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. 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.

Other examples of these risks, uncertainties, and other factors include, without limitation, the following: economic conditions that affect sales of the products of the Company's customers, actions by the Company's competitors, and the ability of the Company to respond to such actions, the ability of the Company to obtain new customers, 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, evolving customer requirements, difficulties associated with the roll-out of new products, decisions by customers to cancel or defer orders for the Company's products that previously had been accepted, 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.

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 its 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.

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.

The Company reported record earnings for its fiscal year ended December 31, 2008, largely due to increased sales and stronger gross margins. However, it experienced a softening of sales in the fourth

quarter of 2008 that has continued through the second quarter of 2009, negatively impacting gross margins. Sales of interior trim parts to the automotive industry have weakened significantly due to very soft automobile sales in North America. The Company expects this trend to continue at least through the balance of 2009.

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 250,000-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.

On March 9, 2009, the Company acquired selected assets of the Hillsdale, Michigan, operations of Foamade Industries, Inc., a business specializing in the fabrication of technical urethane foams for a myriad of industries. The Company transitioned the acquired assets to its Grand Rapids, Michigan, plant.

On July 7, 2009, the Company acquired substantially all of the assets of E.N. Murray Company, a Denver, Colorado-based foam fabricator. E.N. Murray specializes in the fabrication of technical urethane foams, primarily for the medical industry. Like S&L, this acquisition brings to the Company further access and expertise in fabricating technical urethane foams and a seasoned management team.

The Company's current strategy includes organic growth and growth through strategic acquisitions.

Sales

Sales for the three-month period ended June 30, 2009, were $21.0 million or 26.3% below sales of $28.5 million for the same period in 2008. Sales for the six-month period ended June 30, 2009, were $42.6 million or 24.6% below sales of $56.5 million for the same period in 2008. Had the Company not purchased selected assets from Foamade Industries, Inc., the sales decline for the three- and six-month periods ended June 30, 2009, would have been 30% and 26.9%, respectively. The decline in sales for both periods is due largely to a decline in sales of interior trim parts to the automotive industry (Component Products segment) as well as a general softening in demand for parts (across both business segments). Sales of automotive trim parts declined by $4.5 million and $8.1 million during the three- and six-month periods ended June 30, 2009, respectively.

Gross Profit

Gross profit as a percentage of sales (gross margin) declined to 25.6% and 24.2%, for the three- and six-month periods ended June 30, 2009, respectively, from 26.8% and 25.7% in the same three- and six-month periods of 2008. The decline in gross margin is primarily due to the fixed cost portion of cost of sales measured against lower sales (both business segments), partially offset by efficiencies gained from the consolidation of the Company's Michigan facilities.

Selling, General and Administrative Expenses

Selling, General, and Administrative expenses ("SG&A") declined 11.3% to $4.4 million for the three-month period ended June 30, 2009, from $5.0 million in the same period of 2008. SG&A declined 11.9% to $8.7 million for the six-month period ended June 30, 2009, from $9.9 million in the same period of 2008. As a percentage of sales SG&A increased to 21.1% and 20.5% for the three- and six-

month periods ended June 30, 2009, respectively, from 17.5% and 17.5% in the same respective periods of 2008.

The decline in SG&A for the three- and six-month periods ended June 30, 2009, reflects efforts to reduce administrative compensation and benefits of approximately $310,000 and $465,000, respectively (both business segments), a reduction of variable compensation due to the reduction in sales of approximately $70,000 and $240,000, respectively (both business segments), and a gain recorded in March 2009 pursuant to SFAS 141R, Business Combinations, associated with the acquisition of selected assets of Foamade Industries of approximately $81,000 (Component Products segment).

Other Expenses

Net interest expense declined for the three- and six-month periods ended June 30, 2009, to approximately $54,000 and $136,000, respectively, from $99,000 and $197,000, respectively, in the same 2008 periods. This decline is primarily due to lower interest rates, partially offset by higher average borrowings.

The Company recorded a tax expense of approximately 36% and 38% of income before income tax expense for the six-month periods ended June 30, 2009, and 2008, respectively. The current period effective tax rate represents management's best estimate as to the expected fiscal year 2009 effective tax rate.

Net income attributable to non-controlling interests was approximately $16,000 and $32,000, respectively, for the three- and six-month periods ended June 30, 2009, compared to $16,000 and $32,000, respectively, for the same periods in 2008.

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 June 30, 2009, and December 31, 2008, the Company's working capital was approximately $23.5 million and $18.7 million, respectively.

The increase in working capital for the six-month period ended June 30, 2009, is primarily due to increased cash of approximately $6.1 million, decreased accrued expenses of approximately $1.7 million (payout of year-end variable compensation and income tax obligations) and reduced short-term debt of approximately $800,000 (early payoff of capital lease debt), partially offset by reduced receivables of approximately $2.8 million and inventory of $1.6 million, respectively (consistent with downturn in business).

Net cash provided by operations for the six-month periods ended June 30, 2009, and 2008, was approximately $5.1 million and $2.4 million, respectively. The increase in cash provided by operations was primarily attributable to 2009 reductions in receivables and inventories of approximately $2.8 million and $1.6 million, respectively, compared to increases in receivables and inventories of approximately $970,000 and $1.1 million, respectively, in 2008. Both changes are due to the softening of sales. These increases were partially offset by lower net income of approximately $1.8 million.

Cash used in investing activities during the six-month period ended June 30, 2009, was approximately $1.0 million, which was primarily the result of normal additions of manufacturing machinery and

equipment of approximately $680,000 and the acquisition of selected assets of Foamade Industries of approximately $375,000.

On January 29, 2009, the Company amended and extended its credit facility with Bank of America, NA. The facility comprises: (i) a revolving credit facility of $17 million; (ii) a term loan of $2.1 million with a seven-year straight-line amortization; (iii) a term loan of $1.8 million with a 20-year straight-line amortization; and (iv) a term loan of $4.0 million with a 20-year straight-line amortization. Extensions of credit under the revolving credit facility are based in part upon accounts receivable and inventory levels. Therefore, the entire $17 million may not be available to the Company. The credit facility calls for interest of LIBOR plus a margin that ranges from 1.0% to 1.5% or, at the option of the Company, the bank's prime rate less a margin that ranges from 0.25% to zero. In both cases the applicable margin is dependent upon Company performance. The loans are collateralized by a first priority lien on all of the Company's assets, including its real estate located in Georgetown, Massachusetts, and in Grand Rapids, Michigan. Under the credit facility, the Company is subject to a minimum fixed-charge coverage financial covenant, and was in compliance with this covenant at June 30, 2009. The Company's $17 million revolving credit facility expires November 30, 2013; the term loans are all due on January 29, 2016.

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 condensed 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%.

The Company has no significant capital commitments in 2009, but plans on adding capacity to enhance operating efficiencies in its manufacturing plants. The Company may consider the acquisition of companies, technologies, or products in 2009 that are complementary to its business. The Company believes that its existing resources, including its revolving credit facility, together with cash generated from operations and funds expected to be available to it through any necessary equipment financing and additional bank borrowings, will be sufficient to fund its cash flow requirements, including capital asset acquisitions, through at least the end of 2009. However, there can be no assurances 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 June 30, 2009, and the effect
such obligations are expected to have on its liquidity and cash flow in future
periods:



                  Operating      Grand Rapids        Term        Georgetown        UDT          Debt          Supplemental
Funds due in:       Leases         Mortgage          Loans        Mortgage      Mortgage      Interest      Retirement Plan       Total
2009             $    728,784    $     100,000    $   144,180    $    46,150    $  17,029    $   133,307    $         32,000   $  1,201,450
2010                1,197,619          200,000        288,360         92,300       36,417        502,750             101,000      2,418,446
2011                  922,757          200,000        288,360         92,300       39,120        463,699              80,000      2,086,236
2012                  860,075          200,000        288,360         92,300       41,725        424,621              80,000      1,987,081
2013 & after          850,033        3,233,333        913,144      1,492,183      586,131      1,168,984             280,800      8,524,608
                 $  4,559,268    $   3,933,333    $ 1,922,404    $ 1,815,233    $ 720,422    $ 2,693,361    $        573,800   $ 16,217,821

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 period ended June 30, 2009, it cannot guarantee that its operations will generate cash in future periods.