Tufco (TFCO) 10-Q 2008 Q3 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 June 30, 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 filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

     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 August 14, 2008
Common Stock, par value $0.01 per share	4,458,644

TUFCO TECHNOLOGIES, INC.

Index

		Page
		Number
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2008 and September 30, 2007		3
	Condensed Consolidated Statements of Income for the three months and nine months ended June 30, 2008 and 2007		4
	Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 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			19
Item 6. Exhibits			19
SIGNATURES			20
Certification pursuant to Rule 13a-14(a)
Certification pursuant to Rule 13a-14(a)
Certification pursuant to Section 1350
Certification pursuant to Section 1350

2

PART I. FINANCIAL INFORMATION

ITEM 1. Condensed Consolidated Financial Statements

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,
	2008			September 30,
	(Unaudited)			2007
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	5,680		$	6,663
Accounts receivable-net		13,918,827			15,301,870
Inventories		15,704,104			16,354,816
Prepaid expenses and other current assets		863,905			833,896
Income tax receivable		46,747			—
Deferred income taxes		534,990			534,990
Total current assets		31,074,253			33,032,235
PROPERTY, PLANT AND EQUIPMENT-Net		18,206,134			19,002,401
GOODWILL		7,211,575			7,211,575
OTHER ASSETS-Net		122,103			126,729
TOTAL	$	56,614,065		$	59,372,940
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable	$	10,845,506		$	11,706,586
Accrued payroll, vacation and payroll taxes		717,714			513,331
Income taxes payable		325,136			107,182
Other current liabilities		914,677			716,620
Total current liabilities		12,803,033			13,043,719
LONG-TERM DEBT		3,500,000			6,191,666
DEFERRED INCOME TAXES		2,524,062			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		25,337,822			25,304,421
Retained earnings		13,952,967			13,390,699
Treasury stock, 240,097 and 173,097 common shares at cost, respectively		(1,550,906	)		(1,141,806	)
Total stockholders’ equity		37,786,970			37,600,401
TOTAL	$	56,614,065		$	59,372,940

3

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

	THREE MONTHS ENDED						NINE MONTHS ENDED
	June 30,						June 30,
	2008			2007			2008			2007
NET SALES	$	30,674,237		$	29,814,897		$	85,095,809		$	84,419,637
COST OF SALES		29,006,838			28,164,798			80,881,457			80,291,470
GROSS PROFIT		1,667,399			1,650,099			4,214,352			4,128,167
OPERATING EXPENSES:
Selling, general & administrative		1,073,445			1,075,256			3,089,106			3,027,642
OPERATING INCOME		593,954			574,843			1,125,246			1,100,525
OTHER INCOME (EXPENSE):
Interest expense		(49,961	)		(132,862	)		(218,812	)		(382,311	)
Interest income and other income (expense)		345			1,494			18,350			18,310
INCOME BEFORE INCOME TAXES		544,338			443,475			924,784			736,524
INCOME TAX EXPENSE		213,381			156,342			362,516			271,217
NET INCOME	$	330,957		$	287,133		$	562,268		$	465,307
BASIC EARNINGS PER SHARE:
Net Income	$	0.07		$	0.06		$	0.12		$	0.10
DILUTED EARNINGS PER SHARE:
Net Income	$	0.07		$	0.06		$	0.12		$	0.10
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		4,479,743			4,535,640			4,513,831			4,535,376
Diluted		4,488,560			4,572,142			4,525,631			4,562,988

See notes to condensed consolidated financial statements.

4

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

	NINE MONTHS ENDED
	June 30,
	2008			2007
OPERATING ACTIVITIES
Net income	$	562,268		$	465,307
Noncash items in net income:
Depreciation and amortization of property, plant and equipment		1,628,179			1,624,604
Amortization		—			15,858
Non-monetary reimbursement of cost		(100,000	)		(515,000	)
Deferred income taxes		(13,092	)		(26,094	)
Gain on sale of property, plant and equipment		—			(145	)
Stock-based compensation expense		33,401			66,564
Changes in operating working capital:
Accounts receivable		1,383,043			1,400,421
Inventories		650,712			(3,944,810	)
Prepaid expenses and other assets		(25,383	)		(328,262	)
Accounts payable		(835,257	)		4,019,024
Accrued and other current liabilities		402,440			356,965
Income taxes payable/receivable		171,207			292,602
Net cash provided by operating activities		3,857,518			3,427,034
INVESTING ACTIVITIES
Additions to property, plant and equipment		(731,912	)		(1,588,121	)
Proceeds from disposals of property, plant and equipment		—			500
Payment of construction payable		(25,823	)		(400,918	)
Net cash used by investing activities		(757,735	)		(1,988,539	)
FINANCING ACTIVITIES
Net repayments		(2,691,666	)		(1,439,678	)
Proceeds from exercise of stock options		—			2,284
Purchase of treasury stock		(409,100	)		—
Net cash used by financing activities		(3,100,766	)		(1,437,394	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(983	)		1,101
CASH AND CASH EQUIVALENTS:
Beginning of period		6,663			5,267
End of period	$	5,680		$	6,368
NONCASH SUPPLEMENTAL INFORMATION:
Construction payable	$	—		$	14,230

5

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months and nine months ended June 30, 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 nine month periods ended June 30, 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 that EITF No. 07-3 will have on its consolidated financial statements.
	In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands SFAS 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 consolidated financial statements.
	In May 2008, the FASB issued SFAS No. 162, “Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”), which identifies the sources of accounting principles and the framework for selecting principles used in financial statements. The FASB does not expect that this statement will result in a change in current practice. SFAS No. 162 is effective for all pronouncement and applications of accounting principles issued after March 15, 1992. The Company has determined that the adoption of SFAS No. 162 did not have a material effect on its consolidated financial statements.

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 June 30, 2008, the Company had no material unrecognized tax benefits and no adjustment to liabilities, retained earnings, loss from continued operations, or net loss was required. The adoption of FIN 48 had no effect on the Company’s basic and diluted earnings per share. The Company files tax returns in all appropriate jurisdictions, which include a federal tax return and all required state jurisdictions. Open tax years for all jurisdictions are fiscal years ending September 30, 2005, 2006 and 2007.
	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 nine months ended June 30, 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 8,817 and 36,502 shares for the three months ended June 30, 2008 and 2007, respectively. For the nine months ended June 30, 2008 and 2007, the common stock equivalents from dilutive stock options outstanding were 11,800 and 27,612 shares, respectively. During the three months ended June 30, 2008 and 2007, options to purchase 200,350 and 40,500 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 nine months ended June 30, 2008 and 2007, options to purchase 166,350 and 67,500 shares, respectively, were excluded from the diluted earnings per share computation.
5.	Reclassifications
	Certain prior period amounts have been reclassified to conform to the current year presentation.
6.	Inventories
	Inventories consist of the following:

	June 30,		September 30,
	2008		2007
Raw materials	$	12,220,272	$	11,448,432
Finished goods		3,483,832		4,906,384
Total inventories	$	15,704,104	$	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 282,000 shares are available for future grants as of June 30, 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 December 31, 2007, employees of Tufco Technologies, Inc., received a discretionary grant on October 1, 2007 to acquire 16,850 shares of common stock under Tufco’s 2003 Non-Qualified Stock Option Plan at an exercise price of $7.60 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 $2.85 using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 4.05%, expected volatility of 49.9%, no dividend yield and an expected life of three years.
	During the three months ended March 31, 2008, Richard M. 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 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 $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.
	During the three months ended June 30, 2008, Messrs. Robert J. Simon, Samuel J. Bero, C. Hamilton Davison, Jr., Brian Kelly, Richard M. Segel and William R. Ziemendorf, in conjunction with their election or reelection to serve on the Tufco Technologies, Inc. Board of Directors, each received a discretionary grant on May 15, 2008 to acquire 3,000 shares of common stock under Tufco’s 2004 Non-Employee Director Stock Option Plan at an exercise price of $7.00 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 $2.17 using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 2.45%, expected volatility of 53.2%, no dividend yield and an expected life of two years.
	In addition, Mr. George Hare, upon formal offer and acceptance of the position of General Manager — Newton Division, received a discretionary grant on June 30, 2008 to acquire 2,000 shares of common stock under Tufco’s 2003 Non-Qualified Stock Option Plan at an exercise price of $6.35 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 $2.54 using the Black-Sholes option-pricing model with the following assumptions: risk-free interest rate of 2.91%, expected volatility of 55.9%, no dividend yield and an expected life of three years.

8

Notes to condensed consolidated financial statements—(continued)

A summary of stock option activity under the Company’s share-based compensation plan for the nine months ended June 30, 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		38,850		$	7.20
Exercised		—			—
Forfeited or expired		(8,000	)	$	9.25
Outstanding at June 30, 2008		327,150		$	6.73		5.4	$	97,702
Exercisable at June 30, 2008		308,300		$	6.69		5.1	$	97,702

The following table summarizes the Company’s share-based compensation awards during the nine months ended June 30, 2008 and 2007:

	Nine Months Ended
	June 30,		June 30,
	2008		2007
Total pre-tax share-based compensation	$	33,401	$	66,564
Weighted-average grant date fair value	$	1.86	$	2.05
Total unrecognized compensation cost	$	38,715	$	9,051
Remaining weighted-average period cost will be recognized over	35 months		3 Months

	There were no options exercised during the three month and nine month periods ended June 30, 2008 and 2007.
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 67,000 shares were purchased under the plan through June 30, 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
June 30, 2008	Manufacturing		Imaging		and Other			Consolidated
Net sales	$	24,314,330	$	6,359,907	$	—		$	30,674,237
Gross profit		1,390,035		277,364		—			1,667,399
Operating income (loss)		729,377		67,071		(202,494	)		593,954
Depreciation and amortization expense		481,314		52,899		1,192			535,405
Capital expenditures		360,260		23,924		—			384,184

Three Months Ended	Contract		Business		Corporate
June 30, 2007	Manufacturing		Imaging		and Other			Consolidated
Net sales	$	24,228,368	$	5,586,529	$	—		$	29,814,897
Gross profit		1,204,136		445,963		—			1,650,099
Operating income (loss)		457,456		223,761		(106,374	)		574,843
Depreciation and amortization expense		488,748		54,766		15,164			558,678
Capital expenditures		369,691		—		—			369,691

Nine Months Ended	Contract		Business		Corporate
June 30, 2008	Manufacturing		Imaging		And Other			Consolidated
Net sales	$	67,140,630	$	17,955,179	$	—		$	85,095,809
Gross profit		3,223,732		990,620		—			4,214,352
Operating income (loss)		1,278,333		394,022		(547,109	)		1,125,246
Depreciation and amortization expense		1,464,095		159,828		4,256			1,628,179
Capital expenditures		681,406		50,506		—			731,912

Nine Months Ended	Contract		Business		Corporate
June 30, 2007	Manufacturing		Imaging		And Other			Consolidated
Net sales	$	66,539,178	$	17,880,459	$	—		$	84,419,637
Gross profit		2,762,869		1,365,298		—			4,128,167
Operating income (loss)		760,576		638,170		(298,221	)		1,100,525
Depreciation and amortization expense		1,430,443		164,526		45,493			1,640,462
Capital expenditures		1,554,242		33,879		—			1,588,121

10

Notes to condensed consolidated financial statements—(continued)

	Contract		Business		Corporate
June 30, 2008	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories	$	12,760,410	$	2,943,694	$	—	$	15,704,104
Property, plant and equipment-net		16,140,098		2,058,192		7,844		18,206,134
Accounts receivable and other (including goodwill)		16,233,238		5,862,269		608,320		22,703,827
Total assets	$	45,133,746	$	10,864,155	$	616,164	$	56,614,065

	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						Nine Months Ended						Period-to-Period
	June 30,						Change						June 30,						Change
	2008			2007			$			%			2008			2007			$			%
Net Sales	$	30,674		$	29,815		$	859			3		$	85,096		$	84,420		$	676			1
Gross Profit		1,667			1,650			17			1			4,214			4,128			86			2
		5.4	%		5.5	%								5.0	%		4.9	%
Operating Expenses		1,073			1,075			(2	)		(0.2	)		3,089			3,028			61			2
		3.5	%		3.6	%								3.6	%		3.6	%
Operating Income		594			575			19			3			1,125			1,100			25			2
		1.9	%		1.9	%								1.3	%		1.3	%
Interest Expense		50			133			(83	)		(62	)		219			382			(163	)		(43	)
		0.2	%		0.4	%								0.3	%		0.5	%
Income Before Income Taxes		544			443			101			23			925			737			188			26
		1.8	%		1.5	%								1.1	%		0.9	%
Income Tax Expense		213			156			57			37			363			271			92			34
		0.7	%		0.5	%								0.4	%		0.3	%
Net Income	$	331		$	287			44			15		$	562		$	465			97			21
		1.1	%		1.0	%								0.7	%		0.6	%
Basic and Diluted Earnings
Per Share	$	0.07		$	0.06								$	0.12		$	0.10

13

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

	Three Months Ended
	June 30,
	2008					2007
			% of					% of			Period-to-Period Change
	Amount		Total			Amount		Total			$		%
Net Sales
Contract Manufacturing and printing	$	24,314		79	%	$	24,228		81	%	$	86		0.4	%
Business Imaging paper products		6,360		21	%		5,587		19	%		773		14	%
Net Sales	$	30,674		100	%	$	29,815		100	%	$	859		3	%

	2008					2007
			Margin					Margin			Period-to-Period Change
	Amount		%			Amount		%			$			%
Gross Profit
Contract Manufacturing and printing	$	1,390		6	%	$	1,204		5	%	$	186			15	%
Business Imaging paper products		277		4	%		446		8	%		(169	)		(38	%)
Gross Profit	$	1,667		5	%	$	1,650		6	%	$	17			1	%

	Nine Months Ended
	June 30,
	2008					2007
			% of					% of			Period-to-Period Change
	Amount		Total			Amount		Total			$		%
Net Sales
Contract Manufacturing and printing	$	67,141		79	%	$	66,539		79	%	$	602		1	%
Business Imaging paper products		17,955		21	%		17,881		21	%		74		0.4	%
Net Sales	$	85,096		100	%	$	84,420		100	%	$	676		1	%

	2008					2007
			Margin					Margin			Period-to-Period Change
	Amount		%			Amount		%			$			%
Gross Profit
Contract Manufacturing and printing	$	3,224		5	%	$	2,763		4	%	$	461			17	%
Business Imaging paper products		990		6	%		1,365		8	%		(375	)		27	%
Gross Profit	$	4,214		5	%	$	4,128		5	%	$	86			2	%

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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 $0.9 million (3%) to $30.7 million in the third quarter of fiscal 2008, when compared to the same period last year. This was due to an increase of $0.1 million (0.4%) in the Contract Manufacturing segment and an increase of $0.8 million (14%) in the Business Imaging segment.

For the nine months ended June 30, 2008, net sales increased $0.7 million (1%) when compared to the first nine months of fiscal 2007. This was due to an increase of $0.6 million (1%) in the Contract Manufacturing segment and an increase of $0.1 million (0.4%) in the Business Imaging segment.

The Company depends on two Contract Manufacturing customers for a significant portion of its business. One customer accounted for 30% of the Company’s total net sales in the third quarter of fiscal 2008 compared to 29% for the same period in fiscal 2007. This same customer accounted for 34% of the Company’s total net sales in the first nine months of fiscal 2008, compared to 32% for the same period last year. The second customer accounted for 40% of the Company’s total net sales in the third quarter of fiscal 2008 compared to 44% for the same period in fiscal 2007. This customer accounted for 35% of the Company’s total net sales in the first nine months of fiscal 2008, compared to 38% for the same period last year.

In Contract Manufacturing, the increase in revenues for the first nine months was primarily due to two new wipes converting product lines that were not in production for the entire first nine months of fiscal 2007, offset by decreases in customer demand for existing products. The Business Imaging segment sales increase for the first nine months was primarily due to a pass through of raw material increases to the segment’s customers. Both segments were affected by the slowdown in the economic environment.

Gross Profit:

Consolidated gross profit increased $17,000 (1%) for the third quarter of fiscal 2008 when compared to the third quarter of fiscal 2007. This was due to an increase of $186,000 (15%) in the Contract Manufacturing segment and a decrease of $169,000 (38%) in the Business Imaging segment.

For the nine months ended June 30, 2008, gross profit increased $86,000 (2%) when compared to the same period last year. This was due to an increase of $461,000 (17%) in the Contract Manufacturing segment and a decrease of $375,000 (27%) in the Business Imaging segment.

In Contract Manufacturing, the increase in gross profit for the three and nine months was primarily due to operational gains made as a result of the Company’s continuing LEAN Manufacturing and Six Sigma initiatives. In Business Imaging, the decrease in gross profit for the three and nine months was largely due to strong price competition for the segment’s products combined with rising raw material costs. The effect of the economic slowdown had a negative impact on both segments.

Operating Expenses:

Selling, general and administrative expenses decreased $2,000 (0.2%) for the third quarter of fiscal 2008 when compared to the same period in fiscal 2007 and increased $61,000 (2%) when compared to the first nine months of fiscal 2007.

Interest Expense and Other Income (Expense) net:

Interest expense decreased $83,000 to $50,000 for the third quarter of fiscal 2008 compared to the same period in fiscal 2007 and decreased $163,000 for the first nine months of fiscal 2008 when compared to the same period in fiscal 2007 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 $331,000 (per share: $0.07 basic and diluted) for the third quarter of fiscal 2008, versus net income of $287,000 (per share: $0.06 basic and diluted) for the same period in fiscal 2007.

For the nine months ended June 30, 2008, net income was $562,000 (per share: $0.12 basic and diluted) compared to net income of $465,000 (per share: $0.10 basic and diluted) for the first nine months of fiscal 2007.

Liquidity and Capital Resources:

The Company generated $3.8 million in cash from operations through the first nine months of fiscal 2008, compared to cash provided by operations of $3.4 million for the same period last year. Cash generated from operations for the first nine months of fiscal 2008 resulted from a reduction in accounts receivable of $1.4 million. Accounts payable decreased $0.8 million in the first nine months of fiscal 2008 compared to the same period last year. Inventories decreased $0.7 million as a result of efforts to reduce average on hand inventory levels for major raw material components. Depreciation was $1.6 million for the first nine months.

Net cash used in investing activities was $0.8 million for the first nine months of fiscal 2008, primarily related to capital expenditures to support ongoing operational needs and to a down payment on a canister line to support the Company’s growth in the expanding disposable nonwovens wipes market.

Net cash used by financing activities was $3.1 million for the first nine 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 67,000 shares were purchased under the plan for an aggregate purchase price of $0.4 million from approval of the plan through June 30, 2008.

The Company’s primary need for capital resources is to finance inventories, accounts receivable and capital expenditures. As of June 30, 2008, cash recorded on the balance sheet was $5,680.

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 August 14, 2008, the Company had approximately $11.0 million available and $4.0 million outstanding under the revolving credit line pursuant to its credit agreement. According to the terms of the credit agreement, the Company is subject to certain financial and operational covenants. As of June 30, 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 June 30, 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 June 30, 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 June 30, 2008.

There have been no changes in the Company’s internal control over financial reporting during the fiscal quarter ended June 30, 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 nine-month period ended June 30, 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
April
(4/1/08 - 4/30/08)		10,000	$	6.25		10,000		53,000
May
(5/1/08 - 5/31/08)		10,000	$	6.05		10,000		43,000
June
(6/1/08 - 6/30/08)		10,000	$	6.05		10,000		33,000
Total		67,000	$	6.10		67,000		33,000

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 67,000 shares were purchased under the plan through June 30, 2008.

ITEM 3. Defaults Upon Senior Securities

None

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

(a)	The Annual Meeting of Shareholders of the Company was held on May 15, 2008.
(b)	See the response to Item 4(c) below.
(c)	At the Annual Meeting, shareholders elected the following individuals to the Board of Directors for one-year terms:

Director	For		Withheld
Robert J. Simon		4,055,585		148,683
Samuel J. Bero		4,059,423		144,845
C. Hamilton Davison, Jr.		4,167,000		37,268
Brian Kelly		4,165,445		38,823
Louis LeCalsey, III		4,067,813		136,455
Richard M. Segel		4,166,238		38,030
William R. Ziemendorf		4,166,638		37,630

(d) Not applicable

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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: August 14, 2008	/s/ Louis LeCalsey, III
	Louis LeCalsey, III
	President and Chief Executive Officer
Date: August 14, 2008	/s/ Michael B. Wheeler
	Michael B. Wheeler
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

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