Forward-looking Statements:

This report contains certain statements that are "forward-looking statements" as that term is defined under the Securities Exchange Act of 1934, as amended (the "Act") and releases issued by the Securities and Exchange Commission. The words "believe," "expect," "anticipate," "intend," "plan," "estimate" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. The Company's plans, described below, to execute a Southeast automotive program which launched in the fourth quarter of 2004 for an automotive supplier that could be as large as $95 million is an example of a forward looking statement. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.

The $95 million revenue value of the automotive contract is an estimate, based on the automotive supplier's projected needs. The Company cannot guarantee that it will fully benefit from this contract, which is terminable by the automotive supplier for any reason, subject to a cancellation charge that includes, among others, a provision whereby the customer will reimburse the Company for its total capital investment less any depreciation taken. The Company's revenues from this contract are directly dependent on the ability of the automotive supplier to develop, market, and sell its products in a timely, cost-effective manner. If the automotive supplier's needs decrease over the course of the contract, the Company's estimated revenues from this contract may also decrease. Even if the Company generates revenue from the project, the Company cannot guarantee that the project will be profitable, particularly if revenues from the contract are less than expected. Manufacturing companies often take advantage of lower volume summer months to shut down production to service machinery and tools. This is even more common in the automotive industry where many companies, like this supplier, historically have shut down their operations for a portion of the month of July. The Company expects this practice to continue. To the extent our customers choose to shut down their operations, for these or other reasons, the Company's quarterly operating results could fluctuate and be materially, adversely affected. Other examples of these risks, uncertainties, and other factors include, without limitation, the following:
risks associated with the identification of suitable acquisition candidates and the successful, efficient execution and integration of such acquisitions, the ability of the Company to achieve positive results due to competition, decisions by customers to cancel or defer orders for its products that previously had been accepted, recent increases and possible further increases in the cost of the Company's raw materials and energy that the Company may not be able to pass through to its customers, other economic conditions that affect sales of the products of the Company's packaging customers, the ability of the Company to obtain new customers, evolving customer requirements, difficulties associated with the roll out of new products, the costs of compliance with Sarbanes-Oxley related requirements and general economic and industry conditions and other factors. In addition to the foregoing, the Company's actual future results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth elsewhere in this report and changes in general economic conditions, interest rates and the assumptions used in making such forward-looking statements. All of the forward-looking statements are qualified in their entirety by reference to the risk factors and other disclaimers described in the Company's filings with the Securities and Exchange Commission, in particular its most recent Annual Report on Form 10-K. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview:

UFP Technologies is a leading designer and manufacturer of interior protective packaging solutions using molded fiber, vacuumformed plastics and molded and fabricated foam plastic products. The Company also designs and manufactures engineered component solutions using laminating, molding and fabricating technologies. The Company serves a myriad of markets, but specifically targets opportunities in the automotive, computers and electronics, medical, aerospace and defense, industrial and consumer markets.

During 2006 demand remained strong from customers in the aerospace and defense and medical industries. Military efforts in Iraq and elsewhere have created demand for molded uniform and gear components from the Company's Component Products division. The aging population needing more medical care has kept demand high for medical packaging products, medical device components, dental products and orthopedic components. The strong demand from customers in these markets, coupled with increased sales from the large automotive contract, generated record sales for the Company in 2006.

The business climate has softened in early 2007, particularly within the automotive market where December holiday plant shutdowns extended well into January and customer orders continue to often be below forecast. The Company has invested in sales resources to target opportunities in the automotive market. At this time, the pipeline of pending quotes is very strong. However, there can be no assurance that the Company will benefit from any of these quotes.

Sales:

Net sales for the three-month period ended March 31, 2007 were $22.0 million, 8.8% lower than sales of $24.1 million in the same period last year. The decline in sales for the three-month period ended March 31, 2007 are primarily due to lower sales to the automotive market caused by extended holiday shut-downs as well as generally soft demand in this market (Component Products segment).

Gross Profit:

Gross profit as a percentage of sales (gross margin) increased to 20.9% for the three-month period ended March 31, 2007, from 20.2% in the same period last year. The improvement in gross margin is primarily due to improved material yield and a more favorable mix of business partially offset by the impact of fixed costs within cost-of-sales measured against lower sales.

Selling, General and Administrative Expenses:

Selling, general and administrative ("SG&A") expenses were $3.6 million or 16.4 % of net sales for the three-month period ended March 31, 2007, compared to $3.7 million or 15.1% of net sales in the same period last year. The slight decline in SG&A in the three-month period ended March 31, 2007 is primarily due to cost containment efforts partially offset by an additional $85,000 in compensation expense recorded pursuant to SFAS 123 (R). The increase in SG&A as a percentage of sales is primarily due to principally fixed SG&A expenses measured against lower sales.

Other Expenses:

Minority interest earnings were approximately $25,000 for the three-month period ended March 31, 2007, compared to approximately $32,000 in the same respective periods last year.

Interest expense for the three-month period ended March 31, 2007 decreased to approximately $153,000 from approximately $263,000 in the same period last year. The decline in interest expense for the three-month period ended March 31, 2007 is primarily due to lower average debt.

The Company recorded a tax expense of approximately 38% of pre-tax income for the three-month periods ended March 31, 2007 and 2006.

Liquidity and Capital Resources:

The Company funds its operating expenses, capital requirements, and growth plan through internally generated cash, bank credit facilities, and long-term capital leases.

At March 31, 2007 and December 31, 2006, the Company's working capital was approximately $9.4 million and $8.2 million, respectively. The improvement in working capital for the three-month period ended March 31, 2007 is primarily due to a higher cash position, increased prepaid expenses and lower accrued taxes and expenses. As a component of consolidating UDT's assets, the Company included $212,106 in cash at March 31, 2007. Although this cash balance is not legally restricted, the Company does not use this cash in its operations.

Net cash provided by operations for the three-month periods ended March 31, 2007 and 2006 was approximately $1.0 million and $2.7 million, respectively. The decrease in cash provided by operations was primarily attributable to a smaller reduction in accounts receivable, an increase in inventory balances and a reduction in accrued taxes and expenses. Cash used in investing activities during the three-month period ended March 31, 2007 was approximately $467,000, which primarily was the result of additions to property, plant and equipment. The capital expenditures were primarily related to the additions of manufacturing equipment.

On February 28, 2003, the Company obtained a credit facility, which has been amended effective March 24, 2004, June 28, 2004, and November 21, 2005, to reflect, among other things, changes to certain financial covenants. The amended facility is comprised of: (i) a revolving credit facility of $17 million that is collateralized by the Company's accounts receivable and inventory; (ii) a term loan of $3.7 million with a 7-year straight-line amortization that is collateralized by the Company's property, plant and equipment (excluding UDT's property, plant and equipment); and (iii) a term loan of $2.3 million with a 15-year straight-line amortization that is collateralized by a mortgage on the Company's real estate located in Georgetown, Massachusetts. Extensions of credit under the revolving credit facility are subject to available collateral based upon accounts receivable and inventory levels. Therefore, the entire $17 million may not be available to the Company. For example, as of March 31, 2007, based upon no revolving credit facility borrowings outstanding and collateral levels, the Company had availability of approximately $12.3 million of additional credit under this facility. The amount of availability can fluctuate significantly. The amended credit facility calls for interest of Prime or LIBOR plus a margin that ranges from 1.0 % to 1.5%, depending upon Company operating performance. All borrowings at March 31, 2007 had interest computed at Prime or LIBOR plus 1.0 %. Under the amended credit facility, the Company is subject to certain financial covenants including maximum capital expenditures and minimum fixed charge coverage. As of March 31, 2007, the Company was in compliance with all of these covenants. The Company's $17 million revolving credit facility, as amended, is due February 28, 2009; the $3.7 million term loan and the $2.3 million mortgage are due November 21, 2011. At March 31, 2007, the interest rate on these facilities ranged from 6.32% to 8.25%.

As a result of the consolidation of United Development Company Limited, a mortgage note collateralized by the Alabama and Florida facilities, dated September 4, 2002, originally for $470,313, is included within long-term debt in the Consolidated Financial Statements. The note calls for fifty principal payments of $3,406 and one payment of $300,013, which was due on March 4, 2007. The note bears interest at LIBOR plus 2.75%, adjusted monthly. At March 31, 2007, the outstanding balance was $395,779 and the interest rate was approximately 8.0%. United Development Company Limited is currently in discussions with its lending institution to refinance and extend the term of its credit facility; as part of these discussions, the lending institution allowed UDT to defer the final balloon payment. Payments on this note are funded through rent payments that the Company makes on its Alabama and Florida facilities. The Company is not subject to any financial covenants under this mortgage note.

At March 31, 2007, the Company also had capital lease obligations of approximately $2.8 million. At March 31, 2007, the current portion of all debt including the revolving bank loan, term loans and capital lease obligations was approximately $1.7 million.

The Company has book overdrafts of approximately $1,899,000 and $1,675,000 at March 31, 2007 and December 31, 2006 respectively. The Company classifies book overdrafts within Accounts Payable on its Consolidated Balance Sheets.

The Company believes that its existing resources, including its revolving line of credit facility together with cash expected to be generated from operations and funds expected to be available to it through any necessary equipment financing, will be sufficient to fund its cash flow requirements through at least the next twelve months. However, there can be no assurances that the Company will be able to obtain such financing, or that such financing will be available at favorable terms, if at all.

Commitments, Contractual Obligations, and Off-balance Sheet Arrangements:

The following table summarizes the Company's commitments, contractual
obligations, and off-balance sheet arrangements at March 31, 2007, and the
effect such obligations are expected to have on its liquidity and cash flow in
future periods:

Payments       Operating       Capital         Term                          Debt          Supplemental
due in:         Leases         Leases          Loans        Mortgages      Interest       Retirement Plan        Total
2007            1,215,957        496,089        394,929        512,779        378,104              191,271       3,189,129
2008              684,816        704,408        526,572        156,000        421,661               77,250       2,570,707
2009              473,895        702,765        526,572        156,000        324,945              107,250       2,291,427
2010              405,915        671,839        526,572        156,000        230,564              104,250       2,095,140
2011 &
thereafter      1,220,334        238,060      1,009,260      1,547,000        543,781              622,314       5,180,749
              $ 4,000,917    $ 2,813,161    $ 2,983,905    $ 2,527,779    $ 1,899,055    $       1,102,335    $ 10,146,403

Payments on the United Development Company Limited mortgage note are funded through rent payments made by the Company on the Company's Alabama and Florida facilities.

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service the obligations listed above. The Company's principal sources of funds are its operations and its revolving credit facility. Although the Company generated cash from operations in the year ended December 31, 2006 and through the first three months of 2007, it cannot guarantee that its operations will generate cash in future periods.