4,876		17,892,453
Accounts receivable and other (including goodwill)		12,334,332		6,200,035		1,118,581		19,652,948
Total assets	$	36,945,906	$	10,121,206	$	1,123,457	$	48,190,569

9

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

Management’s discussion of the Company’s fiscal 2010 results in comparison to fiscal 2009 contains forward-looking statements regarding current expectations, risks and uncertainties for future periods. The actual results could differ materially from those discussed herein due to a variety of factors such as its ability to increase sales and achieve profitability in fiscal year 2010, changes in customer demand for its products, cancellation of production agreements by significant customers including two Contract Manufacturing customers it depends upon for a significant portion of its business, its ability to meet competitors’ prices on products to be sold under these production agreements, the effects of the economy in general, including the recent recession, the Company’s ability to refinance or replace its line of credit, which expires in May 2010, the Company’s inability to benefit from any general economic improvements, material increases in the cost of raw materials, competition in the Company’s product areas, an inability of management to successfully reduce operating expenses including labor and waste costs in relation to net sales, the Company’s ability to increase sales and earnings as a result of new projects, including its new canister line, the Company’s ability to successfully install new equipment on a timely basis, the Company’s ability to continue to produce new products, the Company’s ability to return to profitability and then continue to improve profitability, the Company’s ability to successfully attract new customers through its sales initiatives and the Company’s ability to improve the run rates for its products. Therefore, the financial data for the periods presented may not be indicative of the Company’s future financial condition or results of operations.

General Information:

Tufco is a leader in providing diversified contract wet and dry wipes converting and printing, as well as specialty printing services and business imaging products. The Company’s business strategy is to continue to place our converting at the leading edge of existing and emerging growth opportunities. The Company works closely with its clients to develop products or perform services which meet or exceed the customers’ quality standards, and then uses the Company’s operating efficiencies and technical expertise to supplement or replace its customers’ own production and distribution functions.

The Company’s technical proficiencies include wide web flexographic printing, wet and dry wipe converting, hot melt adhesive lamination, folding, integrated downstream packaging and quality and microbiological process management and the manufacture and distribution of business imaging paper products.

The Company has manufacturing operations in Green Bay, WI, which is ISO certified, and Newton, NC. The Company’s corporate headquarters, including corporate support services, are located in Green Bay, WI.

10

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Continued

Results of Operations:

Condensed operating data, percentages of net sales and period-to-period changes in these items are as follows (dollars in thousands):

	Three Months Ended						Period-to-Period
	December 31,						Change
	2009			2008			$			%
Net Sales	$	20,042		$	23,186		$	(3,144	)		(14	%)
Gross Profit		1,044			1,282			(238	)		(19	%)
		5.2	%		5.5	%
Operating Expenses		1,277			1,234			43			3	%
		6.4	%		5.3	%
Operating (Loss) Income		(233	)		48			(281	)	NM
		(1.2	%)		0.2	%
Interest and Other-Net		7			29			(22	)		(76	%)
		0.0	%		0.1	%
(Loss) Income Before Income Taxes		(240	)		19			(259	)	NM
		1.2	%		0.1	%
Income Tax (Benefit) Expense		(90	)		7			(97	)	NM
		(0.4	%)		0.0	%
Net (loss) Income	$	(l50	)	$	12			(162	)	NM
		(0.7	%)		0.1	%
Basic and Diluted (Loss) Earnings Per Share	$	(0.03	)	$	0.00

NM = Not Meaningful

	Three Months Ended
	December 31,
	2009					2008
			% of					% of			Period-to-Period Change
Net Sales	Amount		Total			Amount		Total			$			%
Contract Manufacturing and printing	$	13,947		70	%	$	17,436		75	%	$	(3,489	)		(20	%)
Business Imaging paper products		6,095		30	%		5,750		25	%		345			6	%
Net Sales	$	20,042		100	%	$	23,186		100	%	$	(3,144	)		(14	%)

	2009					2008
			Margin								Period-to-Period Change
Gross Profit	Amount		%			Amount		Total			$			%
Contract Manufacturing and printing	$	678		5	%	$	943		5	%	$	(265	)		(28	%)
Business Imaging paper products		366		6	%		339		6	%		27			8	%
Gross Profit	$	1,044		5	%	$	1,282		6	%	$	(238	)		(19	%)

11

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Continued

Net Sales:

Consolidated net sales decreased $3.1 million (14%) to $20.0 million in the first quarter of fiscal 2010, when compared to the same period last year. This was due to a decrease of $3.5 million (20%) in the Contract Manufacturing segment and an increase of $0.3 million (6%) in the Business Imaging segment.

The Company depends on two Contract Manufacturing customers for a significant portion of its business. One customer accounted for 21% of the Company’s total net sales in the first quarter of fiscal 2010 compared to 27% for the same period in fiscal 2009. The second customer accounted for 25% of the Company’s total net sales in the first quarter of fiscal 2010 compared to 37% for the same period in fiscal 2009.

In Contract Manufacturing, the decrease in revenues for the three months reflected the difficult consumer environment for our large branded customers. During the first quarter of fiscal 2010, the Company began commercial production on its new canister line, allowing the Company to attract new customers and increase business with existing customers. In the Business Imaging segment, the increase in sales for the three months was primarily due to increased sales to several national retail accounts. Both segments were affected by the overall slowdown in the economic environment.

Gross Profit:

Consolidated gross profit decreased $0.2 million (19%) for the first quarter of fiscal 2010 when compared to the first quarter of fiscal 2009. This was due to a decrease of $0.3 million (28%) in the Contract Manufacturing segment, partially offset by an increase of $27,000 (8%) in the Business Imaging segment.

In Contract Manufacturing, the decrease in gross profit for the three months was primarily due to a substantial decline in demand from our consumer products customers. This was partially offset by an increase in business from new customers, along with reductions in labor and overhead costs as a result of the Company’s continuing Lean Manufacturing, Six Sigma and cost cutting initiatives. In Business Imaging, gross profit remained relatively flat for the first three months of fiscal 2010 when compared to the same period in fiscal 2009, largely due to increased sales volume offset by industry price discounting. The effect of the overall economic slowdown had a negative impact on both segments.

Operating Expenses:

Selling, general and administrative expenses remained relatively flat for the first three months of fiscal 2010 when compared to the same period in fiscal 2009.

Interest Expense and Other Income (Expense) net:

Interest expense decreased $20,000 to $23,000 for the first quarter of fiscal 2010 when compared to the same period in fiscal 2009 due to lower average debt outstanding and lower interest rates on borrowings.

12

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Continued

Net Income:

The Company reported a net loss of ($150,000) [per share: $(0.03) basic and diluted] for the first quarter of fiscal 2010, versus net income of $12,000 [per share: $0.00 basic and diluted] for the same period in fiscal 2009.

Liquidity and Capital Resources:

Cash flows used in operations were $1.2 million through the first three months of fiscal 2010, compared to cash used in operations of $0.6 million for the same period last year. Cash used in operations for the first three months of fiscal 2010 resulted from an increase in accounts receivable of $29,000. Accounts payable increased $0.9 million in the first three months of fiscal 2010 compared to the same period last year, primarily due to an increase in materials purchased. Inventories increased $2.2 million, primarily as a result of seasonal fluctuations. Depreciation was $0.7 million for the first three months of fiscal 2010.

Net cash used in investing activities was $1.2 million for the first three months of fiscal 2010, primarily related to the purchase of a W&H 8-color press for $0.8 million, previously recorded under equipment lease. The balance was related to capital expenditures to support ongoing operational needs.

Net cash provided by financing activities was $2.3 million for the first three months of fiscal 2010, as a result of the Company borrowing from its revolving credit line to fund a portion of its increased working capital and equipment needs.

The Company’s primary need for capital resources is to finance inventories, accounts receivable and capital expenditures. As of December 31, 2009, cash recorded on the balance sheet was $6,571.

The Company has a $10.0 million unsecured revolving line of credit facility that expires in May 2010. The Company currently intends to extend or replace the agreement at, or prior to, its expiry. There can be no assurance that the Company will be successful in extending or replacing this facility. Borrowings under the current credit facility bear interest at a rate equal to LIBOR plus 2.25%. The Company is required to pay a non-usage fee of .50% per annum on the unused portion of the facility.

Availability under the facility is based upon specified percentages of eligible accounts receivable and inventory. The credit agreement is unsecured. If the Company fails to meet a specified funded debt to EBITDA ratio for two consecutive quarters, the Company’s lender will have the right to take a security interest in the Company’s accounts receivables and inventory. The credit agreement contains certain restrictive covenants, including requirements to maintain a minimum tangible net worth and after tax net income (or loss within specified levels). As of December 31, 2009, the Company was in compliance with all of its covenants under the credit agreement.

As of February 15, 2010, the Company had approximately $5.3 million available and $4.7 million outstanding under its revolving credit line pursuant to its credit agreement.

Management believes that the Company’s operating cash flow, together with amounts available under its credit agreement, are adequate to service the Company’s current obligations as of December 31, 2009 and any budgeted capital expenditures, including the purchase of a leased press, assuming the Company meets its business plan.

The Company intends to retain earnings to finance future operations and expansion and does not expect to pay any dividends within the foreseeable future.

Off Balance Sheet Arrangements:

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

13

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4(T). Controls and Procedures

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

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) were effective as of the end of the Company’s fiscal quarter ended December 31, 2009.

There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is subject to lawsuits, investigations, and potential claims arising out of the ordinary conduct of its business. The Company is not currently involved in any material litigation.

ITEM 1A. Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

     None

ITEM 3. Defaults Upon Senior Securities

None

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

None

ITEM 5. Other Information

None

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ITEM 6. Exhibits

31.1	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2	Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1	Certification furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification furnished Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

          Pursuant to the requirements 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.

	TUFCO TECHNOLOGIES, INC.
Date: February 15, 2010	/s/ Louis LeCalsey, III
	Louis LeCalsey, III
	President and Chief Executive Officer
Date: February 15, 2010	/s/ Michael B. Wheeler
	Michael B. Wheeler
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

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