Tufco (TFCO) 10-Q 2008 Q2 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 March 31, 2008

Commission file number0-21018

TUFCO TECHNOLOGIES, INC.

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

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 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 filero  Accelerated filero  Non-accelerated filer  o
(Do not check if a smaller reporting company) Smaller Reporting Companyþ 

     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 May 15, 2008
Common Stock, par value $0.01 per share	4,478,644

TUFCO TECHNOLOGIES, INC.

Index

	Page
	Number
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2008 and September 30, 2007		3
Condensed Consolidated Statements of Income for the three months and six months ended March 31, 2008 and 2007		4
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2008 and 2007		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		17
Item 4T. Controls and Procedures		17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings		17
Item 1A. Risk Factors		17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3. Defaults Upon Senior Securities		18
Item 4. Submission of Matters to Vote for Security Holders		18
Item 5. Other Information		18
Item 6. Exhibits		18
SIGNATURES		19
Rule 13a-14(a)/15d-14(a) Certification
Rule 13a-14(a)/15d-14(a) Certification
Certification Pursuant to 18 U.S.C. Section 1350
Certification Pursuant to 18 U.S.C. Section 1350

2

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,
	2008			September 30,
	(Unaudited)			2007
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	5,616		$	6,663
Accounts receivable-net		14,879,673			15,301,870
Inventories		15,285,310			16,354,816
Prepaid expenses and other current assets		966,204			833,896
Income tax receivable		46,747			—
Deferred income taxes		534,990			534,990
Total current assets		31,718,540			33,032,235
PROPERTY, PLANT AND EQUIPMENT-Net		18,357,355			19,002,401
GOODWILL		7,211,575			7,211,575
OTHER ASSETS-Net		121,910			126,729
TOTAL	$	57,409,380		$	59,372,940
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable	$	9,940,275		$	11,706,586
Accrued payroll, vacation and payroll taxes		734,962			513,331
Income taxes payable		126,352			107,182
Other current liabilities		760,930			716,620
Total current liabilities		11,562,519			13,043,719
LONG-TERM DEBT		5,691,666			6,191,666
DEFERRED INCOME TAXES		2,529,465			2,537,154
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common Stock: $.01 par value: 9,000,000 shares authorized; 4,708,741 shares issued		47,087			47,087
Additional paid-in capital		25,324,039			25,304,421
Retained earnings		13,622,010			13,390,699
Treasury stock, 210,097 and 173,097 common shares at cost, respectively		(1,367,406	)		(1,141,806	)
Total stockholders’ equity		37,625,730			37,600,401
TOTAL	$	57,409,380		$	59,372,940

3

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	THREE MONTHS ENDED						SIX MONTHS ENDED
	March 31,						March 31,
	2008			2007			2008			2007
NET SALES	$	29,603,619		$	27,587,328		$	54,421,572		$	54,604,740
COST OF SALES		28,161,184			26,401,398			51,874,619			52,126,672
GROSS PROFIT		1,442,435			1,185,930			2,546,953			2,478,068
OPERATING EXPENSES:
Selling, general & administrative		1,046,046			951,397			2,015,661			1,952,386
OPERATING INCOME		396,389			234,533			531,292			525,682
OTHER INCOME (EXPENSE):
Interest expense		(81,740	)		(158,408	)		(168,851	)		(249,449	)
Interest income and other income		261			428			18,005			16,815
INCOME BEFORE INCOME TAXES		314,910			76,553			380,446			293,048
INCOME TAX EXPENSE		123,444			30,010			149,135			114,875
NET INCOME	$	191,466		$	46,543		$	231,311		$	178,173
BASIC EARNINGS PER SHARE:
Net Income	$	0.04		$	0.01		$	0.05		$	0.04
DILUTED EARNINGS PER SHARE:
Net Income	$	0.04		$	0.01		$	0.05		$	0.04
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		4,526,106			4,535,244			4,530,875			4,535,244
Diluted		4,535,726			4,563,171			4,544,167			4,558,411

See notes to condensed consolidated financial statements.

4

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	SIX MONTHS ENDED
	March 31,
	2008			2007
OPERATING ACTIVITIES
Net Income	$	231,311		$	178,173
Noncash items in net income:
Depreciation and amortization of property, plant and equipment		1,092,774			1,071,212
Amortization		—			10,572
Non-monetary reimbursement of cost		(100,000	)		(515,000	)
Deferred income taxes		(7,689	)		(11,908	)
Gain on sale of property, plant and equipment		—			(145	)
Stock-based compensation expense		19,618			30,378
Changes in operating working capital:
Accounts receivable		422,197			1,449,240
Inventories		1,069,506			(1,734,314	)
Prepaid expenses and other assets		(127,489	)		(487,260	)
Accounts payable		(1,740,488	)		594,901
Accrued and other current liabilities		265,941			82,122
Income taxes payable/receivable		(27,577	)		126,782
Net cash provided by operating activities		1,098,104			794,753
INVESTING ACTIVITIES
Additions to property, plant and equipment		(347,728	)		(1,218,430	)
Proceeds from disposals of property, plant and equipment		—			500
Payment of construction payable		(25,823	)		(400,918	)
Net cash (used) in investing activities		(373,551	)		(1,618,848	)
FINANCING ACTIVITIES
Net (repayments) borrowings of debt		(500,000	)		826,989
Purchase of treasury stock		(225,600	)		—
Net cash (used) provided by financing activities		(725,600	)		826,989
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(1,047	)		2,894
CASH AND CASH EQUIVALENTS:
Beginning of period		6,663			5,267
End of period	$	5,616		$	8,161

5

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months and six months ended March 31, 2008 and 2007

(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 and six month periods ended March 31, 2008 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 2007 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, 2007 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, 2007.
2.	Recent Accounting Pronouncements
	In June 2007, the Financial Accounting Standards Board (“FASB”) ratified EITF No. 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF No. 07-3”). EITF No. 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. EITF No. 07-3 is effective, on a prospective basis, for financial statements issued for fiscal years beginning after December 15, 2007. The Company is currently evaluating the potential effect of EITF No. 07-3 will have on its financial position, results of operations and cash flows.
	In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, to provide users of financial statements with an enhanced understanding of the use of derivative instruments, accounting for derivative instruments and related hedged items, and the effect on an entity’s financial position, financial performance, and cash flows. This Statement requires qualitative and quantitative disclosures, as well as disclosures about credit-risk related to contingent features in derivative agreements. SFAS No. 161 is effective for financial statements issued for the Company’s first fiscal year beginning after November 15, 2008. The adoption of SFAS No. 161 is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.

6

Notes to condensed consolidated financial statements—(continued)

3.	Income Taxes
	The Company adopted the provisions of FASB Interpretation No. 48, “Accounting For Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), on October 1, 2007. At the adoption date and as of March 31, 2008, the Company had no material unrecognized tax benefits and no adjustment to liabilities, retained earnings, loss from continued operations, or net loss was required. The adoption of FIN 48 had no effect on the Company’s basic and diluted earnings per share. The Company files tax returns in all appropriate jurisdictions, which include a federal tax return and all required state jurisdictions. Open tax years for all jurisdictions are fiscal years ending September 30, 2005 and September 30, 2006. The Company has not yet filed its September 30, 2007 corporate tax returns.
	The Company recognizes interest and penalties related to uncertain tax positions as income tax expense as incurred. No expense for interest and penalties was recognized for the three months and six months ended March 31, 2008.
4.	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, the effect of which was 9,620 and 27,927 shares for the three months ended March 31, 2008 and 2007, respectively. For the six months ended March 31, 2008 and 2007, the common stock equivalents from dilutive stock options outstanding were 13,292 and 23,167 shares, respectively. During the three months ended March 31, 2008 and 2007, options to purchase 180,350 and 52,500 shares, respectively, were excluded from the diluted earnings per share computation as the effects of including such options would have been anti-dilutive. For the six months ended March 31, 2008 and 2007, options to purchase 146,350 and 67,500 shares, respectively, were excluded from the diluted earnings per share computation.
5.	Reclassifications
	Certain prior year amounts have been reclassified to conform to the current year presentation.
6.	Inventories
	Inventories consist of the following:

	March 31,		September 30,
	2008		2007
Raw materials	$	11,223,243	$	11,448,432
Finished goods		4,062,067		4,906,384
Total inventories	$	15,285,310	$	16,354,816

7

Notes to condensed consolidated financial statements—(continued)

7.	Stock Based Compensation
	The Company has an incentive stock plan under which the Board of Directors may grant non-qualified stock options to employees. Additionally, the Company has a Non-Qualified Stock Option Plan for Non-Employee Directors, under which shares are available for grant. The options have an exercise price equal to the fair market value of the underlying stock at the date of grant. Employee stock options vest ratably over a three-year period and non-employee director stock options vest immediately. Options issued under these plans generally expire ten years from the date of grant. Approximately 302,000 shares are available for future grants as of March 31, 2008.
	Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on the Company’s historical experience and future expectations. The Company recognizes compensation expense on a straight-line basis.
	During the three months ended March 31, 2008, Mr. Segel in conjunction with his election to serve on the Tufco Technologies, Inc. Board of Directors, received a discretionary grant on February 19, 2008 to acquire 2,000 shares of common stock under Tufco’s 2004 Non-Employee Director Stock Option Plan at an exercise price of $6.50 per share, the closing price on the NASDAQ market as of that date. The grant date fair value of these options granted was estimated at $1.94 using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 2.06%, expected volatility of 51.5%, no dividend yield and an expected life of two years. There were no options granted during the three months ended March 31, 2007.
	A summary of stock option activity under the Company’s share-based compensation plan for the six months ended March 31, 2008 is presented below:

						Weighted
				Weighted		Average
				Average		Remaining		Average
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at September 30, 2007		296,300		$	6.74
New grants		18,850		$	7.48
Exercised		—			—
Forfeited or expired		(8,000	)	$	9.25
Outstanding at March 31, 2008		307,150		$	6.72		5.3	$	85,022
Exercisable at March 31, 2008		290,300		$	6.67		5.1	$	85,022

The following table summarizes the Company’s share-based compensation awards during the six months ended March 31, 2008 and 2007:

	Six Months Ended
	March 31,		March 31,
	2008		2007
Total pre-tax share-based compensation	$	19,618	$	30,375
Weighted-average grant date fair value	$	2.07	$	3.88
Total unrecognized compensation cost	$	19,340	$	18,102
Remaining weighted-average period cost will be recognized over	30 months		6 Months

There were no options exercised during the three month and six month periods ended March 31, 2008 and 2007.

8

Notes to condensed consolidated financial statements—(continued)

8.	Stock Repurchase Plan
	In February 2008, the Company’s Board of Directors approved a program for open market stock repurchases through December 31, 2008 for up to 100,000 shares of its stock at prevailing market prices after concluding that the cash and debt position would enable these purchases without impairment to the Company’s capital. A total of 37,000 shares were purchased under the plan during the quarter ended March 31, 2008.
9.	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 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.

9

Notes to condensed consolidated financial statements—(continued)

Three Months Ended	Contract		Business		Corporate
March 31, 2008	Manufacturing		Imaging		and Other			Consolidated
Net sales	$	23,727,487	$	5,876,132	$	—		$	29,603,619
Gross profit		1,104,440		337,995		—			1,442,435
Operating income (loss)		424,733		127,282		(155,626	)		396,389
Depreciation and amortization expense		490,646		51,885		1,491			544,022
Capital expenditures		155,302		1,950		—			157,252

Three Months Ended	Contract		Business		Corporate
March 31, 2007	Manufacturing		Imaging		and Other			Consolidated
Net sales	$	21,730,623	$	5,856,705	$	—		$	27,587,328
Gross profit		706,441		479,489		—			1,185,930
Operating income (loss)		36,624		224,354		(26,445	)		234,533
Depreciation and amortization expense		481,145		54,988		15,165			551,298
Capital expenditures		752,700		14,527		—			767,227

Six Months Ended	Contract		Business		Corporate
March 31, 2008	Manufacturing		Imaging		And Other			Consolidated
Net sales	$	42,826,300	$	11,595,272	$	—		$	54,421,572
Gross profit		1,833,697		713,256		—			2,546,953
Operating income (loss)		548,956		326,950		(344,614	)		531,292
Depreciation and amortization expense		982,781		106,929		3,064			1,092,774
Capital expenditures		321,146		26,582		—			347,728

Six Months Ended	Contract		Business		Corporate
March 31, 2007	Manufacturing		Imaging		And Other			Consolidated
Net sales	$	42,310,810	$	12,293,930	$	—		$	54,604,740
Gross profit		1,558,733		919,335		—			2,478,068
Operating income (loss)		303,119		414,409		(191,846	)		525,682
Depreciation and amortization expense		941,695		109,760		30,329			1,081,784
Capital expenditures		1,184,551		33,879		—			1,218,430

10

Notes to condensed consolidated financial statements—(continued)

	Contract		Business		Corporate
March 31, 2008	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories		$12,777,959	$	2,507,351		$         —		$15,285,310
Property, plant and equipment-net		16,261,152		2,087,167		9,036		18,357,355
Accounts receivable and other (including goodwill)		17,553,366		5,504,086		709,263		23,766,715
Total assets		$46,592,477	$	10,098,604		$718,299		$57,409,380

	Contract		Business		Corporate
September 30, 2007	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories		$14,023,642	$	2,331,174		$         —		$16,354,816
Property, plant and equipment-net		16,822,787		2,167,514		12,100		19,002,401
Accounts receivable and other (including goodwill)		17,687,370		5,659,972		668,381		24,015,723
Total assets		$48,533,799	$	10,158,660		$680,481		$59,372,940

11

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 2008 results in comparison to fiscal 2007 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 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, material increases in the cost of base paper stock, 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 without damaging the long-term direction of the Company, the Company’s ability to increase sales and earnings as a result of new projects, the Company’s ability to successfully install new equipment on a timely basis, the Company’s ability to produce new products, the Company’s ability to continue to improve profitability, the Company’s ability to successfully attract new customers through our sales initiatives to fill its newly created capacity, the effects of the economy in general, 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 wipes converting at the leading edge of existing and emerging wipes growth opportunities. The Company works closely with its Contract Manufacturing clients to develop products or perform services, which meet or exceed the customers’ quality standards, and then uses the Company’s operating efficiencies and technical expertise to supplement or replace its customers’ own production and distribution functions.

The Company’s technical proficiencies include 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.

12

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						Six Months Ended						Period-to-Period
	March 31,						Change						March 31,						Change
	2008			2007			$			%			2008			2007			$			%
Net Sales	$	29,604		$	27,587		$	2,017			7		$	54,422		$	54,605		$	(183	)		(0.3	)
Gross Profit		1,442			1,186			256			22			2,547			2,478			69			3
		4.9	%		4.3	%								4.7	%		4.5	%
Operating Expenses		1,046			951			95			10			2,016			1,952			64			3
		3.5	%		3.4	%								3.7	%		3.6	%
Operating Income		396			235			161			69			531			526			5			1
		1.3	%		0.9	%								1.0	%		1.0	%
Interest Expense		82			158			(76	)		(48	)		169			250			(81	)		(32	)
		0.3	%		0.6	%								0.3	%		0.5	%
Income Before Income Taxes		315			77			238			309			380			293			87			30
		1.1	%		0.3	%								0.7	%		0.5	%
Income Tax Expense		123			30			93			310			149			115			34			30
		0.4	%		0.1	%								0.3	%		0.2	%
Net Income	$	192		$	47			145			309		$	231		$	178			53			30
		0.6	%		0.2	%								0.4	%		0.3	%
Basic and Diluted Earnings Per Share	$	0.04		$	0.01								$	0.05		$	0.04

13

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

	Three Months Ended
	March 31,
	2008					2007					Period-to-Period
			% of					% of			Change
	Amount		Total			Amount		Total			$		%
Net Sales
Contract Manufacturing and printing		$23,728		80	%		$21,730		79	%		$1,998		9	%
Business Imaging paper products		5,876		20	%		5,857		21			19		0.3	%
Net Sales		$29,604		100	%		$27,587		100	%		$2,017		7	%

	2008					2007					Period-to-Period
			Margin					Margin			Change
	Amount		%			Amount		%			$			%
Gross Profit
Contract Manufacturing and printing		$1,104		5	%		$   706		3	%		$  398			56	%
Business Imaging paper products		338		6	%		480		8	%		(142	)		(29	%)
Gross Profit		$1,442		5	%		$1,186		4	%		$  256			22	%

	Six Months Ended
	March 31,
	2008					2007					Period-to-Period
			% of					% of			Change
	Amount		Total			Amount		Total			$			%
Net Sales
Contract Manufacturing and printing		$42,827		79	%		$42,311		77	%		$  516			1	%
Business Imaging paper products		11,595		21			12,294		23			(699	)		(6	%)
Net Sales		$54,422		100	%		$54,605		100	%		$ (183	)		(0.3	%)

	2008					2007					Period-to-Period
			Margin					Margin			Change
	Amount		%			Amount		%			$			%
Gross Profit
Contract Manufacturing and printing		$1,834		4	%		$1,559		4	%		$  275			18	%
Business Imaging paper products		713		6	%		919		7	%		(206	)		(22	%)
Gross Profit		$2,547		5	%		$2,478		5	%		$    69			3	%

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

Net Sales:

Consolidated net sales increased $2.0 million (7%) to $29.6 million in the second quarter of fiscal 2008, when compared to the same period last year. This was due to an increase of $2.0 million (9%) in the Contract Manufacturing segment.

For the six months ended March 31, 2008, net sales decreased $0.2 million (0.3%) when compared to the first six months of fiscal 2007. This was due to an increase of $0.5 million (1%) in the Contract Manufacturing segment and a decrease of $0.7 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 35% of the Company’s total net sales in both the second quarter of fiscal 2008 and fiscal 2007. This same customer accounted for 37% of the Company’s total net sales in the first six months of fiscal 2008, compared to 34% for the same period last year. The second customer accounted for 36% of the Company’s total net sales in the second quarter of fiscal 2008 compared to 34% for the same period in fiscal 2007. This customer accounted for 33% of the Company’s total net sales in the first six months of fiscal 2008, compared to 35% for the same period last year.

In Contract Manufacturing, the increase in revenues for the first six months was primarily due to two new wipes converting product lines that were not in production for the entire first six months of fiscal 2007, offset by decreases in customer demand for existing products. The Business Imaging segment sales decrease for the first six months was primarily due to continuing competitive pricing resulting in decreased sales to several of the segment’s Hamco brand distributorships, as well as several of its large retail customers.

Gross Profit:

Consolidated gross profit increased $256,000 (22%) for the second quarter of fiscal 2008 when compared to the second quarter of fiscal 2007. This was due to an increase of $398,000 (56%) in the Contract Manufacturing segment and a decrease of $142,000 (29%) in the Business Imaging segment.

For the six months ended March 31, 2008, gross profit increased $69,000 (3%) when compared to the same period last year. This was due to an increase of $275,000 (18%) in the Contract Manufacturing segment and a decrease of $206,000 (22%) in the Business Imaging segment.

In Contract Manufacturing, the increase in gross profit for the three and six months was primarily due to decreases in labor and excess waste as a result of the Company’s LEAN manufacturing and Six Sigma initiatives. In Business Imaging, the decrease in gross profit for the three and six months was largely due to strong price competition for the segment’s products combined with rising raw material costs.

Operating Expenses:

Selling, general and administrative expenses increased $95,000 (10%) for the second quarter of fiscal 2008 when compared to the same period in fiscal 2007 and increased $64,000 (3%) when compared to the first six months of fiscal 2007.

Interest Expense and Other Income (Expense) net:

Interest expense decreased $76,000 to $82,000 for the second quarter of fiscal 2008 compared to the same period in fiscal 2007 and decreased $81,000 in comparing the six months due to lower average debt outstanding and lower interest rates on borrowings.

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

Net Income:

The Company reported net income of $191,000 (per share: $0.04 basic and diluted) for the second quarter of fiscal 2008, versus net income of $47,000 (per share: $0.01 basic and diluted) for the same period in fiscal 2007.

For the six months ended March 31, 2008, net income was $231,000 (per share: $0.05 basic and diluted) compared to net income of $178,000 (per share: $0.04 basic and diluted) for the first six months of fiscal 2007.

Liquidity and Capital Resources:

The Company generated $1.1 million in cash from operations through the first six months of fiscal 2008, compared to cash provided by operations of $0.8 million for the same period last year. Cash generated from operations for the first six months of fiscal 2008 resulted from a reduction in accounts receivable of $0.4 million. Accounts payable decreased $1.7 million in the first six months of fiscal 2008 compared to the same period last year. Inventories decreased $1.1 million as a result of reductions in customer demand levels and efforts to reduce average on hand inventory levels for major raw material components. Depreciation was $1.1 million for the first six months.

Net cash used in investing activities was $0.4 million for the first six months of fiscal 2008, primarily related to capital expenditures to support ongoing operational needs.

Net cash used by financing activities was $0.7 million for the first six months of fiscal 2008, primarily due to the Company paying down its revolving credit line. In February 2008, the Company’s Board of Directors approved a program for open market stock repurchases through December 31, 2008 for up to 100,000 shares of its stock at prevailing market prices after concluding that the cash and debt position would enable these purchases without impairment to the Company’s capital. A total of 37,000 shares were purchased under the plan for an aggregate purchase price of $0.2 million during the quarter ended March 31, 2008.

The Company’s primary need for capital resources is to finance inventories, accounts receivable and capital expenditures. As of March 31, 2008, cash recorded on the balance sheet was $5,616.

The credit agreement governing the Company’s revolving credit line, as amended on February 9, 2007 and March 18, 2008, includes a $14.0 million revolving line of credit facility as well as a $1.0 million swing line available for overdrafts and expires on May 18, 2010.

As of May 15, 2008, the Company had approximately $10.8 million available and $4.2 million outstanding under the revolving credit line pursuant to its credit agreement. According to the terms of the credit agreement, the Company is required to maintain certain financial and operational covenants. As of March 31, 2008, the Company was in compliance with all of its covenants under the 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 long term obligations as of March 31, 2008 and any budgeted capital expenditures.

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

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Information with respect to the Company’s exposure to interest rate risk, foreign currency exchange risk, commodity price risk and other relevant market risks is contained on page 23 in Item 7A, Quantitative and Qualitative Disclosures About Market Risk, of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the year ended September 30, 2007. Management believes that as of March 31, 2008, there has been no material change to this information.

ITEM 4T. Controls and Procedures

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

The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) were effective as of the end of the Company’s fiscal quarter ended March 31, 2008.

There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended March 31, 2008 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

The Company has not identified any material changes from risk factors as previously disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission for the year ended September 30, 2007.

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

Issuer Purchases of Equity Securities

The following table presents the number of shares purchased monthly under the Company’s stock repurchase program for the six-month period ended March 31, 2008.

					Total Number of		Maximum Number
					Shares Purchased		Of Shares That
	Total Number				as Part of		May Yet Be
	Of Shares		Average Price		Publicly		Purchased Under
Period	Purchased		Paid per Share		Announced Plan		The Plan
February (2/1/08 – 2/29/08)		19,000	$	6.26		19,000		81,000
March (3/1/08 – 3/31/08)		18,000	$	5.93		18,000		63,000
Total		37,000	$	6.09		37,000		63,000

On February 14, 2008, the Company announced that its Board of Directors had approved a program for open market stock repurchases through December 31, 2008 for up to 100,000 shares of its stock at prevailing market prices after concluding that the cash and debt position would enable these purchases without impairment to the Company’s capital. A total of 37,000 shares were purchased under the plan during the quarter ended March 31, 2008.

ITEM 3. Defaults Upon Senior Securities

     None

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

     None

ITEM 5. Other Information

  ��  None

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: May 15, 2008	/s/ Louis LeCalsey, III
	Louis LeCalsey, III
	President and Chief Executive Officer

Date: May 15, 2008	/s/ Michael B. Wheeler
	Michael B. Wheeler
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

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