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 belief, described below, that softness in the automotive market will continue in the near future 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.

Manufacturing companies often take advantage of lower volume months to shut down production to service machinery and tools. This is even more common in the automotive industry where many companies historically have shut down their operations for a portion of the months of July and December. 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 segment. 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 some automotive customers, generated record sales for the Company in 2006.

The business climate softened in early 2007, particularly within the automotive market where December holiday plant shutdowns extended well into January and many customer orders were 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 strong. However, there can be no assurance that the Company will benefit from any of these quotes.

Despite the top-line softness, the Company has been able to generate improved profitability through the first nine months of 2007 through initiatives focused on increasing gross margins. These initiatives target cost-cutting, improving manufacturing efficiencies, sharing of best business practices across the Company's manufacturing plants, and improving the overall book of business.

Sales:

Sales for the three-month period ended September 30, 2007 were $22.9 million or 5.5% above sales of $21.7 million for the same period in 2006. Sales for the nine-month period ended September 30, 2007 were $68.1 million or 3.2% below sales of $70.4 million in the same period of 2006. The increase in sales for the three-month period ended September 30, 2007 is primarily due to increased sales to key accounts within the medical and military markets (Component Products segment) of approximately $600,000, as well as an increase in sales within the automotive market (Component Products segment) of approximately $400,000. The Company believes that the increase in sales within the automotive market during the three-month period ended September 30, 2007 is due to a lesser impact of customer plant shut-downs in the month of July, 2007 compared to the impact of such shutdowns in July, 2006. The decline in sales for the nine-month period ended September 30, 2007 is primarily due to declined sales to the automotive market of approximately $1.6 million. The decline in sales to the automotive market for the nine-month period ended September 30, 2007 reflects a general industry softness that the Company believes will continue for the near future.

Gross Profit:

Gross profit as a percentage of sales (gross margin) improved to 23.1% and 23.0% for the three- and nine-month periods ended September 30, 2007 from 19.2% and 20.4% in the three- and nine-month periods of 2006, respectively. The improvement in gross margin for both periods is primarily due to manufacturing efficiency initiatives particularly in the Company's automotive operations (Component Products segment). The Company estimates that these initiatives increased gross margins by 2.5% and 1.3%, during the three- and nine-month periods ended September 30, 2007, respectively.

Selling, General and Administrative Expenses:

Selling, General and Administrative expenses ("SG&A") increased to $3.8 million and $11.4 million for the three- and nine-month periods ended September 30, 2007 from $3.3 million and

$10.8 million in the comparable periods of 2006, respectively. As a percentage of sales, SG&A increased to 16.4 % and 16.8 % for the three- and nine-month periods ended September 30, 2007 from 15.1% and 15.4% in the comparable periods of 2006, respectively. The increase in SG&A dollars in both periods reflects normal inflationary activity as well as an investment in additional selling expenses of approximately $200,000 and $400,000 for the three- and nine-month periods ended September 30, 2007, respectively. The increase in SG&A as a percentage of sales for the nine-month period ended September 30, 2007 reflects principally fixed SG&A costs measured against lower sales.

Other Expenses:

Minority interest earnings were approximately $25,000 and $68,000 for the three- and nine-month periods ended September 30, 2007, compared to approximately $26,000 and $86,000 in the same respective periods last year.

Net interest expense declined for the three- and nine-month periods ended September 30, 2007 to approximately $100,000 and $400,000, from $219,000 and $759,000, respectively. The decline for both periods is primarily due to lower average borrowings and interest income from invested cash.

The Company recorded a tax expense of approximately 38% of pre-tax income for the three- and nine-month periods ended September 30, 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 September 30, 2007 and December 31, 2006, the Company's working capital was approximately $12.7 million and $8.2 million, respectively. The improvement in working capital for the nine-month period ended September 30, 2007 is primarily due to an increase in cash of $4.7 million and higher receivables of approximately $700,000 partially offset by higher accounts payable of approximately $1.1 million. The increase in cash reflects the Company's continued strong cash flow from operations. As a component of consolidating UDT's assets, the Company included $148,096 in cash at September 30, 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 nine-month periods ended September 30, 2007 and 2006 was approximately $6.2 million and $8.5 million, respectively. The decrease in cash provided by operations was primarily attributable to a reduction in accounts receivable in the first nine months of 2006 due to payment of aged receivables from a large automotive customer, as well as the payment of accrued compensation and benefit expenses. Cash used in investing activities during the nine-month period ended September 30, 2007 was approximately $1.7 million, 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 was 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 September 30, 2007, based upon no revolving credit facility borrowings outstanding and collateral levels, the Company had availability of approximately $13 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 the Company's operating performance. All borrowings at September 30, 2007 had interest computed at Prime or LIBOR plus 1%. Under the amended credit facility, the Company is subject to certain financial covenants including maximum capital expenditures and minimum fixed charge coverage. As of September 30, 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 September 30, 2007, the interest rate on these facilities ranged from 6.40% to 7.75%.

As a result of the consolidation of UDT, a mortgage note collateralized by the Alabama and Florida facilities, dated September 4, 2002, originally for $470,313, was included within long-term debt in the December 31, 2006 Consolidated Financial Statements. On May 22, 2007, this note was refinanced. The remaining principal balance of $388,356 was paid in full. The new note is secured by the Florida facility and had a principal balance of $786,000. The note calls for 180 monthly payments of $7,147. The interest rate is fixed at approximately 7.2%. The additional funds of approximately $400,000 were used to fund building improvements in the Florida facility. Payments on this note are funded through rent payments that the Company makes on its Alabama and Florida facilities. The Company is not a guarantor and is not subject to any financial covenants under this mortgage note.

At September 30, 2007, the Company also had capital lease obligations of approximately $2,485,000. At September 30, 2007, the current portion of all debt including the revolving bank loan, term loans and capital lease obligations was approximately $1,405,000.

The Company had book overdrafts of approximately $2,279,000 and $1,675,000 at September 30, 2007 and December 31, 2006, respectively. The Company classifies book overdrafts within Accounts Payable on its Condensed 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 September 30, 2007, and the effect such obligations are expected to have on itsliquidity and cash flow in future periods:

Payments      Operating       Capital          Term                          Debt          Supplemental
due in:         Leases         Leases          Loans        Mortgages      Interest       Retirement Plan        Total
2007              440,536        168,252        131,643         46,967        134,140              140,146       1,061,684
2008            1,044,581        704,408        526,572        187,553        475,878               77,250       3,016,242
2009              886,801        702,765        526,572        189,896        376,806              107,250       2,790,090
2010              746,059        671,839        526,572        192,414        279,896              104,250       2,521,030
2011 &
thereafter      1,794,812        238,059      1,009,260      2,213,749        802,738              482,083       6,540,701
              $ 4,912,789    $ 2,485,323    $ 2,720,619    $ 2,830,579    $ 2,069,458    $         910,979    $ 15,929,747

Payments on the UDT 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 nine months of 2007, it cannot guarantee that its operations will generate cash in future periods.