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. Examples of forward-looking statements included in this report include, without limitation, statements regarding the anticipated performance of the Company, the anticipated impact on the Company and its revenues of the end of a substantial portion of its large automotive door panel program, expected methods of growth for the Company, statements regarding prospects for the markets in which the Company competes, and the overall economy.

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, risks associated with the identification of suitable acquisition candidates and the successful, efficient execution and integration of such acquisitions, the implementation of new production equipment in a timely, cost-efficient manner, risks that any benefits from such new equipment may be delayed or not fully realized, 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, the ability of the Company to achieve positive results in spite of competition and the conclusion of a substantial portion of its large automotive door panel program, 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 the requirements of Sarbanes-Oxley, 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 producer of innovative custom-engineered components, products and specialty packaging. The Company serves a myriad of markets, but specifically targets opportunities in the medical, automotive, aerospace and defense, computer and electronics, industrial, and consumer markets.

In the first three months of 2012, the Company experienced organic sales growth of 1.4%, reflecting increased demand from all end-use markets except the automotive market. Sales to the automotive market declined primarily due to the phase-out of a significant portion of the Company's large door panel program in the Southeast.

In prior periods the Company had a 26.32% ownership interest in a realty limited partnership, United Development Company Limited ("UDT"). The Company had consolidated the financial statements of UDT for prior periods because it determined that UDT was a VIE. On February 29, 2012, the Company purchased the manufacturing building that it leased from UDT for $1,350,000, which approximates fair market value. Since this transaction took place among commonly controlled companies, the building was recorded by the Company at UDT's carrying value. Subsequently, UDT was dissolved and its assets were distributed. Thus, in effect, the Company has acquired the remaining 73.68% ownership interest in UDT, eliminating the VIE. The non-controlling interests' portion of the excess of the amount paid for the building over UDT's carrying value, totaling $535,481, has been recorded in stockholders' equity as a reduction to additional paid-in capital. The transaction did not impact the consolidated results of operations.

Due to a redesigned model vehicle, a substantial portion of a large automotive door panel program ended on June 30, 2011, although the Company is still supplying door panels to the customer for other model vehicles. Sales of door panels for the discontinued model vehicle were approximately $1.8 million in the three-month period ended March 31, 2011.

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

Sales

Sales for the three-month period ended March 31, 2012, increased 1.4% to $31.9 million from sales of $31.5 million for the same period in 2011. The increase in sales for the three-month period ended March 31, 2012, is primarily due to increased sales to the medical industry of approximately $485,000 (Component Products segment) as well as an increase in sales of molded fiber packaging of approximately $1 million (Packaging segment), mostly offset by a decrease in sales to the automotive industry of approximately $1.1 million. The decline in sales to the automotive industry is largely due to the phase-out of a significant portion of the Company's large door panel program in the Southeast. Excluding the door panel program sales from our results for the three-month period ended March 31, 2011, our revenues for the three-month period ended March 31, 2012, grew 8%. With the exception of the automotive market, sales to all end-use markets increased during the three-month period ended March 31, 2012.

Gross Profit

Gross profit as a percentage of sales ("gross margin") increased to 28.8 % for the three-month period ended March 31, 2012, from 27.9% for the same period in 2011. The increase in gross margin for the three-month period ended March 31, 2012, is primarily due to a better mix of business, partially due to higher fixed components of cost of sales (as a percentage of sales, material and direct labor collectively decreased by 2.1% while overhead increased 1.2%).

Selling, General and Administrative Expenses

Selling, general, and administrative expenses ("SG&A") decreased approximately $207,000 or 3.6 % to $5.5 million for the three-month period ended March 31, 2012, from $5.7 million for the same period in 2011. The $207,000 decrease in SG&A for the three-month period ended March 31, 2012, is primarily due to a decrease in professional fees of approximately $150,000 due to prior year initiatives.

As a percentage of sales, SG&A decreased to 17.3% for the three-month period ended March 31, 2012, from 18.2% for the same three-month period of 2011. The decrease in SG&A as a percentage of sales for the three-month period ended March 31, 2012, is primarily due to the reduction in general and administrative expenses against higher sales.

Gain on Sale of Fixed Assets

The gain on sale of fixed assets of approximately $834,000 in the three-month period ended March 31, 2011, was derived primarily from the sale of real estate in Alabama by UDT. Of this $834,000 gain, approximately $428,000 relates to non-controlling interests that have been deducted to determine net income attributable to UFP Technologies, Inc.

Other Expenses

The Company had net (income) interest expense of approximately $16,000 and $(2,000) for the three-month periods ended March 31, 2012, and 2011, respectively. The increase in interest expense is primarily due to lower interest earned on cash.

The Company recorded a tax expense of approximately 36% of income before income tax expense, excluding net income attributable to non-controlling interests, for the three-month period ended March 31, 2012, compared to a tax expense of approximately 37% for the comparable three-month period of 2011. The slight decrease in effective income tax rate for the three-month period ended March 31, 2012, is primarily due to higher than expected deductions for domestic manufacturing incentives. The non-controlling interest in UDT is not subject to corporate income tax.

Liquidity and Capital Resources

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

At March 31, 2012, and December 31, 2011, the Company's working capital was approximately $47.6 million and $48.6 million, respectively. The $1.0 million decrease in working capital for the three-month period ended March 31, 2012, is primarily due to a decrease in cash of approximately $2.2 million due largely to the purchase of the Florida real estate from UDT for $1,350,000 and the subsequent distribution of UDT's assets.

Net cash provided by operations for the three-month period ended March 31, 2012, was approximately $1.6 million due to net income from consolidated operations of approximately $2.4 million and depreciation and amortization of approximately $681,000 partially offset by cash used in operations of approximately $770,000 from an increase in receivables due to high March sales and approximately $820,000 in a reduction of accrued taxes and other expenses due to year-end bonus and profit sharing payments.

Cash used in investing activities during the three-month period ended March 31, 2012, was approximately $2.2 million and was primarily the result of normal additions of manufacturing machinery and equipment and software.

Cash used in financing activities was approximately $1.7 million in the three-month period ended March 31, 2012, compared to cash used in financing activities of approximately $569,000 in the comparable period of 2011. The increase in cash used in financing activities is due primarily to a distribution to the non-controlling interests of UDT of approximately $1.2 million due to the Company's purchase of the Florida real estate from UDT and subsequent dissolution of UDT.

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. At March 31, 2012, the Company had availability of approximately $16.9 million, based upon collateral levels as of that date. 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 with which it was in compliance at March 31, 2012. The Company's $17 million revolving credit facility matures November 30, 2013; the term loans are all due on January 29, 2016. The interest rate on these facilities was approximately 1.24% at March 31, 2012.

In 2012 the Company plans on adding capacity to enhance operating efficiencies in its manufacturing plants, including implementing its next generation molded fiber production line. The Company may consider additional acquisitions of companies, technologies, or products in 2012 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 the next twelve months.

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, 2012, and the effect such obligations are expected to have on its liquidity and cash flow in future periods:

                                                                                                       New Molded
                                                                                                          Fiber
                              Grand                                                                     Equipment
Payments      Operating      Rapids         Term        Massachusetts       Debt       Supplemental     Purchase
due in:        Leases       Mortgage        Loans         Mortgage        Interest      Retirement     Commitment       Total
2012         $ 1,331,995   $   150,001   $   216,270   $        69,225   $  109,808   $       56,250   $ 3,702,700   $  5,636,249
2013           1,127,907       200,001       288,360            92,300      133,708           75,000             -   $  1,917,276
2014             820,134       200,001       288,360            92,300      119,192           45,833             -   $  1,565,820
2015             251,036       200,001       288,360            92,300      104,675           25,000             -   $    961,372
2016             198,060       200,001        48,062            92,300       92,712           25,000             -   $    656,135
2017 and
thereafter        13,692     2,433,329             -         1,122,983      163,201           75,000             -   $  3,808,205
Total        $ 3,742,824   $ 3,383,334   $ 1,129,412   $     1,561,408   $  723,296   $      302,083   $ 3,702,700   $ 14,545,057

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 during the three-month period ended March 31, 2012, it cannot guarantee that its operations will generate cash in future periods.

The Company had no off-balance-sheet arrangements during the three-month period ended March 31, 2012, other than operating leases.