Forward-looking Statements:

This report contains certain statements that are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 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 that do not relate to historical matters, identify forward-looking statements. The Company's plans, described below, to execute a program that 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 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 an innovative designer and custom converter of foams, plastics and fiber products. 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.

On January 18, 2008, the Company acquired Stephenson & Lawyer, Inc., or S&L, a Grand Rapids, Michigan-based foam fabricator. S&L was consolidated into the Company's financial statements effective as of January 1, 2008. Operating out of a 255,000-square-foot manufacturing plant, S&L specializes in the fabrication of technical urethane foams. In addition to significantly adding to the Company's real estate, S&L brings to the Company access to this family of foams, modern manufacturing capabilities and a seasoned management team. The acquisition is an example of the Company's dual strategy of growing its top line organically through a focused marketing plan as well as through strategic acquisitions.

On August 5, 2008, the Company committed to move forward with a plan to close its Macomb Township, Michigan, automotive plant and consolidate operations into its newly acquired 250,000 square foot building in Grand Rapids, Michigan. The Company expects to incur restructuring charges of approximately $1.4 million in one-time, pre-tax expenses and to invest approximately $450,000 in building improvements over a six-month transitional period. The Company expects annual cost savings of approximately $1.2 million as a result of the plant consolidation.

Pro-forma results of operations for the three- and nine-month periods ended September 30, 2008, taking these one-time losses into consideration, are as follows:

                                                        Three Months Ended September 30, 2008
                                                 Without              Impact of
                                           consolidation costs      consolidation      Results as reported
Net sales                                 $          27,501,379    $             -    $          27,501,379
Operating income                                      2,475,160           (406,000 )              2,069,160
Net income                                            1,499,005           (251,720 )              1,247,285
Diluted earnings per share                $                0.24    $         (0.04 )  $                0.20




                                                         Nine Months Ended September 30, 2008
                                                  Without             Impact of
                                            consolidation costs      consolidation      Results as reported
Net sales                                  $          83,965,505    $             -               83,965,505
Operating income                                       7,084,805           (406,000 )              6,678,805
Net income                                             4,221,368           (251,720 )              3,969,648
Diluted earnings per share                 $                0.67    $         (0.04 )  $                0.63

Sales:

Sales for the three-month period ended September 30, 2008, were $27.5 million or 19.9% above sales of $22.9 million for the same period in 2007. Sales for the nine-month period ended September 30, 2008, were $84.0 million or 23.2% above sales of $68.1 million for the same period in 2007.

Sales for the three- and nine-month periods ended September 30, 2008, include sales of S&L. Excluding sales of S&L, sales for the three- and nine-month periods ended September 30, 2008, increased 6.8% and 8.8%, respectively. The increase in sales for the three-month period ended September 30, 2008, is primarily due to increased sales to a key customer in the electronics industry (Packaging segment) of approximately $600,000 and increased sales of molded fiber packaging products (Packaging segment) of approximately $700,000. The increase in UFP sales for the nine-month period ending September 30, 2008, is primarily due to increased sales to a key customer in the electronics industry (Packaging segment) of approximately $2.4 million and increased sales of molded fiber packaging products (Packaging segment) of approximately $2.4 million. The increases in sales for the three- and nine-month periods ended September 30, 2008, were partially offset by a decline in sales to the automotive industry of approximately $1.8 million and $3.3 million, respectively. The Company believes that increased sales of molded fiber packaging product are attributable to increased demand for environmentally friendly packaging materials.

Gross Profit:

Gross profit as a percentage of sales (gross margin) improved to 26.9% and 26.1%, respectively, for the three- and nine-month periods ended September 30, 2008, from 23.1% and 23.0%, respectively, from the three- and nine-month periods of 2007. The improvement in gross margin for both periods is primarily due to continued manufacturing efficiency initiatives and improvements to the quality of the Company's book of business (approximately 4.2 % and 2.2% improvement in gross margin across both business segments for the three- and nine-month periods ended September 30, 2008, respectively).

Selling, General and Administrative Expenses:

Selling, General and Administrative expenses ("SG&A") increased 31.5% to $4.9 million for the three-month period ended September 30, 2008, from $3.8 million in the same period of 2007. SG&A increased 29.9% to $14.8 for the nine-month period ended September 30, 2008, from $11.4 million in the same period of 2007.

The increase in SG&A for the three- and nine-month periods ended September 30, 2008, reflects additional SG&A associated with S&L (Component Products segment) of approximately $550,000 and $1.6 million, respectively, additional compensation related expenses of approximately $410,000 and $1.4 million, respectively (both business segments), as well as normal inflationary activity.

The Company recorded a restructuring charge of $406,000 during the three-month period ended September 30, 2008, associated with the previously announced consolidation of its Macomb Township, Michigan, plant into its newly acquired Stephenson & Lawyer facility in Grand Rapids, Michigan. The costs are associated with the expected write-off of the leasehold improvements upon the surrendering of the building at the end of 2008, estimated costs of restoring the building to its original condition, and miscellaneous moving and training costs.

Other Expenses:

Minority interest earnings were approximately $17,000 and $49,000, respectively, for the three- and nine-month periods ended September 30, 2008, compared to approximately $25,000 and $68,000 in the same respective periods last year.

Net interest expense decreased for the three- and nine-month periods ended September 30, 2008, to approximately $72,000 and $270,000, respectively, from $100,000 and $402,000 in the same respective periods last year. This decline is primarily due to lower average borrowings and interest income from invested cash. Interest income for the three- and nine-month periods ended September 30, 2008, was approximately $22,000 and $57,000, respectively, and $53,000 and $73,000, respectively, for the same periods in 2007.

The Company recorded a tax expense of approximately 38% for all periods presented.

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, 2008, and December 31, 2007, the Company's working capital was approximately $17.1 million and $15.0 million, respectively.

The increase in working capital for the nine-month period ended September 30, 2008, is primarily due to increased receivables and inventory of approximately $2.5 million and $3.4, respectively, partially offset by a decrease in cash of approximately $3.6 million. The decline in cash for the nine-month period ended September 30, 2008, is primarily due to the use of $5.2 million of cash to acquire Stephenson & Lawyer in January 2008. The increases in receivables and inventory were largely attributable to the acquisition of S&L. As a component of consolidating UDT's

assets, the Company included $148,160 in cash at September 30, 2008. 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, 2008, and 2007, was approximately $5.3 million and $6.2 million, respectively. The decrease in cash provided by operations was primarily attributable to an increase in inventory of approximately $1.6 million during the nine-month period ended September 30, 2008, compared to a decrease in inventory of approximately $500,000 during the nine-month period ended September 30, 2007, partially offset by stronger profitability of approximately $1.6 million. The increase in inventory during the current period is primarily due to the procurement of raw materials and the production of finished goods for specific customer orders, as well as a build-up in inventory to support a recently launched internet-based case and case insert business. Cash used in investing activities during the nine-month period ended September 30, 2008, was approximately $6.9 million, which was primarily the result of the acquisition of Stephenson & Lawyer (net of cash acquired) for approximately $5.2 million and normal additions of manufacturing machinery and 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. As of September 30, 2008, based upon no revolving credit facility borrowings outstanding and collateral levels, the Company had availability of approximately $14.5 million 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. At September 30, 2008, all borrowings under this credit facility 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 September 30, 2008, 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, 2008, the interest rate on these facilities ranged from 3.5% to 5.0%.

As a result of the consolidation of UDT, a mortgage note dated May 22, 2007, collateralized by the Florida facility, is included within long-term debt in the Consolidated Financial Statements. The note had an original principal balance of $786,000, and calls for 180 monthly payments of $7,147. The interest rate is fixed at approximately 7.2%. 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, 2008, the Company also had capital lease obligations of approximately $1.8 million. At September 30, 2008, the current portion of all debt including term loans and capital lease obligations was approximately $1.4 million.

The Company had outstanding checks of approximately $1.1 million and $2.3 million at September 30, 2008, and December 31, 2007, respectively. The Company classifies outstanding checks within Accounts Payable on its Condensed Consolidated Balance Sheets.

The Company's primary credit facility expires in February 2009. The Company has reached an agreement in principle to amend and extend its existing facility for approximately five-years. The agreement in principle is non-binding and subject to normal closing conditions. Accordingly, there can be no assurance that the amendment and extension will close.

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, 2008, and the
effect such obligations are expected to have on its liquidity and cash flow in
future periods:



                                                                                                Supplemental
Payments      Operating      Capital        Term        Mortgage        UDT         Debt         Retirement
due in:        Leases        Leases         Loans         Loans      Mortgage     Interest          Plan           Total
2008             449,821       180,928       131,643        39,000       9,910       104,754           52,646   $    968,702
2009           1,445,505       702,765       526,572       156,000      33,896       358,906          105,000      3,328,644
2010           1,197,619       671,839       526,572       156,000      36,417       265,408          101,000      2,954,855
2011             922,757       238,060       526,572       156,000      39,120       185,922           80,000      2,148,431
2012 &
thereafter     1,710,108             -       482,689     1,391,000     627,626       375,560          330,800      4,917,783
             $ 5,725,810   $ 1,793,592   $ 2,194,048   $ 1,898,000   $ 746,969   $ 1,290,550   $      669,446   $ 14,318,415

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, 2007, it cannot guarantee that its operations will generate cash in future periods.