forth in Item 1A "Risk Factors" to the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2008 which should be read in conjunction herewith.
Critical Accounting Policies and Estimates For further information regarding the Company's critical accounting policies, please refer to the Management's Discussion and Analysis section of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2008. There have been no material changes during the three months ended September 30, 2008.
Overview
Baldwin Technology Company, Inc. is a leading global supplier of press automation equipment for the printing and publishing industries. Baldwin offers its customers a broad range of market-leading technologies, products and systems that enhance the quality of printed products and improve the economic and environmental efficiency of printing presses. Headquartered in Shelton, CT, the Company has sales and service centers and product development and production facilities in the Americas, Asia and Europe. Baldwin's technology and products include cleaning systems and related consumables, fluid management and ink control systems, web press protection systems and drying systems.
The Company manages its business as one reportable business segment built around its core competency in accessories and controls.
Net sales as reported for the three months ended September 30, 2008 increased by $2,008,000, or 4%, to $55,937,000 from $53,929,000 for the three months ended September 30, 2007. Revenue for the quarter, as discussed more fully below, has been favorably impacted by currency rate fluctuations.
Gross profit for the three months ended September 30, 2008 of $17,335,000
(31% of net sales) was flat when compared to $17,246,000 (32.0% of net sales)
for the three months ended September 30, 2007. As described in the discussion below, gross margin was unfavorably impacted by higher material costs, product revenue mix and continued pricing pressure.
Operating income decreased to 4% of sales for the period ended September 30, 2008 from 6% of sales for the three months ended September 30 2007, primarily as a result of the gross margin decline.
Three Months Ended September 30, 2008 vs. Three Months Ended September 30, 2007 Consolidated Results
Net Sales
Net sales for the three months ended September 30, 2008 increased by $2,008,000, or 4%, to $55,937,000 from $53,929,000 for the three months ended September 30, 2007. Currency rate fluctuations attributable to the Company's overseas operations increased net sales by $3,128,000 in the current period. Excluding the effects of currency translations net sales declined $1,121,000 or 2%.
The net sales decrease (excluding the effects of rates of exchange) reflects decreased sales in Europe of $1,030,000. The decrease is attributable to lower deliveries of the Company's newspaper cleaning equipment reflecting reduced order and sales activity by OEM

press manufacturers in Germany. In addition, newspaper cleaning system deliveries to end users in the U.K. and France in fiscal year 2008 were not repeated in fiscal year 2009. Partially offsetting these declines were increased revenue associated with the cleaning consumables and service. In Asia net sales decreased $980,000. In the newspaper market lower demand for spray dampening equipment offset increases in cleaning equipment revenue. The slow economy reduced demand in the commercial market for cleaning equipment, water systems and more than offset the increases in demand for consumables and higher service related projects. Net Sales in the Americas increased $889,000 and primarily reflects higher demand in the commercial market for water systems, particularly temperature control equipment, consumables, parts and service, partially offset by the decline in demand in the newspaper market. Gross Profit
Gross profit for the three months ended September 30, 2008 was $17,335,000 (31.0% of net sales) as compared to $17,246,000 (32.0% of net sales) for the three months ended September 30, 2007. Currency rate fluctuations increased gross profit by $1,097,000 otherwise gross profit would have decreased $1,008,000. Gross margin was unfavorably impacted by higher material costs resulting from manufacturing inefficiencies primarily in Japan, product revenue mix which include a higher portion of products sourced from alliance partners and continued pricing pressure from OEM and end users. Selling, General, and Administrative Expenses Selling, general and administrative expenses amounted to $10,157,000 for the three months ended September 30, 2008 as compared to $9,678,000 for the same period in the prior fiscal year, (amounts representing 18.2% and 17.9% of respective period sales) an increase of $479,000. Currency rate fluctuations increased these expenses by $478,000 in the current period, otherwise, selling, general and administrative expenses would have remained flat. Engineering and Development Expenses
Engineering and development expenses increased by $271,000 over the same period in the prior fiscal year. Currency rate fluctuations increased these expenses by $346,000. Excluding the effects of currency rate fluctuations, engineering and development expenses would have remained flat in the current period. As a percentage of net sales, engineering and development remained at 8.0% of sales for the three months ended September 30, 2008 and 2007. Interest and Other
Interest expense for the three months ended September 30, 2008 was $693,000 as compared to $770,000 for the three months ended September 30, 2007. Currency rate fluctuations had an unfavorable effect in the current period otherwise interest expense would have decreased $116,000. This decrease reflects the lower average debt and lower interest rates in the current period versus the period ended September 30, 2007.
Interest income amounted to $6,000 and $68,000 for the three months ended September 30, 2008 and 2007, respectively.
Other income (expense), net amounted to income of $403,000 for the three months ended September 30, 2008 compared to expense of $72,000 for the three months ended September 30, 2007. These amounts are primarily comprised of foreign exchange gains or losses.
Income Taxes
The Company recorded an income tax provision of $997,000 (effective rate 45.2%) for the three months ended September 30, 2008 as compared to $1,339,000 (effective rate of 56.3%) for the three months ended September 30, 2007. The effective tax rates for the three

months ended September 30, 2008 and 2007 differ from the statutory rates as no benefits are recognized for losses incurred in certain countries as the realization of such benefits was not more likely than not.
In addition, the tax provision was negatively impacted in the quarter ended September 30, 2007 by approximately $380,000, primarily is a result of a change in the tax rates in Germany and the associated effects on the Company's deferred tax assets in that country. The Company continues to assess the need for its deferred tax asset valuation allowances in the jurisdictions in which it operates. Any adjustments to the deferred tax asset valuation allowance either positive or negative would be recorded in the income statement of the period that the adjustments were determined to be required. Net Income
The Company's net income amounted to $1,210,000 for the three months ended September 30, 2008, compared to net income of $1,039,000 for the three months ended September 30, 2007. Net income per share amounted to $0.08 basic and diluted for the three months ended September 30, 2008 and $.07 basic diluted for the three months ended September 30, 2007.
Liquidity and Capital Resources at September 30, 2008 The recent financial crisis has made the credit and capital markets volatile and unpredictable. Although continued adverse change could affect the Company's ability to access its sources of financing, the Company believes its sources of financing are currently secure. The lead bank on the major revolving credit agreement is Bank of America, and the participants are Citizens Bank (part of the Royal Bank of Scotland) and Webster Bank. Bank of America has assured the Company that its ability to borrow as needed within the covenants of the agreement is not effected by the financial crisis. The Company is well within the covenants of the credit agreement, and anticipates that the relationship with the bank group and their financial standing will support the Company's credit needs.
Cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows, are summarized as follows:

                                                            2008             2007
 Cash provided by (used for):
 Operating activities                                   $ (2,093,000 )   $ (1,059,000 )
 Investing activities                                       (678,000 )     (1,018,000 )
 Financing activities                                      3,938,000       (3,975,000 )
 Effect of exchange rate changes on cash                    (422,000 )        397,000

 Net increase (decrease) in cash and cash equivalents   $    795,000     $ (5,655,000 )

Cash used for operating activities increased $1,034,000 during the quarter ended September 30, 2008 versus the prior year period. The increase is primarily related to changes in cash realized from accounts and notes receivable and the timing of accounts payable. Days sales outstanding increased seven days from year end to 65 days for the current period, compared to an increase of only four days in the prior year period. Accounts payable reflects a higher usage of cash, due to the timing of payments to vendors. Reductions in other accrued liabilities includes payment of incentive compensation awards. These cash uses were offset somewhat by improvement in inventory management as evidenced by inventory turnover improving to 5.4 times, as well as higher customer deposits.
The Company utilized $390,000 less cash for investing activities for the three months

ended September 30, 2008 versus the prior year period. The primary reason is acquisition related payments in the prior period that did not reoccur in the current period.
The change in cash flow from financing activities reflects utilization of cash on hand during fiscal year 2008 to pay down debt while fiscal year 2009 reflects borrowing to meet short term liquidity needs.
The Company maintains relationships with both foreign and domestic banks, which combined have extended credit facilities to the Company totaling $63,553,000. As of September 30, 2008, the Company had $33,216,000 outstanding under these credit facilities. During the quarter ended September 30, 2008, the Company made long and short term debt borrowing totaling $3,908,000 which is reflected in financing activities above.
The Company believes that its cash flows from operations, along with the available bank lines of credit and alternative sources of borrowings, if necessary are sufficient to finance its working capital and other capital requirements through the term of the credit agreement with Bank of America.
At September 30, 2008 and June 30, 2008, the Company did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance entities, special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, the Company is not exposed to any financing, liquidity, market or credit risk that could arise if the Company had engaged in such relationships.
The following summarizes the Company's contractual obligations at September 30, 2008 and the effect such obligations are expected to have on its liquidity and cash flow in future periods (in thousands):

                                                            Fiscal Years Ending June 30,
                        Total at
                       September                                                                                   2014 and
                        30, 2008         2009 *          2010           2011           2012          2013         thereafter
Contractual
obligations:
Loans payable          $    3,761       $  3,761       $      -       $      -       $      -       $     -       $         -
Capital lease
obligations                   324            104            124             93              3             -                 -
Long-term debt             23,685          2,319          3,546          4,365         13,455             -                 -
Non-cancelable
operating lease
Obligations                18,713          4,992          4,733          3,176          2,380         1,949             1,483
Purchase
commitments
(materials)                13,180         11,849          1,331              -              -             -                 -
Pension funding             3,830            496            212            372            382           387             1,981
Integration
payments                      380            380              -              -              -             -                 -
Interest expense
(1)                         6,563            612          2,554          2,294            951           152                 -

Total contractual
cash obligations       $   70,436       $ 24,513       $ 12,500       $ 10,300       $ 17,171       $ 2,488       $     3,464

* Includes only the remaining nine months of the fiscal year ending June 30, 2009.

(1) the anticipated future interest payments are based on the Company's current indebtedness and interest rates at September 30, 2008, with consideration given to debt reduction as the result of expected payments.

Impact of Inflation
The Company's results are affected by the impact of inflation on manufacturing and operating costs. Historically, the Company has used selling price adjustments, cost containment programs and improved operating efficiencies to offset the otherwise negative impact of inflation on its operations.