Tufco (TFCO) 10-Q 2009 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, 2009

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 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).  Yes o No þ

     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 May 15, 2009
Common Stock, par value $0.01 per share	4,314,525

TUFCO TECHNOLOGIES, INC.

Index

	Page
	Number
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements		3
Condensed Consolidated Balance Sheets as of March 31, 2009 and September 30, 2008		3
Condensed Consolidated Statements of Income for the three months and six months ended March 31, 2009 and 2008		4
Condensed Consolidated Statements of Cash Flows for the six months ended March 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		11
Item 3. Quantitative and Qualitative Disclosures About Market Risk		16
Item 4. Controls and Procedures		16
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		17
Item 3. Defaults Upon Senior Securities		17
Item 4. Submission of Matters to Vote for Security Holders		17
Item 5. Other Information		17
Item 6. Exhibits		18
SIGNATURES		19
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

	March 31,
	2009			September 30,
	(Unaudited)			2008
Assets
CURRENT ASSETS:
Cash	$	4,611		$	68,397
Accounts receivable — net		10,066,203			11,770,981
Inventories — net		13,169,017			14,939,968
Prepaid expenses and other current assets		21,050			420,237
Income taxes receivable		118,991			118,991
Deferred income taxes		571,583			571,583
Total current assets		23,951,455			27,890,157
PROPERTY, PLANT AND EQUIPMENT — Net		18,142,858			18,036,764
GOODWILL		7,211,575			7,211,575
OTHER ASSETS — Net		124,594			122,297
TOTAL	$	49,430,482		$	53,260,793
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable	$	5,342,155		$	8,320,011
Accrued payroll, vacation and payroll taxes		613,117			562,598
Other current liabilities		184,286			700,095
Total current liabilities		6,139,558			9,582,704
LONG-TERM DEBT		3,763,893			3,000,000
DEFERRED INCOME TAXES		2,892,960			2,896,002
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		25,381,969			25,374,211
Retained earnings		13,335,825			13,981,031
Treasury stock, 391,819 and 252,037 common shares at cost		(2,130,810	)		(1,620,242	)
Total stockholders’ equity		36,634,071			37,782,087
TOTAL	$	49,430,482		$	53,260,793

3

TUFCO TECHNOLOGIEES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

	THREE MONTHS ENDED						SIX MONTHS ENDED
	March 31,						March 31,
	2009			2008			2009			2008
NET SALES	$	19,454,822		$	29,603,619		$	42,640,609		$	54,421,572
COST OF SALES		19,428,672			28,161,184			41,577,146			51,874,619
GROSS PROFIT		26,150			1,442,435			1,063,463			2,546,953
OPERATING EXPENSES:
Selling, general & administrative		1,080,648			1,046,046			2,107,243			2,015,661
Gain on asset sales		—			—			(37,500	)		—
OPERATING (LOSS) INCOME		(1,054,498	)		396,389			(1,006,280	)		531,292
OTHER INCOME (EXPENSE):
Interest expense		(25,913	)		(81,740	)		(68,519	)		(168,851	)
Interest income and other income (expense)		164			261			13,603			18,005
(LOSS) INCOME BEFORE INCOME TAXES		(1,080,247	)		314,910			(1,061,196	)		380,446
INCOME TAX (BENEFIT) EXPENSE		(423,457	)		123,444			(415,990	)		149,135
NET (LOSS) INCOME	$	(656,790	)	$	191,466		$	(645,206	)	$	231,311
BASIC EARNINGS PER SHARE:
Net (Loss) Income	$	(0.15	)	$	0.04		$	(0.15	)	$	0.05
DILUTED EARNINGS PER SHARE:
Net (Loss) Income	$	(0.15	)	$	0.04		$	(0.15	)	$	0.05
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		4,342,813			4,526,106			4,377,528			4,530,875
Diluted		4,342,813			4,535,726			4,377,528			4,544,167

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,
	2009			2008
OPERATING ACTIVITIES
Net (loss) income	$	(645,206	)	$	231,311
Noncash items in net (loss) income:
Depreciation and amortization of property, plant and equipment		1,173,211			1,092,774
Non-monetary reimbursement of cost		—			(100,000	)
Deferred income taxes		(3,042	)		(7,689	)
Gain on sale of property, plant and equipment		(37,500	)		—
Stock-based compensation expense		7,758			19,618
Changes in operating working capital:
Accounts receivable		1,704,778			422,197
Inventories		1,770,951			1,069,506
Prepaid expenses and other assets		396,890			(127,489	)
Accounts payable		(3,037,077	)		(1,740,488	)
Accrued and other current liabilities		(27,937	)		265,941
Income taxes payable/receivable		(437,353	)		(27,577	)
Net cash provided by operating activities		865,473			1,098,104
INVESTING ACTIVITIES
Additions to property, plant and equipment		(1,220,084	)		(347,728	)
Proceeds from disposals of property, plant and equipment		37,500			—
Payment of construction payable		—			(25,823	)
Net cash used in investing activities		(1,182,584	)		(373,551	)
FINANCING ACTIVITIES
Net borrowings (repayments) of debt		763,893			(500,000	)
Purchase of treasury stock		(510,568	)		(225,600	)
Net cash provided (used) by financing activities		253,325			(725,600	)
NET DECREASE IN CASH		(63,786	)		(1,047	)
CASH:
Beginning of period		68,397			6,663
End of period	$	4,611		$	5,616
NONCASH SUPPLEMENTAL INFORMATION:
Construction payable	$	59,221			—

5

TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three months and six months ended March 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 and six month periods ended March 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 2008 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, 2008 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, 2008.
2.	Recently Issued Accounting Standards
	On October 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. However, the FASB issued FSP SFAS No. 157-2 which deferred the effective date of SFAS No. 157, until the beginning of our 2010 fiscal year, as it relates to fair value measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis. The Company determined that the adoption of SFAS No. 157 did not have a material effect on its consolidated financial statements.
	The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1:	Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2:	Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3:	Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The Company currently does not have any Level 1, Level 2 or Level 3 financial instruments which would require fair value measurements.

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, the effect of which was zero and 9,620 shares for the three months ended March 31, 2009 and 2008, respectively. For the six months ended March 31, 2009 and 2008, the common stock equivalents from dilutive stock options outstanding were zero and 13,292 shares, respectively. During the three months ended March 31, 2009 and 2008, options to purchase 284,650 and 180,350 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, 2009 and 2008, options to purchase 284,650 and 146,350 shares, respectively, were excluded from the diluted earnings per share computation.
4.	Inventories
	Inventories consist of the following:

	March 31,		September 30,
	2009		2008
Raw materials	$	9,995,730	$	11,407,472
Finished goods		3,173,287		3,532,496
Total inventories	$	13,169,017	$	14,939,968

5.

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 common stock at prevailing market prices after concluding that the Company’s cash and debt position would enable these purchases without impairment to the Company’s capital. On October 15, 2008, the Company’s Board of Directors approved an extension of its February 2008 stock repurchase program through June 2009 and an increase in the number of shares from 100,000 to 200,000. On January 22, 2009 the Company’s Board of Directors approved a further extension of its February 2008 stock repurchase program through September 2009 and an increase in the number of shares from 200,000 to 300,000. A total of 218,722 shares were purchased under the plan for an aggregate purchase price of $1.0 million from approval of the plan through March 31, 2009. For the three months ended March 31, 2009, a total of 58,076 shares were purchased under the plan for an aggregate purchase price of $0.2 million. For the six months ended March 31, 2009, a total of 139,782 shares were purchased under the plan for an aggregate purchase price of $0.5 million.

7

Notes to condensed consolidated financial statements—(continued)

6.	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.
	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 determined that its cash flow projections for the Company do not need to be re-forecasted as of March 31, 2009, based on its current outlook for the business, and accordingly, have concluded that no new impairment indicators are present which may require accelerated testing under SFAS 142.  However, there can be no assurance that valuation multiples will not decline, discount rates will not increase, or the projected cash flows of the individual reporting units will not decline.
	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
March 31, 2009	Manufacturing			Imaging			and Other			Consolidated
Net sales	$	14,229,162		$	5,225,660		$	—		$	19,454,822
Gross (loss) profit		(130,680	)		156,830			—			26,150
Operating loss		(733,926	)		(101,545	)		(219,027	)		(1,054,498	)
Depreciation and amortization expense		552,013			52,204			594			604,811
Capital expenditures		722,059			30,538			—			752,597

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

Six Months Ended	Contract			Business			Corporate
March 31, 2009	Manufacturing			Imaging			And Other			Consolidated
Net sales	$	31,665,363		$	10,975,246		$	—		$	42,640,609
Gross profit		668,435			395,028			—			1,063,463
Operating loss		(480,274	)		(91,851	)		(434,155	)		(1,006,280	)
Depreciation and amortization expense		1,067,154			104,870			1,187			1,173,211
Capital expenditures		1,189,546			30,538			—			1,220,084

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

9

Notes to condensed consolidated financial statements—(continued)

	Contract		Business		Corporate
March 31, 2009	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories — net	$	9,908,217	$	3,260,800	$	—	$	13,169,017
Property, plant and equipment — net		16,120,654		2,016,141		6,063		18,142,858
Accounts receivable and other (including goodwill)		11,804,970		5,493,858		819,779		18,118,607
Total assets	$	37,833,841	$	10,770,799	$	825,842	$	49,430,482

	Contract		Business		Corporate
September 30, 2008	Manufacturing		Imaging		and Other		Consolidated
Assets:
Inventories — net	$	12,209,659	$	2,730,309	$	—	$	14,939,968
Property, plant and equipment — net		15,939,041		2,090,473		7,250		18,036,764
Accounts receivable and other (including goodwill)		13,425,593		5,977,200		881,268		20,284,061
Total assets	$	41,574,293	$	10,797,982	$	888,518	$	53,260,793

10

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 2009 results in comparison to fiscal 2008 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, its ability to renew its production agreements with these customers, the effects of the economy in general, including the recent economic decline, an inability to increase sales due to the recent economic conditions, reductions in consumer demand, the Company’s inability to benefit from any general 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, 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 to 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 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.

11

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
	2009			2008			$			%			2009			2008			$			%
Net Sales	$	19,455		$	29,604		$	(10,149	)		(34	)	$	42,641		$	54,422		$	(11,781	)		(22	)
Gross Profit		26			1,442			(1,416	)		(98	)		1,063			2,547			(1,484	)		(58	)
		0.1	%		4.9	%								2.5	%		4.7	%
Operating Expenses		1,081			1,046			35			3			2,070			2,016			54			3
		5.6	%		3.5	%								4.9	%		3.7	%
Operating (Loss) Income		(1,055	)		396			(1,451	)	NM				(1,006	)		531			(1,537	)	NM
		(5.4	%)		1.3	%								(2.4	%)		1.0	%
Interest Expense		26			82			(56	)		(68	)		69			169			(100	)		(59	)
		0.1	%		0.3	%								0.2	%		0.3	%
(Loss) Income Before Income Taxes		(1,080	)		315			(1,395	)	NM				(1,061	)		380			(1,441	)	NM
		(5.6	%)		1.1	%								(2.5	%)		0.7	%
Income Tax (Benefit) Expense		(423	)		123			(546	)	NM				(416	)		149			(565	)	NM
		(2.2	%)		0.4	%								(1.0	%)		0.3	%
Net (Loss) Income	$	(657	)	$	192			(849	)	NM			$	(645	)	$	231			(876	)	NM
		(3.4	%)		0.6	%								(1.5	%)		0.4	%
Basic and Diluted (Loss) Earnings Per Share	$	(0.15	)	$	0.04								$	(0.15	)	$	0.05

NM = Not Meaningful

12

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

	Three Months Ended
	March 31,
	2009					2008					Period-to-Period
			% of					% of			Change
	Amount		Total			Amount		Total			$			%
Net Sales
Contract Manufacturing and printing	$	14,229		73	%	$	23,728		80	%	$	(9,499	)		(40	%)
Business Imaging paper products		5,226		27			5,876		20			(650	)		(11	%)
Net Sales	$	19,455		100	%	$	29,604		100	%	$	(10,149	)		(34	%)

	2009						2008					Period-to-Period
				Margin					Margin			Change
	Amount			%			Amount		%			$			%
Gross (Loss) Profit
Contract Manufacturing and printing	$	(131	)		(1	%)	$	1,104		5	%	$	(1,235	)		(112	%)
Business Imaging paper products		157			3	%		338		6	%		(181	)		(54	%)
Gross Profit	$	26			0.1	%	$	1,442		5	%	$	(1,416	)		(98	%)

	Six Months Ended
	March 31,
	2009					2008					Period-to-Period
			% of					% of			Change
	Amount		Total			Amount		Total			$			%
Net Sales
Contract Manufacturing and printing	$	31,666		74	%	$	42,827		79	%	$	(11,161	)		(26	%)
Business Imaging paper products		10,975		26			11,595		21			(620	)		(5	%)
Net Sales	$	42,641		100	%	$	54,422		100	%	$	(11,781	)		(22	%)

	2009					2008					Period-to-Period
			Margin					Margin			Change
	Amount		%			Amount		%			$			%
Gross Profit
Contract Manufacturing and printing	$	668		2	%	$	1,834		4	%	$	(1,166	)		(64	%)
Business Imaging paper products		395		4	%		713		6	%		(318	)		(45	%)
Gross Profit	$	1,063		2	%	$	2,547		5	%	$	(1,484	)		(58	%)

13

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

Net Sales:

Consolidated net sales decreased $10.1 million (34%) to $19.5 million in the second quarter of fiscal 2009, when compared to the same period last year. This was due to a decrease of $9.5 million (40%) in the Contract Manufacturing segment and a decrease of $0.6 million (11%) in the Business Imaging segment.

For the six months ended March 31, 2009, net sales decreased $11.8 million (22%) when compared to the first six months of fiscal 2008. This was due to a decrease of $11.2 million (26%) in the Contract Manufacturing segment and a decrease of $0.6 million (5%) in the Business Imaging segment.

The Company depends on two Contract Manufacturing customers for a significant portion of its business. One customer accounted for 25% of the Company’s total net sales in the second quarter of fiscal 2009 compared to 35% for the same period in fiscal 2008. This same customer accounted for 26% of the Company’s total net sales in the first six months of fiscal 2009, compared to 37% for the same period last year. The second customer accounted for 32% of the Company’s total net sales in the second quarter of fiscal 2009 compared to 36% for the same period in fiscal 2008. This customer accounted for 35% of the Company’s total net sales in the first six months of fiscal 2009, compared to 33% for the same period last year.

In Contract Manufacturing, the decrease in revenues for the three and six months was primarily related to a substantial decline in demand from our consumer products customers. While the Company did generate new business during the second quarter, it, along with cost reductions and productivity improvements, was not enough to offset the drop in demand for our consumer products. The Company expects to show improved sales volume as the economy improves and retailers begin to replenish inventories and new business continues to improve. There can be no assurance that the general business climate will improve or that the Company will benefit from such improvement. The Business Imaging segment’s sales decrease for the first six months was primarily due to continued competitive pricing resulting in decreased sales to several of the segment’s Hamco brand distributors as well as several of its large retail customers. Both segments were affected by the overall slowdown in the economic environment.

Gross Profit:

Consolidated gross profit decreased $1.4 million (98%) for the second quarter of fiscal 2009 when compared to the second quarter of fiscal 2008. This was due to a decrease of $1.2 million (112%) in the Contract Manufacturing segment and a decrease of $0.2 million (54%) in the Business Imaging segment.

For the six months ended March 31, 2009, gross profit decreased $1.5 million (58%) when compared to the same period last year. This was due to a decrease of $1.2 million (64%) in the Contract Manufacturing segment and a decrease of $0.3 million (45%) in the Business Imaging segment.

In Contract Manufacturing, the decrease in gross profit for the three and six 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 direct labor and overhead costs as a result of the Company’s continuing Lean Manufacturing, Six Sigma and cost cutting 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. The effect of the overall economic slowdown had a negative impact on both segments.

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

Operating Expenses:

Selling, general and administrative expenses increased $92,000 (5%) for the first six months of fiscal 2009 when compared to the same period in fiscal 2008, primarily due to an increase in sales staffing and the filling of the General Manager position for the Business Imaging segment. In addition, depreciation increased due to required IT system upgrades. Operating expenses were reduced by $37,500, reflecting the gain on the sale of a bag sealer and case packer that was completed in the first quarter of fiscal 2009.

Interest Expense and Other Income (Expense) net:

Interest expense decreased $56,000 to $26,000 for the second quarter of fiscal 2009 compared to the same period in fiscal 2008 and decreased $100,000 in comparing the six months due to lower average debt outstanding and lower interest rates on borrowings.

Net Income:

The Company reported a net loss of $(657,000) [per share: $(0.15) basic and diluted] for the second quarter of fiscal 2009, versus net income of $191,000 [per share: $0.04 basic and diluted] for the same period in fiscal 2008. For the six months ended March 31, 2009, the net loss was $(645,000) [per share: $(0.15) basic and diluted] compared to net income of $231,000 [per share: $0.05 basic and diluted] for the first six months of fiscal 2008.

Liquidity and Capital Resources:

Cash flows provided by operations were $0.9 million through the first six months of fiscal 2009, compared to cash provided by operations of $1.1 million for the same period last year. Cash provided by operations for the first six months of fiscal 2009 resulted from a decrease in accounts receivable of $1.7 million. Accounts payable decreased $3.0 million in the first six months of fiscal 2009 compared to the same period last year, primarily due to the decrease in materials purchased. Inventories decreased $1.8 million as a result of efforts to reduce average on hand inventory levels for major raw material components and decreases in net sales. Depreciation was $1.2 million for the first six months.

Net cash used in investing activities was $1.2 million for the first six months of fiscal 2009, primarily related to capital expenditures to support ongoing operational needs and for payments on a canister line which is expected to start up in July and associated packaging equipment to support the Company’s growth in the expanding disposable nonwovens wipes market.

Net cash provided by financing activities was $0.3 million for the first six months of fiscal 2009 as a result of the Company borrowing from its revolving credit line to fund a portion of its equipment needs. 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 common stock at prevailing market prices after concluding that the Company’s cash and debt position would enable these purchases without impairment to the Company’s capital. On October 15, 2008, the Company’s Board of Directors approved an extension of its February 2008 stock repurchase program through June 2009 and an increase in the number of shares from 100,000 to 200,000. On January 22, 2009 the Company’s Board of Directors approved a further extension of its February 2008 stock repurchase program through September 2009 and an increase in the number of shares from 200,000 to 300,000. A total of 218,722 shares were purchased under the plan for an aggregate purchase price of $1.0 million from approval of the plan through March 31, 2009. For the three months ended March 31, 2009, a total of 58,076 shares were purchased under the plan for an aggregate purchase price of $0.2 million. For the six months ended March 31, 2009, a total of 139,782 shares were purchased under the plan for an aggregate purchase price of $0.5 million.

The Company’s primary need for capital resources is to finance inventories, accounts receivable and capital expenditures. As of March 31, 2009, cash recorded on the balance sheet was $4,611.

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

The Company replaced its credit agreement on May 13, 2009 with a new $10.0 million unsecured revolving line of credit facility that expires in May, 2010. Borrowings under the new 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, but if the Company fails to meet a specified funded debt to EBITDA ratio, it will be required to pledge its 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.

As of May 15, 2009, the Company had approximately $7.5 million available and $2.5 million outstanding under the 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 long term obligations as of March 31, 2009 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.

Off Balance Sheet Arrangements:

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

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. 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, 2009.

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

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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

Issuer Purchases of Equity Securities

The following table presents the number of shares purchased monthly under the Company’s stock repurchase program for the three-month period ended March 31, 2009.

					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
January (1/1/09-1/31/09)		19,866	$	3.20		19,866		119,488
February (2/1/09-2/28/09)		22,485	$	4.23		22,485		97,003
March (3/1/09-3/31/09)		15,725	$	3.59		15,725		81,278
Total		58,076	$	3.70		58,076		81,278

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 common stock at prevailing market prices after concluding that the Company’s cash and debt position would enable these purchases without impairment to the Company’s capital. On October 15, 2008, the Company’s Board of Directors approved an extension of its February 2008 stock repurchase program through June 2009 and an increase in the number of shares from 100,000 to 200,000. On January 22, 2009 the Company’s Board of Directors approved a further extension of its February 2008 stock repurchase program through September 2009 and an increase in the number of shares from 200,000 to 300,000. A total of 218,722 shares were purchased under the plan for an aggregate purchase price of $1.0 million from approval of the plan through March 31, 2009. For the three months ended March 31, 2009 a total of 58,076 shares were purchased under the plan for an aggregate purchase price of $0.2 million.

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: May 15, 2009	/s/ Louis LeCalsey, III
	Louis LeCalsey, III
	President and Chief Executive Officer
Date: May 15, 2009	/s/ Michael B. Wheeler
	Michael B. Wheeler
	Executive Vice President, Chief Financial Officer and Chief Operating Officer

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