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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

For the quarterly period ended SEPTEMBER 30, 2008MARCH 31, 2009

OR

For the transition period from          to

Commission File Number:  001-12648

UFP Technologies, Inc.

(Exact name of registrant as specified in its charter)

172 East Main Street, Georgetown, Massachusetts 01833, USA

(Address of principal executive offices)  (Zip Code)

(978) 352-2200

(Registrant’s telephone number, including area code)

(Former name, former address, and former

fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x;  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ox;  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “acceleratedaccelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o;  No x

5,641,7035,787,482 shares of registrant’s Common Stock, $.01 par value, were outstanding as of October 15, 2008.April 27, 2009.

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NOTES TO INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1)       Basis of Presentation

The interim condensed consolidated financial statements of UFP Technologies, Inc. (the “Company”) presented herein, without audit, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America.  These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2007,2008, included in the Company’s 20072008 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of September 30, 2008,March 31, 2009, the condensed consolidated statements of income for the three- and nine-monththree-month periods ended September 30,March 31, 2009, and 2008, and 2007, and the condensed consolidated statements of cash flows for the ninethree months ended September 30,March 31, 2009, and 2008, and 2007, are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of results for these interim periods.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The results of operations for the nine-monththree-month period ended September 30, 2008,March 31, 2009, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2008.2009.

(2)       Supplemental Cash Flow Information

Cash paid for interest and income taxes is as follows:

(2)(3)       Investment in Affiliated Partnership

The Company has a 26.32% ownership interest in a realty limited partnership, United Development Company Limited (“UDT”).  In accordance with the provisions of FASB Interpretation FIN No. 46R, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” the Company has consolidated the financial statements of UDT because it has determined that UDT is a variable interest entity (“VIE”) pursuant to Paragraph 5.a of FIN No. 46R, and the Company is the primary beneficiary.  Included in the Condensed Consolidated Balance Sheets are the following UDT amounts:

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(3)(4)       Fair Value Accounting

In September 2006, theThe Company has adopted Statement of Financial Accounting Standards Board (“FASB”) issued SFAS No. 157 (SFAS No. 157), “Fair Value Measurements,” which defines fair value, establishes a framework in generally accepted accounting principles for measuring fair value, and expands disclosures about fair value measurements. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. It does not increase the use of fair value measurement. SFAS No. 157 iswas effective for fiscal years beginning after November 15, 2007, except as it relatesrelated to nonrecurring fair value measurements of nonfinancial assets and liabilities for which the standard is effective for fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 in the first quarter of 2008.

Financial instruments recorded at fair value in the Condensed Consolidated Balance Sheets,condensed consolidated balance sheets, or disclosed at fair value in the footnotes, are categorized below based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels defined by SFAS No.157 and directly related to the amount of subjectivity associated with inputs to fair valuation of these assets and liabilities are as follows:

Level 1 –  —  Valued based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.  The assets valued and carried by the Company using Level 1 inputs are our money market accounts and certificates of deposit.  There are no liabilities valued and carried using Level 1 inputs.

Level 2 –  —  Valued based on either directly or indirectly observable prices for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.  No assets or liabilities are currently valued based on Level 2 inputs.

Level 3 –  —  Valued based on management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.  Generally, the only significant assets and liabilities carried at fair value and included in this category are those acquired through business combinations. These assets and liabilities are excluded from the initial adoption of SFAS No. 157.

Financial instruments that currently require disclosure under SFAS No. 157 consist of money market funds and certificates of deposit, both considered cash equivalents.  Assets and liabilities measured at fair value on a recurring basis are categorized by the levels discussed above and in the tables below:

In addition, the Company is evaluating the impact of SFAS No. 157 for measuring nonfinancial assets and liabilities on future results of operations and financial position.

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Effective this quarter, the Company implemented SFAS 157 for nonfinancial assets and liabilities that are re-measured at fair value on a non-recurring basis.  The adoption of SFAS 157 for nonfinancial assets and liabilities did not impact the Company’s financial position or results of operations; however, it could have an impact in future periods.  In addition, the Company may have additional disclosure requirements in the event an acquisition is completed or an impairment of the Company’s assets is incurred in future periods.

(4)(5)       New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which changes how business acquisitions are accounted. SFAS No. 141R requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets and tax benefits. SFAS No. 141R is effective for the Company for business combinations and adjustments to an acquired entity’s deferred tax asset and liability balances occurring after December 31, 2008.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 amends the consolidation procedures of certain aspects of ARB No. 51 for consistency with the requirements of SFAS No. 141(R).141R. This statement requires changes in the parent’s ownership interest of consolidated subsidiaries to be accounted for as equity transactions. This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The Company is currently evaluating the future impacts and disclosuresadoption of this standard.statement resulted in the presentation of the noncontrolling interest in UDT as equity, rather than a liability. In addition, we now present net income of the consolidated group in the statement of operations, with a reconciliation to net income attributable to UFP Technologies, Inc.

In March 2008,December 2007, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,141R, “Business Combinations,” which changes the disclosure requirements for derivative instruments and hedging activities.how business acquisitions are accounted for. SFAS No. 161141R requires enhanced disclosures about (a) howthe acquiring entity in a business combination to recognize all (and only) the assets acquired and why an entity uses derivative instruments, (b) how derivative instrumentsliabilities assumed in the transaction and related hedged items are accountedestablishes the acquisition-date fair value as the measurement objective for underall assets acquired and liabilities assumed in a business combination. Certain provisions of this standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration); exclude transaction costs from acquisition accounting; and change accounting practices for acquired contingencies, acquisition-related restructuring costs, in-process research and development, indemnification assets and tax benefits. The Company implemented SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This  statement’s disclosure requirements are effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating141R in the future impacts and disclosuresfirst quarter of 2009.  Implementation of this standard.standard resulted in the Company recognizing a gain of approximately $81,000 related to its acquisition of selected assets of Foamade Industries, Inc. (Note 5), and $25,000 of acquisition-related costs were charged to expense, that would otherwise have been included as part of the acquisition cost prior to the adoption of SFAS No. 141R.

(5)In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and Accounting Principles Board (“APB”) Opinion 28-1, “Interim Disclosures about Fair Value of Financial Instruments.”  This FSP amends SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods.  This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption.  In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption.  The Company does not

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expect the changes associated with adoption of this FSP will have a material effect on the determination or reporting of its financial results.

(6)       Acquisition

On January 18, 2008, the Company acquired 100% of the common stock of Stephenson & Lawyer, Inc. (“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.  S&L specializes in the fabrication of technical urethane foams, and brings to the Company access to this family of foams, modern manufacturing capabilities, and a seasoned management team.  Including a purchase price of $7,225,000 plus transaction costs, the total acquisition cost was $7,325,000.  The acquisition cost was allocated as follows:

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The operating results of Stephenson & Lawyer, Inc. have been included in the Company’s results of operations for the quarters ended March 31, 2009, and 2008.

On March 9, 2009, the Company acquired selected assets of the Hillsdale, Michigan, operations of Foamade Industries, Inc. (“Foamade”).  The Hillsdale operation of Foamade specialized in the fabrication of technical urethane foams for a myriad of industries.  The Company is in the process of transitioning the acquired assets to its Grand Rapids, Michigan, plant.

The Company recorded a gain of approximately $81,000 on the transaction as it acquired the assets in a bargain purchase.  The gain was recorded as a reduction of selling, general and administrative expenses in the March 31, 2009, condensed consolidated statement of income.

The following table summarizes the consideration paid for the assets and the amount of the assets acquired at the acquisition date:

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The following table contains an unaudited pro formaamount of revenue and earnings included in the Company’s condensed consolidated statement of operationsincome for the three-quarter ended March 31, 2009, is approximately $285,000 and nine-month periods ended September 30, 2007, as if$100,000, respectively.  It is impractical to determine the S&Lamount of sales and earnings that would have been recorded, had the acquisition had occurred on January 1, 2007.  No pro forma adjustments have been made to the comparative condensed consolidated statement of operation for the three- and nine-month periods ended September 30, 2008, since the S&L acquisition was effective as of the beginning of those periods:

The above pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have actually occurred had the S&L acquisition occurred as presented.  In addition, future results may vary significantly from the results reflected in such pro forma information.2009, or January 1, 2008.

(6)(7)       Share-Based Compensation

Share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).

The Company issues share-based payments through several plans, which are described below.  The compensation cost that has been charged against income for those plans is as follows:

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The Company recorded $282,260$211,202 and $802,204$182,667 in compensation expense related to these RSUs during the three- and nine-monththree-month periods ended September 30,March 31, 2009, and 2008, and $142,452 and $257,870, respectively for the same periods in 2007.

The following summarizes the future share-based compensation expense the Company will record as the equity securities granted through September 30, 2008,March 31, 2009, vest:

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$25 per one one-thousandth of a Preferred Share subject to adjustment and the terms of the Rights Agreement.  The Rights expire on March 19, 2019.

(10)                Earnings Per Share

Basic earnings per share computations are based on the weighted average number of shares of common stock outstanding.  Diluted earnings per share is based upon the weighted average of common shares and dilutive common stock equivalent shares outstanding during each period.

The weighted average number of shares used to compute diluted net income per share consisted of the following:

(9)(11)              Segment Reporting

The Company is organized based on the nature of the products and services that it offers.  Under this structure, the Company produces products within two distinct segments: Engineered Packaging and Component Products.  Within the Engineered Packaging segment, the Company primarily uses polyethylene and polyurethane foams, sheet plastics, and pulp fiber to provide customers with cushion packaging for their products.  Within the Component Products segment, which includes the results of S&L beginning on January 1, 2008, the Company primarily uses cross-linked polyethylene foam to provide customers in the automotive, athletic, leisure, and health and beauty industries with engineered product for numerous purposes.

The accounting policies of the segments are the same as those described in Note 1 ofto the consolidated financial statements contained in the Company’s annual report on Form 10-K for the year ended December 31, 2007,2008, as filed with the Securities and Exchange Commission.  The Company evaluates the performance of its operating segments based on net income.

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(10)(12)                UDT Cash / Indebtedness

As a component of consolidating UDT’s assets, the Company included $148,160 and $165,361 in cash at September 30, 2008, and December 31, 2007, respectively.  Although this cash balance is not legally restricted, the Company does not use this cash in its operations.

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.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%.  Payments on this note are funded through rent payments that

On January 29, 2009, the Company makesamended and extended its credit facility with Bank of America, N.A.  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 discretion 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 Alabamareal estate located in Georgetown, Massachusetts, and Florida facilities.in Grand Rapids, Michigan.  Under the credit facility, the Company is subject to a minimum fixed-charge coverage financial covenant.  The Company’s $17 million revolving credit facility is due November 30, 2013; the term loans are all due on January 29, 2016.

In addition to the above credit facilities, the Company had capital lease debt of $1,612,665 as of December 31, 2008.  These leases were secured by specific manufacturing equipment used by the Company, had remaining lives ranging from one to six years, and bore interest at rates ranging from 7% to 8%.  The Company is not a guarantor and is not subject to any financial covenants under this mortgage note.paid off these leases in full as of February 5, 2009.

(11)(13)                Plant Consolidation

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 foot250,000-square-foot building in Grand Rapids, Michigan.  TheThrough December 31, 2008, the Company expects to incurincurred restructuring charges of approximately $1.4$1.3 million in one-time, pre-tax expenses and committed to invest approximately $450,000$650,000 in building improvements in the Grand Rapids facility over a six-month transitional period.  The Company expects annual cost savings of approximately $1.2 million as a result of the plant consolidation.

ThroughDuring the periodquarter ended September 30, 2008,March 31, 2009, the Company has incurredhad the following expenses:cash activity:

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ITEM 2:MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements: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

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