Founded in 1993, Advant is headquartered in Galway, Ireland, with operations in Costa Rica and partner manufacturing in Mexico. Advant is a developer and manufacturer of Class I, II, and III medical devices and packaging, primarily for catheters and guide wires.

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s preliminary estimates of fair value (in thousands):

Acquisition costs associated with the transaction were approximately $779 thousand, of which ~~requires an entity~~$749 thousand was charged to ~~recognize~~expense in thesix-months ended June 30, 2022 and $30 thousand was charged to expense in the year ended December 31, 2021. These costs were primarily for legal, investment banking and valuation services, as well as stamp duty filings and are reflected on the face of the income statement.

The amount of revenue and earnings of Advant recognized since the acquisition date, which is included in the condensed consolidated statement of income for the period ended June 30, 2022, was approximately $6.8 million and $0.7 million, respectively.

The following table contains an unaudited pro forma condensed consolidated statement of operations for the six-month periods ended June 30, 2022 and 2021 and the three- month period ended June 30, 2021, as if the Advant acquisition had occurred at the beginning of the respective periods (in thousands):

The above unaudited pro forma information is presented for illustrative purposes only and may not be indicative of the results of operations that would have occurred had the acquisition occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

On December 22, 2021 the Company purchased 100% of the outstanding membership interests of DAS Medical Holdings, LLC, (DAS Medical) pursuant to a Securities Purchase Agreement, for a net purchase price of $66.7 million in cash. The purchase price was subject to adjustment based upon DAS Medical’s final working capital at closing, and the purchase price may be increased by up to $20.0 million in earn-out payments based upon the performance of the business during the four-year period following the closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. As a result of the final working capital adjustment, the total consideration was reduced by approximately $115 thousand.

In connection with its entry into the Purchase Agreement, the Company also entered into an Agreement for the Purchase and Sale of Personal Goodwill (the “Goodwill Agreement”) with the purchase price beneficiaries. Pursuant to the terms of the Goodwill Agreement, on December 22, 2021, the Company purchased from the beneficiaries their personal goodwill, including business relationships, trade secrets and knowledge in connection with DAS Medical’s business, for a purchase price of $20 million in cash.

The Company has also entered into Non-Competition Agreements with the beneficiaries and the Company has agreed to pay additional consideration to the parties to the Non-Competition Agreements, including an aggregate of $10.0 million in payments over the ten years following the closing of the DAS Medical acquisition for the 10-year noncompetition covenants of certain key owners.

Founded in 2010, DAS Medical is headquartered in Atlanta, Georgia, with manufacturing in the Dominican Republic. DAS Medical is a medical device contract manufacturer specializing in the design, development and production of single-use surgical equipment covers, robotic draping systems and fluid control pouches.

Acquisition costs associated with the transaction were approximately $448 thousand, of which it$155 thousand were charged to expense in the six months ended June 30, 2022 and $293 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement.

On October 12, 2021, the Company purchased 100% of the outstanding shares of common stock of Contech Medical, Inc., pursuant to a stock purchase agreement and related agreements, for an aggregate purchase price of $9.5 million in cash, the assumption of a contingent liability of $0.5 million plus up to an additional $5 million in purchase price based upon the achievement of certain EBITDA targets of Contech for the 12-month period ended June 30, 2022. The purchase price was subject to adjustment based upon Contech’s working capital at closing. A portion of the purchase price is being held in escrow to indemnify the Company against certain claims, losses, and liabilities. The Stock Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type.

Founded in 1987, Contech is based in Providence, Rhode Island with partner manufacturing in Costa Rica. Contech is a global leader in the design, development, and manufacture of Class III medical device packaging primarily for catheters and guide wires. The Company has leased the Providence location from a realty trust owned by the selling shareholders and affiliates. The lease is for five years with one five-year renewal option.

The following table summarizes the allocation of consideration paid to the acquisition date fair value of the assets acquired and liabilities assumed based on management’s estimates of fair value (in thousands):

Acquisition costs associated with the transaction were approximately $153 thousand, of which $113 thousand were charged to expense in the six months ended June 30, 2022 and $40 thousand were charged to expense in the year ended December 31, 2021. These costs were primarily for legal and valuation services and are reflected on the face of the income statement.

The following table contains an unaudited pro forma condensed consolidated statement of operations for the three- and six-month periods ended June 30, 2021, as if both the DAS Medical and Contech Medical acquisitions had occurred at the beginning of the period (in thousands):

The above unaudited pro forma information is presented for illustrative purposes only and may not be indica‐tive of the results of operations that would have occurred had both acquisitions occurred as presented. In addition, future results may vary significantly from the results reflected in such pro forma information.

The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for ~~the transfer of~~ promised goods or ~~services~~services. The Company recognizes revenue in accordance with the core principles of ASC 606 which include (1) identifying the contract with a customer, (2) identifying separate performance obligations within the contract, (3) determining the transaction price, (4) allocating the transaction price to ~~customers. This standard will replace most existing~~the performance obligations, and (5) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue ~~recognition guidance when it becomes effective. The standard permits~~from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling where control does not transfer to the customer, resulting in revenue being recognized over the estimated time for which parts are produced with the use of ~~either the full retrospective or modified retrospective transition methods.~~each respective tool. The Company ~~expects to adopt~~recognizes revenue from engineering services, which are primarily product development services, as the ~~standard in~~services are performed or as otherwise determined based on the ~~first quarter~~substance of ~~2018 using~~ the ~~modified retrospective transition method.~~agreement. The Company ~~has identified its primary~~recognizes revenue ~~streams, completed a preliminary review~~from bill and hold transactions at the time the specified goods are complete and available to the customer. In the ordinary course of a representative sample of contracts with its customers and is in the process of evaluating the impact of this ASU on its revenue streams and accounting policies. Based on the procedures completed to date,business, the Company ~~expects that~~accepts sales returns from customers for ~~a significant portion~~defective goods, such amounts being immaterial. Although only applicable to an insignificant number of its business, the recognition of revenue under the updated standard will occur at a point in time, which is consistent with current practice. The Company has identified certain revenue streams for which the recognition of revenue may occur over time, which is a change from current practice. These revenue streams include certain customer stocking commitments. Additionally,transactions, the Company has ~~identified certain revenue streams for which~~elected to exclude sales taxes from the ~~recognition of revenue may be deferred, which is also a change from current practice. These revenue streams include certain tooling sales.~~transaction price. The Company does not expect that the impact of these changes in the timing of revenue recognition for these items to be significant to the financial statements. The Company is also in the process of updating its internal controls and drafting the expanded disclosures as required by this ASU. ~~The Company does not expect significant changes to its systems or internal controls. As the Company continues through the adoption process, it is possible that these preliminary conclusions may change.~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases.~~ ~~The guidance in this ASU supersedes the leasing guidance in Topic 840,~~ ~~Leases~~. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases. The amendments in ASU No. 2016-02 are effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period with early adoption permitted. The Company is evaluating the impact of adopting this ASU on its consolidated financial position and results of operations.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Improvements to Employee Share Based Payment Accounting~~. This ASU simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards, forfeitures and classification on the statement of cash flows. The Company adopted this ASU on January 1, 2017. As the Company has not had a significant amount of forfeitures historically, under the provisions of this ASU the Company has elected to account for ~~forfeitures~~shipping and handling activities for which the Company is responsible under the terms and conditions of the sale not as ~~they occur,~~performance obligations but rather ~~than estimate expected forfeitures.~~ as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.

The ~~impact~~following table presents the Company’s revenue disaggregated by the major types of ~~adopting this update~~goods and services sold to the Company’s Consolidated Financial Statements will depend on market factors and the timing and intrinsic value of future share-based compensation award vests and exercises. Subsequent to adoption, the Company notes the potential for volatility in its effective tax rate as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly to income tax expense in the Condensed Consolidated Statement of Income.customers (in thousands):

~~Certain revisions have been made~~Timing of revenue recognition may differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the ~~2016 Condensed Consolidated Statement of Cash Flows to conform to~~Company has contract liabilities included within “deferred revenue” on the current year presentation relating to a reserve for uncertain tax positions and to cash paid for capital expenditures. The reclassification of a reserve for uncertain tax positions resulted in an increase to the change in refundable income taxes of $315,000 and a decrease to the change in accrued expenses of $315,000. A change in presentation of cash paid for capital expenditures resulted in a decrease of $311,000 in both the change in accounts payable and in additions to property, plant and equipment, net. These revisions had no impact on previously reported net income and are deemed immaterial to the previously issued financial statements.

The following table presents a roll-forward of contract liabilities activity for the six-month periods ended June 30,2022 and 2021 (in thousands):

Revenue recognized during the six-month periods ended June 30, 2022 and 2021 from amounts included in deferred revenue at the beginning of the period were approximately $1.8 million and $0.4 million, respectively.

When invoicing occurs after revenue recognition, the Company has contract assets, included within “receivables” on the condensed consolidated balance sheet.

The following table presents a roll-forward of contract assets activity for the six-month periods ended June 30, 2022 and 2021 (in thousands):

The Company is exposed to credit losses primarily through sales of products and services. The Company’s expected loss allowance methodology for accounts receivable is developed using historical collection experience, current and future economic and market conditions, and a review of the current status of customers' trade accounts receivables. Due to the short-term nature of such receivables, the estimate of the amount of accounts receivable that may not be collected is based on aging of the accounts receivable balances and the financial condition of customers. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. Estimates based on an assessment of anticipated payment and all other historical, current, and future information that is reasonably available are used to determine the allowance.

The following table provides a roll-forward of the allowance for credit losses that is deducted from accounts receivable to present the net amount expected to be collected as of June 30, 2022 and 2021 (in thousands):

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

The Company issues share-based awards through several plans that are described in detail in the notes to the consolidated financial statements for the year ended December 31, ~~2016.~~ 2021. The compensation cost charged against income for those plans is included in selling, general & administrative expenses as follows (in thousands):

The total income tax benefit recognized in the condensed consolidated statements of income for share-based ~~compensation~~compensa‐tion arrangements was approximately ~~$106,000~~$236 thousand and ~~$67,000, respectively,~~$200 thousand for the ~~three-month~~three-month periods ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016,~~2021, respectively, and approximately ~~$441,000~~$617 thousand and ~~$264,000, respectively,~~$441 thousand for the ~~nine-month~~six-month periods ended ~~September~~June 30,2022 and 2021, respectively.

The compensation expense for common stock grants during the six-month period ended June 30, ~~2017 and 2016~~.2022, was determined based on an approved fixed dollar amount with the number of shares to be determined on the date of issuance.

The following is a summary of stock option activity under all plans for the ~~three-month~~six-month period ended ~~September~~ June 30, ~~2017~~:2022:

On June ~~6, 2017,~~ 8, 2022, the Company granted options to its directors for the purchase of ~~12,336~~9,876 shares of the Company’s common stock at that day’s closing price of ~~$27.05.~~$77.28. The compensation expense related to these grants was determined as the fair value of the options using the ~~Black Scholes~~Black-Scholes option pricing model based on the following assumptions:

The stock volatility for each grant is determined based on a review of the experience of the weighted average of historical daily price changes of the Company’s common stock over the expected option term, and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods ~~corresponding~~correspond‐ing with the expected term of the option. The expected term is estimated based on historical option exercise activity.

During the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016~~,2021, the total intrinsic value of all options exercised ~~(i.e., the difference between the market price on the exercise date and the price paid by the employees to exercise the options)~~ was approximately ~~$577,000~~$72 thousand and ~~$564,000,~~$164 thousand, respectively, and the total amount of consideration received by the Company from the exercised options was approximately ~~$802,000~~$21 thousand and ~~$529,000,~~$162 thousand, respectively. At its discretion, the Company allows option holders to surrender previously owned common stock in lieu of paying the exercise price and withholding taxes. During both the ~~nine-month period~~six-month periods ended ~~September~~June 30, ~~2017 there~~2022 and 2021, 0 shares were ~~6,511 shares~~ ~~surrendered at an average market price of $26.45.~~ ~~During the nine-month period ended September 30, 2016 there were no shares~~ surrendered for this purpose.

~~On February 21, 2017, the Company’s Compensation Committee approved the award of $400,000, payable in shares of common stock to the Company’s Chairman, Chief Executive Officer, and President under the 2003~~ ~~Incentive Plan. The shares will be issued in December, 2017.~~Restricted Stock Unit awards

The following table summarizes information about ~~Restricted Stock Units (“RSUs”)~~RSU activity during the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017:~~2022:

At the Company’s discretion, upon vesting, RSU holders are given the option to net-share settle to cover the required minimum withholding tax and the remaining amount is converted into the equivalent number of common ~~shares.~~shares and issued to the RSU holder. During the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016, 4,377~~2021, 19,425 and ~~3,889~~14,122 shares were surrendered at an average market price of ~~$24.50~~$67.05 and ~~$22.82,~~$52.47, respectively.

As of ~~September~~June 30, ~~2017,~~ 2022, the Company had approximately ~~$754,000~~$4.7 million of unrecognized compensation expense ~~which~~that is expected to be recognized over a period of ~~3.5 years~~.

~~(5)~~

Inventories

Inventories are stated at the lower of cost ~~(first-in, first-out)~~(determined using the first-in, first-out method) or net realizable value, and consist of the following at the stated dates (in thousands):

September 30,
2017
December 31,
2016
Raw materials $ 6,660 $ 7,111
Work in process 1,161 1,354
Finished goods 5,315 5,686
Total inventory $ 13,136 $ 14,151

	June 30,		December 31,
	2022		2021
Raw materials	$	32,671	$	22,184
Work in process		7,297		4,205
Finished goods		10,588		7,047
Total inventory	$	50,556	$	33,436

(9)

~~(6)~~

~~Preferred Stock~~

Leases

~~On March 18, 2009,~~The Company has operating and finance leases for offices, manufacturing plants, vehicles and certain office and manufacturing equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the right of use (“ROU”) assets or lease liabilities. These are expensed as incurred and recorded as variable lease expense. The Company determines if an arrangement is a lease at the inception of a contract. Operating and finance lease ROU assets and operating and finance lease liabilities are stated separately in the condensed consolidated balance sheet.

ROU assets represent the Company's right to use an underlying asset during the lease term and lease liabilities represent the Company's obligation to make lease payments pursuant to the lease. ROU assets and lease liabilities are recognized at commencement date based on the net present value of fixed lease payments over the lease term. The Company's assumed lease term includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. ROU assets are also adjusted for any deferred or accrued rent. As the Company's leases do not typically provide an implicit rate, the Company ~~declared a dividend~~uses its incremental borrowing rate based on the information available at commencement date in determining the present value of one preferred share purchase right (a “Right”) for each outstanding share of common stock, par value $0.01 per share, to the stockholders of record on March 20, 2009. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Share”) of the Company, at a price of $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.

lease payments.

	Six Months Ended
	June 30,
	($ in thousands)
	2022		2021
Lease Cost:
Finance lease cost:
Amortization of right of use assets	$	30	$	8
Interest on lease liabilities		3		1
Operating lease cost		1,301		598
Variable lease cost		156		116
Short-term lease cost		43		17
Total lease cost	$	1,533	$	740

	Six Months Ended
	June 30,
	($ in thousands)
	2022			2021
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	1,183		$	608
Financing cash flows from finance leases		32			9

Weighted-average remaining lease term (years):
Finance		4.04			5.83
Operating		4.06			1.64
Weighted-average discount rate:
Finance		2.10	%		2.26	%
Operating		2.76	%		3.99	%

The aggregate future lease payments for leases as of June 30, 2022 are as follows (in thousands):

	Finance			Operating
Remainder of 2022	$	31		$	1,230
2023		63			2,256
2024		63			2,234
2025		63			1,963
2026		29			1,694
Thereafter		6			4,432
Total lease payments		255			13,809
Less: Interest		(11	)		(1,239	)
Present value of lease liabilities	$	244		$	12,570

(10)

~~(7)~~

Income Per Share

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

The weighted average number of shares used to compute basic and diluted net income per share consisted of the following (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016 2017 2016
Weighted average common shares outstanding, basic 7,264 7,195 7,240 7,183
Weighted average common equivalent shares due to stock options and RSUs 89 87 86 82
Weighted average common shares outstanding, diluted 7,353 7,282 7,326 7,265

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Basic weighted average common shares outstanding		7,563		7,527		7,554		7,517
Weighted average common equivalent shares due to restricted stock, stock options and RSUs		45		46		64		58
Diluted weighted average common shares outstanding		7,608		7,573		7,618		7,575

The computation of diluted earnings per share excludes the effect of the potential exercise of stock awards, including stock options, when the average market price of the common stock is lower than the exercise price of the related stock options during the period. These outstanding stock ~~awards~~options are not included in the computation of diluted income per share because the effect would be antidilutive. For both the ~~three-~~three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~, 2022, the number of stock ~~awards~~options excluded from the computation of diluted earnings per share for this reason was ~~zero~~9,876. For both the three- and ~~27,336, respectively. For the three- and nine-month~~six-month periods ended ~~September~~ June 30, ~~2016~~,2021, the number of stock ~~awards~~options excluded from the computation of diluted earnings per share for this reason was ~~35,193 and 52,377, respectively.~~

10,716.

(11)

~~(8)~~

Segment Reporting

The Company consists of a single operating and reportable segment.

~~Revenues from customers outside of the United States are not material. No~~One customer comprised ~~more than 10%~~20.2% and 17.8% of the Company’s consolidated revenues for the ~~three-~~three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017. All~~2022, respectively. No customer comprised more than 10% of the Company’s ~~assets are located~~consolidated revenues for the same periods in ~~the United States.~~2021. At June 30, 2022, one customer represented approximately 10% of gross accounts receivable. At December 31, 2021, no customer exceeded 10% of gross accounts receivable.

The Company’s products are primarily sold to customers within the Medical, Consumer, Automotive, Aerospace ~~and~~& Defense, Industrial, and Electronics markets. Net sales by market for the ~~three-~~three- and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016, respectively,~~2021 are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Market Net Sales % Net Sales % Net Sales % Net Sales %

Medical $ 16,712 46.8 % $ 16,548 44.5 % $ 52,822 47.7 % $ 48,953 44.7 %
Consumer 6,006 16.8 % 5,648 15.2 % 15,713 14.2 % 15,303 14.0 %
Automotive 5,174 14.5 % 6,942 18.7 % 18,018 16.3 % 20,485 18.7 %
Aerospace & Defense 2,682 7.5 % 2,516 6.8 % 8,290 7.5 % 7,929 7.2 %
Industrial 2,591 7.3 % 2,792 7.5 % 7,629 6.9 % 8,441 7.7 %
Electronics 2,519 7.1 % 2,774 7.5 % 8,151 7.4 % 8,515 7.8 %
Net Sales $ 35,684 100.0 % $ 37,220 100.0 % $ 110,623 100.0 % $ 109,626 100.0 %

	Three Months Ended June 30,										Six Months Ended June 30,
	2022					2021 (1)					2022					2021 (1)
Market	Net Sales		%			Net Sales		%			Net Sales		%			Net Sales		%

Medical	$	74,290		78.7	%	$	32,606		64.4	%	$	126,873		76.6	%	$	62,711		63.2	%
Consumer		6,767		7.2	%		6,080		12.0	%		12,545		7.6	%		11,676		11.8	%
Automotive		4,351		4.6	%		3,567		7.0	%		8,702		5.3	%		8,214		8.3	%
Aerospace & Defense		3,751		4.0	%		4,376		8.6	%		7,507		4.5	%		8,755		8.8	%
Industrial		2,665		2.8	%		2,230		4.4	%		5,176		3.0	%		4,345		4.3	%
Electronics		2,519		2.7	%		1,796		3.6	%		4,782		3.0	%		3,553		3.6	%
Net Sales	$	94,343		100.0	%	$	50,655		100.0	%	$	165,585		100.0	%	$	99,254		100.0	%

~~Certain amounts for the three- and nine-month periods ended September 30, 2016 were reclassified between markets to conform to the current period presentation.~~

(1)

Certain amounts for the three and six months ended June 30, 2021 were reclassified between markets to conform to the current period presentation.

(12)

~~(9)~~

Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2022 were are follows (in thousands):

	Goodwill

December 31, 2021	$	107,905
Acquired in Advant Medical business combination (See Note 2)		7,140
DAS working capital adjustment		196
Foreign currency translation		(320	)
June 30, 2022	$	114,921

The carrying values of the Company’s definite lived intangible assets as of ~~September~~June 30, ~~2017 and December 31, 2016,~~ 2022 are as follows (in thousands):

Patents Non-
Compete Customer
List Total
Estimated useful life (in years) 14 5 5
Gross amount at September 30, 2017 $ 429 $ 512 $ 2,046 $ 2,987
Accumulated amortization at September 30, 2017 (429 ) (496 ) (1,983 ) $ (2,908 )
Net balance at September 30, 2017 $ - $ 16 $ 63 $ 79

Estimated useful life (in years) 14 5 5
Gross amount at December 31, 2016 $ 429 $ 512 $ 2,046 $ 2,987
Accumulated amortization at December 31, 2016 (429 ) (449 ) (1,791 ) $ (2,669 )
Net balance at December 31, 2016 $ - $ 63 $ 255 $ 318

	Intellectual Property / Tradename & Brand			Non- Compete			Customer List			Total
Weighted-average amortization period (in years)	11.9			9.3			20
Gross amount	$	7,023		$	5,484		$	65,137		$	77,644
Accumulated amortization		(416	)		(658	)		(6,056	)		(7,130	)
Net balance	$	6,607		$	4,826		$	59,081		$	70,514

Amortization expense related to intangible assets was approximately ~~$79,000~~$1.1 million and $0.3 million, respectively, for ~~each of~~ the ~~three-month~~three-month periods ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016,~~2021, and was ~~approximately $239,000~~$2.1 million and $0.6 million, respectively, for ~~each of~~ the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~ 2022 and ~~2016. As of September 30, 2017, the~~2021. The estimated remaining amortization expense ~~for 2017~~ as of June 30, 2022 is ~~$79,000.~~

The determination of income tax expense ~~included~~ in the accompanying unaudited condensed consolidated statements of income ~~principally relates to the Company’s proportionate share of the pre-tax income of its wholly-owned subsidiaries. The determination of income tax expense for interim reporting purposes~~ is based upon the estimated effective tax rate for the year, adjusted for the impact of any discrete items which are accounted for in the period in which they occur.

The Company recorded income tax expense of approximately ~~33.6%~~23.2% and ~~35.0%~~24.2% of income before income tax expense ~~respectively,~~ for ~~each of~~ the ~~three-month~~three-month periods ended ~~September~~June 30, ~~2017~~ 2022 and 2016. The decrease in the effective tax rate for the current period is due to a tax benefit of approximately $37,000 recorded in the three-month period ended September 30, 2017 as a result of the adoption of ASU No. 2016-09 on January 1, 2017 (See Note 1).2021, respectively. The Company recorded aincome tax expense of approximately ~~33.3%~~22.1% and ~~35.4%~~22.9% of income before income tax expense for each of the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~ 2022 and 2016. The decrease in the effective tax rate for the current period is due to a tax benefit of approximately $162,000 recorded in the nine-month period ended September 30, 2017 as a result of the adoption of ASU No. 2016-09 on January 1, 2017 (See Note 1); and a tax assessment of approximately $40,000 from one jurisdiction recorded in the first quarter of 2016. The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense.

~~(11)~~

~~Plant Consolidations~~

~~Restructuring Costs~~

On ~~March 18, 2015,~~ December 22, 2021, the Company, ~~committed~~as the borrower, entered into a secured $130 million Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time-to-time party thereto. The Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally dated as of February 1, 2018.

The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to ~~move forward with~~the Company and a ~~plan~~secured revolving credit facility, under which the Company may borrow up to ~~cease operations at its Raritan, New Jersey, plant~~$90 million. The Second Amended and ~~consolidate operations into its Newburyport, Massachusetts, facility~~Restated Credit Agreement matures on December 21, 2026. The secured term loam requires quarterly principal payments of $1,000,000 commencing on March 31, 2022. The proceeds of the Second Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the acquisition of DAS Medical, as well as certain other ~~UFP facilities.~~permitted acquisitions. The Company’s ~~decision~~obligations under the Second Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.

The Second Amended and Restated Credit Agreement calls for interest determined by the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus a margin that ranges from 1.25% to 2.0% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from .25% to zero. In both cases the applicable margin is dependent upon Company performance. Under the Second Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The Second Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on certain payments, permitted indebtedness, and permitted investments.

At June 30, 2022, the Company had approximately $100 million in borrowings outstanding under the Second Amended and Restated Credit Agreement, which were used as partial consideration for the DAS Medical and Advant acquisitions, and also had approximately $0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. At June 30, 2022, the applicable interest rate was approximately 3.4% and the Company was in ~~response to a continued decline in business at~~compliance with all covenants under the ~~Raritan facility~~Second Amended and ~~the Company’s purchase~~Restated Credit Agreement.

Long-term debt consists of the ~~137,000-square-foot facility in Newburyport. The activities related to this consolidation~~ following (in thousands):

	June 30, 2022
Revolving credit facility	$	62,000
Term loan		38,000
Total long-term debt		100,000
Current portion		(4,000	)
Long-term debt, excluding current portion	$	96,000

Future maturities of long-term debt at June 30, 2022 are ~~complete.~~as follows (in thousands):

	Term Loan		Revolving credit facility		Total
Remainder of 2022	$	2,000	$	0	$	2,000
2023	$	4,000	$	0	$	4,000
2024	$	4,000	$	0	$	4,000
2025	$	4,000	$	0	$	4,000
2026	$	24,000	$	62,000	$	86,000
	$	38,000	$	62,000	$	100,000

Derivative Financial Instruments

The Company ~~also relocated all operations~~used interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its ~~Haverhill, Massachusetts,~~variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial instruments expose the Company to credit risk and ~~Byfield, Massachusetts, facilities~~market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, creating credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, ~~relocated certain operations~~therefore, in ~~its Georgetown, Massachusetts, facility~~these circumstances the Company is not exposed to ~~Newburyport.~~the counterparty’s credit risk. The ~~Haverhill and Byfield relocations were complete at December 31, 2015, and~~Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the ~~partial Georgetown relocation was complete at June 30, 2017.~~adverse effect on the value of a derivative instrument that results from a change in interest rates.

The Company ~~incurred approximately $2.1 million~~assesses interest rate risk by continually identifying and monitoring changes in ~~one-time expenses~~interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations exposed the Company to variability in interest payments due to changes in interest rates. The Company believed that it was prudent to limit the variability of a portion of its interest payments. To meet this objective, in connection with the ~~Massachusetts consolidations. Included~~First Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the applicable margin. The swap modified the Company’s interest rate exposure by converting the previous term loan from a variable rate to a fixed rate in ~~this amount are approximately $180,000 relating~~order to ~~employee severance payments and relocation costs, approximately $1.6 million in moving expenses and expenses associated with vacating~~hedge against the ~~Raritan, Haverhill, and Byfield properties, and approximately $360,000 in lease termination costs. Total cash charges were approximately $2.0 million.~~possibility of rising interest rates during the term of the loan.

The notional amount was approximately $7.1 million at June 30, 2022. The fair value of the swap as of June 30,2022 was approximately $6 thousand and is included in other assets. The fair value of the swap as of December 31, 2021 was approximately $(176) thousand and is included in other liabilities. Changes in the fair value and net cash settlement amounts related to the swap are recorded in other expense and resulted in income of approximately $67 thousand and $182 thousand, respectively, during the three- and six-month periods ending June 30, 2022. In the same periods in 2021, change in the fair value of the swap resulted in income of $64 thousand and expense of $144 thousand, respectively.

As the Company ~~recorded~~has paid the ~~following restructuring costs~~remaining balance of the term loan that was associated with the ~~Massachusetts consolidations~~swap in its entirety, there is no longer underlying debt to hedge against the swap. The changes in the fair value of the swap will continue to be accounted for as a financial instrument until the sooner of the time that the Company elects to cancel it or until its maturity, which will occur on February 1, 2023.

(16)

Subsequent Event

On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its molded fiber business (“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $32 million. The purchase price is subject to adjustment based upon MFT’s final working capital at closing. A portion of the purchase price is being held in escrow to indemnify CKF against certain claims, losses, and liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. MFT’s annual revenue was approximately $21.3 million for the ~~three- and nine-month periods~~year ended ~~September 30, 2017 and 2016 (in thousands):~~December 31, 2021. Proceeds from the sale were used to pay down debt on the Company's revolving credit facility.

Three Months Ended Nine Months Ended
September 30, September 30,
Restructuring Costs 2017 2016 2017 2016
Relocation $ - $ 25 $ 63 $ 203
Total $ - $ 25 $ 63 $ 203
22

~~Costs for the three- and nine- month periods ended September 30, 2017 and 2016 were reclassified in the Condensed Consolidated Statement of Income as “Restructuring Costs” from Cost of Sales.~~

ITEM 2:MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTSOFOPERATIONS

~~(12)~~

~~Related Party Transactions~~

Daniel Croteau, who has been a member of the Company’s board of directors since December 16, 2015, was the Chief Executive Officer (through March 2017) of Vention Medical, Inc. (“Vention”), a customer of the Company. Sales to Vention for the three-months ended March 31, 2017 were approximately $148,000. As a result of the sale of Vention, Mr. Croteau’s employment ended in March 2017 and sales to Vention are no longer considered related party transactions.

~~(13)~~

~~Material Overcharge Settlement~~

The Company was a participant in a class action lawsuit against a number of polyurethane foam suppliers (“Defendants”) that was settled during the second quarter of 2016. The suit was filed to recover damages and obtain injunctive relief for Defendants’ alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through August 2010. During the three- and nine-month periods ended September 30, 2017, the Company received settlement amounts of $0 and approximately $121,000, respectively. During the three- and nine-month periods ended September 30, 2016, the Company received settlement amounts of approximately $1.7 million and $2.1 million, respectively. The settlement amounts for the three- and nine-month periods ended September 30, 2017 and 2016 are recorded as “Material overcharge settlement” in the operating income section of the Condensed Consolidated Statements of Income.

~~ITEM 2:~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Forward-looking Statements

Some of the statements contained in this Report are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~(“Securities Act”),~~ and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements are subject to known and unknown risks, uncertainties, and other factors, which may cause our or our industry’s actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about the Company’s ~~prospects,~~prospects; statements about the potential further impact the novel coronavirus ("COVID-19") pandemic may have on the Company’s business, financial condition and results of operations, including with respect to the different markets in which the Company participates, the demand for its products, the well-being and availability of the Company’s employees, the continuing operation of the Company’s locations, delayed payments by the Company’s customers and the potential for reduced or canceled orders, the Company’s efforts to address the pandemic, including regarding the safety of its employees, the maintenance of its facilities and the sufficiency of the Company’s supply chain, inventory, liquidity and capital resources, including increased costs in connection with such efforts, the impact of the pandemic on the businesses of the Company’s suppliers and customers, and the overall impact the pandemic may have on the Company’s financial results in 2021; statements about the Company’s acquisition strategies and opportunities and the Company’s growth potential and strategies for growth; expectations regarding customer demand; expectations regarding the Company’s liquidity and capital resources, including the sufficiency of its cash reserves and the availability of borrowing capacity to fund operations and/or potential future acquisitions; anticipated revenues and the timing of such revenues; expectations about shifting the Company’s book of business to higher-margin, longer-run opportunities; anticipated trends and potential advantages in the different markets in which the Company competes, including the medical, aerospace and defense, automotive, consumer, electronics, and industrial markets, and ~~aerospace and defense markets, anticipated new customer and vendor contracts,~~the Company’s plans to expand in certain of its markets; statements regarding anticipated advantages relating to the Company’s decisions to consolidate or expand certain facilities, including the ongoing expansion of its Newburyport facility, and the expected cost savings and efficiencies associated therewith, anticipated advantages and the timing associated with requalification of parts, anticipated advantages of maintaining fewer, larger plants, anticipated advantages the Company expects to realize from its investments and capital ~~expenditures, including~~expenditures; statements regarding anticipated advantages to improvements and alterations at the ~~development of and investments in its molded fiber product lines,~~Company’s existing plants; expectations regarding the Company’s manufacturing capacity, operating efficiencies, and ~~efficiencies of the Company~~new production equipment; statements about new product offerings and ~~the expected timing associated therewith, statements regarding the end of the Company’s automotive door panel~~ program ~~with Mercedes Benz, and the resulting impact to revenues,~~launches; statements about the Company’s ~~acquisition opportunities and strategies, its~~ participation and growth in multiple ~~markets, its business opportunities,~~markets; statements about the Company’s ~~growth potential~~business opportunities; statements about the Company’s ability to integrate and ~~strategies for growth, anticipated revenues~~realize the benefits expected from the acquisitions of Contech Medical, DAS Medical and ~~the timing of such revenues,~~Advant, including any related synergies; statements regarding our supply chain arrangements; and any indication that the Company may be able to sustain or increase its sales, ~~and~~ earnings or earnings per share, or its sales, ~~and~~ earnings or earnings per share growth rates.

Investors are cautioned that such forward-looking statements involve risks and uncertainties that could adversely affect the Company’s business and prospects, and otherwise cause actual results to differ materially from those anticipated by such forward-looking statements, or otherwise, including without ~~limitation~~limitation: the severity and duration of the COVID-19 pandemic and its impact on the markets in which the Company participates, including its impact on the Company’s customers, suppliers and employees, as well as the U.S. and worldwide economies; the timing, scope and effect of further governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic; risks and uncertainties associated with the COVID-19 pandemic and its impact on the Company’s business, financial condition and results of operations, including risks relating to decreased, including substantially decreased, demand for the Company’s products; risks relating to the potential closure of any of the Company’s facilities or the unavailability of key personnel or other employees; risks that the Company’s inventory, cash reserves, liquidity or capital resources may be insufficient; risks relating to delayed payments by our customers and the potential for reduced or canceled orders; risks relating to the increased costs associated with the Company’s efforts to respond to the pandemic; risks associated with the identification of suitable acquisition candidates and the successful, efficient execution of acquisition transactions, ~~and~~the integration of any such acquisition candidates, the value of those acquisitions to our customers and shareholders, and the financing of such acquisitions; risks related to our indebtedness and compliance with covenants contained in our financing arrangements, and whether any available financing may be sufficient to address our needs; risks associated with efforts to shift the Company’s book of business to higher-margin, longer-run opportunities; risks associated with the Company’s entry into and growth in certain markets; risks and uncertainties associated with ~~plant closures~~seeking and ~~consolidations~~implementing manufacturing efficiencies and ~~expected efficiencies from consolidating manufacturing,~~implementing new production equipment; risks and uncertainties associated with growth of the ~~requalification of parts, the risk that we may not be able~~Company’s business and increases to ~~finalize anticipated new customer contracts,~~sales, earnings and earnings per share; risks associated with the ~~implementation of new production equipment~~Company’s ability to pay the contingent liability payments to Contech Medical and ~~requalification or recertification of transferred equipment in a timely, cost-efficient manner,~~DAS Medical, if and when due; and risks ~~that any benefits from such~~associated with new ~~equipment may be delayed or not fully realized, or that the Company may be unable to fully utilize its expected production capacity.~~product and program launches. Accordingly, actual results may differ materially.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,” and similar expressions intended to identify forward-looking statements. Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, and projections, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent our current beliefs, estimates and assumptions and are only as of the date of this Report. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this Report, in order to reflect changes in circumstances or expectations, or the occurrence of unanticipated events, except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above and under “Risk Factors” set forth in Part I Item 1A of ~~the Company’s~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2021, and our Quarterly Report on Form-Q for the quarter ended March 31, 2022, as well as the risks and uncertainties discussed elsewhere in this Report. We qualify all of our forward-looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business environment and new risks emerge from time to time.

Unless the context requires otherwise, the terms “we”, “us”, “our”, or “the Company” refer to UFP Technologies, Inc. and its consolidated subsidiaries.

Overview

UFP Technologies, Inc. (the “Company”) is an innovative designer and custom ~~converter~~manufacturer of components, subassemblies, products and packaging primarily for the medical market. Utilizing highly specialized foams, films and plastics, the Company converts raw materials through laminating, molding, radio frequency welding and ~~natural fiber materials, principally serving~~fabricating techniques. The Company is diversified by also providing highly engineered solutions to customers in the ~~Medical, Consumer, Automotive, Aerospace~~aerospace & defense, automotive, consumer, electronics and ~~Defense, Industrial and Electronics~~industrial markets. The Company consists of a single operating and reportable segment.

The Company had a slight increase in sales through the first nine months of 2017, largely fueled by continued growth in sales to customers in the medical market, partially offset by declined sales to customer in the automotive market. The Company improved gross margins for the nine-month period ended September 30, 2017 to 25.0% from 24.1% in the first nine months of 2016 as the Company has become much more efficient in manufacturing particularly in those plants impacted by recent consolidations. Absent non-recurring restructuring and material overcharge items, operating income increased by 19% in the first nine months of 2017.

The Company’s previously announced consolidation and relocation efforts were complete as of June 30, 2017. The Company is in the process of further expanding its Newburyport, Massachusetts, manufacturing plant. The Company constantly evaluates ways to enhance operating efficiencies and will consider additional expansions, consolidations, or relocations of operations from time to time.

The Company’s current strategy includes further organic growth and growth through strategic ~~acquisitions~~.acquisitions.

Sales for the Company for the six-month period ended June 30, 2022 increased 66.8% to $165.6 million from $99.3 million in the same period last year, due to the Company’s acquisitions of Contech Medical, DAS Medical and Advant Medical, and an organic sales increase of approximately 13.9%. Gross margins for the six-month period ended June 30, 2022 decreased to 25.0% from 26.2% in the same period last year, largely due to supply chain challenges. Operating income and net income increased 61.3% and 55.3%, respectively.

Results of Operations

Sales

Sales for the three-month period ended ~~September~~June 30, 2017 decreased approximately 4.1% to $35.7 million compared to $37.2 million in the same period in 2016. The decrease in sales during the three-month period ended September 30, 2017 was primarily due to decreases in sales to customers in the automotive and electronics markets of approximately 25.5% and 9.2%, respectively. These decreases were partially offset by increases in sales to customers in the aerospace and defense and consumer markets of approximately 6.6% and 6.3%, respectively. The decline in sales to customers in the automotive market was primarily due to soft demand for interior trim components in certain legacy programs. The Company has been notified that the remaining portion of its southeast automotive door panel program for Mercedes Benz, which began in 2004, will end with modest sales anticipated into the first quarter of 2018. The Company estimates sales for the program will total approximately $3.0 million in 2017 and will be modest in 2018. The decline in sales to customers in the electronics market was primarily due to reduced demand for protective packaging. The increase in sales to customers in the aerospace and defense market was primarily due to increased demand for components from our government contractor customers. The increase in sales to customers in the consumer market was primarily due to higher demand for molded fiber protective packaging. Sales to customers in the medical market grew at 1% for the quarter—a rate slower than recent historical levels—as two large customers in this market added second suppliers to meet their internal risk mitigation requirements and certain customers ordered less due to storm related disruptions to their business.

~~Sales for the nine-month period ended September 30, 2017~~2022 increased approximately ~~0.9%~~86.2% to ~~$110.6~~$94.3 million from sales of ~~$109.6~~$50.7 million for the same period in ~~2016.~~2021. The increase in sales ~~for the nine-month period ended September 30, 2017 was~~is primarily due to increases in sales to customers in the ~~medical~~Medical market of 127.8%. The increase in sales in the Medical market were primarily due to sales from the Company’s recently acquired companies of $34.6 million, as well as an organic sales increase of 17.9%. Sales to customers in all other markets increased 11.1%.

Sales for the six-month period ended June 30, 2022 increased approximately ~~7.9% partially offset by decreases~~66.8% to $165.6 million from sales of $99.3 million for the same period in 2021. The increase in sales is primarily due to increases in sales to customers in the ~~automotive and industrial markets~~Medical market of ~~approximately 12.0% and 9.6% respectively.~~102.3%. The increase in sales in the Medical market were primarily due to sales from the Company’s recently acquired companies of $52.6 million, as well as an organic sales increase of 13.9%. Sales to customers in the medical market was primarily due to strong demand for our customers’ products as well as selective price increases. The decline in sales to customers in the automotive market was primarily due to soft demand for interior trim components in certain legacy programs. The decline in sales to customers in the industrial market was primarily due to a credit issue at one of our customers within this market.all other markets increased 5.9%.

Gross Profit

Gross profit as a percentage of sales (“gross margin”) ~~increased~~decreased to ~~23.0%~~25.8% for the three-month period ended ~~September~~June 30, ~~2017,~~2022, from ~~22.7%~~26.5% for the same period in ~~2016.~~2021. As a percentage of sales, material and labor costs collectively ~~decreased 0.8%~~increased 5.3%, while overhead ~~increased 0.5%~~costs decreased 4.6%. The ~~decrease~~decline in ~~collective material~~gross margin is primarily due to the impact of inflationary cost increases that largely commenced in the second half of 2021 and ~~labor costs~~continued to a lesser degree through the first half of 2022, partially offset by higher sales measured against the fixed portion of overhead.

Gross profit as a percentage of sales is primarily due to gains in manufacturing efficiencies resulting from continuous improvement initiatives. The increase in overhead as a percentage of sales is primarily due to fixed overhead costs measured against reduced sales.

~~Gross margin increased~~(“gross margin”) decreased to 25.0% for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017,~~2022, from ~~24.1%~~26.2% for the same period in ~~2016.~~2021. As a percentage of sales, material and labor costs collectively ~~decreased 1.6%~~increased 5.3%, while overhead ~~increased 0.7%~~costs decreased 4.1%. The ~~decrease~~decline in ~~collective material and labor costs as a percentage of sales~~gross margin is primarily due to ~~gains in manufacturing efficiencies resulting from continuous improvement initiatives, strategic price~~the impact of inflationary cost increases ~~and an improvement in the overall book of business. The increase in overhead is primarily due to an increase in indirect labor costs of approximately $700,000 due~~that largely ~~to hires made~~commenced in the second half of ~~2016~~2021 and continued to ~~support growth.~~a lesser degree through the first half of 2022, partially offset by higher sales measured against the fixed portion of overhead.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses (“SG&A”) ~~decreased~~increased approximately ~~5.5%~~67.1% to ~~$5.7~~$12.1 million for the three-month period ended ~~September~~June 30, ~~2017~~2022, from ~~$6.0~~$7.2 million for the same period in ~~2016.~~2021, primarily due to the additional SG&A from recent acquisitions. As a percentage of sales, SG&A decreased to ~~16.0%~~12.8% for the three-month period ended ~~September~~June 30, ~~2017~~2022, from ~~16.2%~~14.3% for the same three-month period in ~~2016. The decrease in SG&A for the three-month period ended September 30, 2017 is primarily due to reductions in general and administrative payroll and recruiting costs.~~

SG&A decreased approximately 1.8% to $18.1 million for the nine-month period ended September 30, 2017 from $18.4 million for the same period in 2016. As a percentage of sales, SG&A decreased to 16.3% for the nine-month period ended September 30, 2017 from 16.8% for the same nine-month period in 2016. The decrease in SG&A for the nine-month period ended September 30, 2017 is primarily due to reductions in consulting and recruiting expenses.2021. The decrease in SG&A as a percentage of sales isfor the three-month period ended June 30, 2022 was primarily due to ~~reductions in general and administrative payroll, consulting and recruiting expenses~~increased sales measured against ~~higher sales.~~relatively fixed SG&A, partially offset by the additional SG&A from recent acquisitions.

SG&A increased approximately 51.9% to $22.1 million for the six-month period ended June 30, 2022, from $14.5 million for the same period in 2021, primarily due to the additional SG&A from recent acquisitions. As a percentage of sales, SG&A decreased to 13.3% for the three-month period ended June 30, 2022, from 14.6% for the same three-month period in 2021. The decrease in SG&A as a percentage of sales for the three-month period ended June 30, 2022 was primarily due to increased sales measured against relatively fixed SG&A, partially offset by the additional SG&A from recent acquisitions.

~~Restructuring~~Acquisition Costs

The Company incurred approximately $0.2 million and $1.0 million in costs associated with acquisition related activities which were charged to expense for the three and six-months ended June 30, 2022, respectively. These costs were primarily for legal services, valuation services and stamp duty filings and are reflected on the face of the income statement.

Change in fair value of contingent consideration

In connection with the acquisitions discussed in Note 2, “Acquisitions,” the Company is required to make contingent payments, subject to the entities achieving certain financial performance thresholds. The contingent consideration payments for both the DAS Medical and Contech Medical acquisitions combined are up to $25 million. The fair value of the liabilities for the contingent consideration payments recognized upon the acquisition as part of the purchase accounting opening balance sheets totaled approximately $9.7 million and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in this calculation were managements financial forecasts, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level 3 financial liability that is re-measured each reporting period. The fair value of the liabilities for the contingent consideration payments recognized at June 30, 2022 for both the DAS Medical and Contech Medical acquisitions combined totaled approximately $15.7 million. The change in fair value of contingent consideration for the DAS Medical and Contech Medical acquisitions for the three and six-month periods ended resulted in an expense of approximately $6.0 million and was included in change in fair value of contingent consideration in the consolidated statements of income.

Gain on sale of fixed assets

For the ~~three-month period~~three and six-month periods ended ~~September~~June 30, ~~2017~~2022, the Company ~~did not incur any restructuring costs compared to~~recorded a gain on the sale of fixed assets of approximately ~~$25,000 for~~$6.2 million. This was primarily the ~~same period in 2016.~~

~~Additional information regarding restructuring costs can be found in Note 11~~result of the ~~Notes to Interim Condensed Consolidated Financial Statements.~~

~~Material Overcharge Settlement~~

sale of the Company’s Georgetown, Massachusetts manufacturing facility. The ~~Company~~operations previously housed in this location have been fully absorbed by the nearby Newburyport manufacturing facility. The gain on the Georgetown manufacturing facility was determined by a ~~participant in a class action lawsuit~~sales price of approximately $6.7 million, measured against a ~~number of polyurethane foam suppliers (“Defendants”) that was settled during the second quarter of 2016. The suit was filed to recover damages~~net book value and obtain injunctive relief for Defendants’ alleged violations of the federal antitrust laws with respect to the fixing of prices of polyurethane foam sold from January 1, 1999 through August 2010. During the three- and nine-month periods ended September 30, 2017, the Company received settlement amounts of $0 and approximately $121,000, respectively. During the three- and nine-month periods ended September 30, 2016, the Company received settlement amountsselling expenses of approximately $1.7 million and $2.1 million, respectively. The settlement amounts for the three- and nine-month periods ended September 30, 2017 and 2016 are recorded as “Material overcharge settlement” in the operating income section of the Condensed Consolidated Statements of Income.$0.5 million.

Interest Income and Expense

~~The Company had~~Net interest expense was approximately $733 thousand for the three-month period ended June 30, 2022, compared to net interest income of approximately ~~$51,000~~$21 thousand for the same period in 2021. The increase in net interest expense for the three-month period ended June 30, 2022 was primarily due to interest paid on funds drawn on the Company’s credit facility used to finance recent acquisitions.

Net interest expense was approximately $1.1 million for the six-month period ended June 30, 2022 compared to net interest income of $5 thousand in the same period of 2021. The increase in net interest expense for the six-month period ended June 30, 2022 was primarily due to interest paid on funds drawn on the Company’s credit facility used to finance recent acquisitions.

Other (Income) Expense

Other income was approximately $157 thousand and ~~$25,000~~other expense was approximately $4 thousand for the three-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and other income was approximately $209 thousand compared to $7 thousand for the six-month periods ended June 30, 2022 and 2021, respectively. The ~~Company had~~increases in other income in both periods are primarily generated by foreign currency transaction gains and changes in the fair value of the swap liability, which is driven by anticipated future interest rate changes, offset by net ~~interest income of approximately $108,000 and $51,000 for~~cash settlement amounts related to the nine-month periods ended September 30, 2017 and 2016, respectively. The increase in net interest income is primarily due to an increase in interest earned on money market accounts and certificates of deposit and decreasing interest costs on the Company’s term loans.swap.

Income Taxes

The Company recorded tax expense of approximately ~~33.6%~~23.2% and ~~35.0%~~24.2% of income before income tax expense, respectively, for each of the three-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. The decrease in the effective tax rate for the current period isas compared to the prior period was largely due to ~~a tax benefit~~lower statutory rates on certain foreign taxable income related to the Company’s acquisitions of ~~approximately $37,000 recorded in the three-month period ended September 30, 2017 as a result of the adoption of ASU No. 2016-09 on January 1, 2017 (See Note 1).~~ DAS Medical and Advant Medical.

The Company recorded a tax expense of approximately ~~33.3%~~22.1% and ~~35.4%~~22.9% of income before income tax expense, respectively, for each of the ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. The decrease in the effective tax rate for the current period isas compared to the prior period was largely due to ~~a tax benefit of approximately $162,000 recorded~~lower statutory rates on certain foreign taxable income that was new to the Company in the nine-month period ended September 30, 2017 as a result of the adoption of ASU No. 2016-09 on January 1, 2017 (See Note 1); and a tax assessment of approximately $40,000 from one jurisdiction recorded in the first quarter of 2016.2022. The Company notes the potential for volatility in its effective tax rate, as any windfall or shortfall tax benefits related to its share-based compensation plans will be recorded directly into income tax expense. The Company has deferred tax assets on its books associated with net operating losses generated in previous years. The Company has considered both positive and negative available evidence in its determination that the deferred tax assets are more likely than not to be realized, and has not recorded a tax valuation allowance at September 30, 2017. The Company will continue to assess whether the deferred tax assets will be realizable and, when appropriate, will record a valuation allowance against these assets. The amount of the net deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry-forward period are reduced.

Liquidity and Capital Resources

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

Cash Flows

Net cash ~~provided by~~used in operations for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017~~2022 was approximately ~~$13.0 million~~$35 thousand and was primarily a result of net income generated of ~~$6.5~~approximately $13.8 million, depreciation and amortization of approximately ~~$4.2~~$6.3 million, share-based compensation of ~~$0.8 million, an increase in deferred taxes of $0.3~~approximately $1.5 million, a ~~decrease~~change in ~~inventory~~the fair value of contingent consideration of approximately ~~$1.0~~$6.0 million, ~~due primarily to management initiatives,~~ an increase in accounts payable of approximately ~~$0.4~~$11.8 million due to the building of inventory to meet demand and the timing of vendor payments in the ordinary course of business, an increase in accrued expenses of approximately ~~$0.7~~$4.6 million ~~due to compensation accruals~~ and an increase in ~~other long-term liabilities~~deferred revenue of ~~$0.2~~approximately $1.4 million.

These cash inflows and adjustments to income were ~~partially~~ offset by a gain on disposal of property, plant and equipment of approximately $6.2 million, a decrease in deferred taxes of approximately $0.4 million, an increase in accounts receivable of approximately ~~$0.8~~$16.4 million due to higher sales in the ~~timing~~last two months of ~~customer collections,~~the second quarter of 2022 as compared to the same period in the fourth quarter of 2021 and the addition of Advant receivables, an increase in inventory of approximately $15.2 million due to inventory build for upcoming demand, restocking to historical levels and the addition of Advant inventory, an increase in prepaid expenses and other current assets of approximately $1.3 million primarily due to the payment of current year insurance policies, an increase in refundable income taxes of approximately ~~$0.2~~$1.1 million, ~~and~~ an increase in other assets of approximately ~~$0.1~~$3.0 million due to increased right of use lease assets and a decrease in other long-term liabilities of approximately $1.8 million.

Net cash used in investing activities during the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017~~2022 was approximately ~~$6.9~~$29.1 million and was primarily the result of the acquisition of Advant, as well as additions of manufacturing machinery and equipment and various building improvements across the ~~expansion of the Newburyport, Massachusetts plant.~~Company.

Net cash ~~used in~~provided by financing activities was approximately ~~$0.2~~$23.7 million during the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017,~~2022, representing ~~cash used~~borrowings under our credit facility to ~~service term~~fund acquisitions of approximately $34.0 million, partially offset by payments on revolving line of credit of approximately $7.0 million, principal payments of long-term debt of approximately ~~$0.7~~$2.0 million, and ~~to pay~~payments of statutory withholding for stock options exercised and restricted stock units vested of approximately ~~$0.1 million, partially offset by net proceeds received upon stock options exercises of approximately $0.6~~$1.3 million.

Outstanding and Available Debt

On December 22, 2021, the Company, as the borrower, entered into a secured $130 million Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with certain of the Company’s subsidiaries (the “Subsidiary Guarantors”) and Bank of America, N.A., in its capacity as the initial lender, Administrative Agent, Swingline Lender and L/C Issuer, and certain other lenders from time-to-time party thereto. The ~~Company maintains an unsecured~~Second Amended and Restated Credit Agreement amends and restates the Company’s prior credit agreement, originally dated as of February 1, 2018.

The credit facilities under the Second Amended and Restated Credit Agreement consist of a $40 million secured term loan to the Company and a secured revolving credit facility, ~~with Bank~~under which the Company may borrow up to $90 million. The Second Amended and Restated Credit Agreement matures on December 21, 2026. The secured term loam requires quarterly principal payments of ~~America, N.A.~~$1,000,000 commencing on March 31, 2022. The ~~credit facility~~proceeds of the Second Amended and Restated Credit Agreement may be used for general corporate purposes, including funding the acquisition of DAS Medical, as well as certain other permitted acquisitions. The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by the Subsidiary Guarantors.

The Second Amended and Restated Credit Agreement calls for interest ~~of LIBOR~~determined by the Bloomberg Short-Term Bank Yield Index rate (“BSBY”) plus a margin that ranges from ~~1.0%~~1.25% to ~~1.5%~~2.0% or, at the discretion of the Company, the bank’s prime rate less a margin that ranges from ~~0.25%~~.25% to zero. In both cases the applicable margin is dependent upon Company performance. Under the ~~credit facility,~~Second Amended and Restated Credit Agreement, the Company is subject to a minimum fixed-charge coverage financial covenant as well as a maximum total funded debt to EBITDA financial covenant. The ~~Company’s $40 million credit facility matures~~Second Amended and Restated Credit Agreement contains other covenants customary for transactions of this type, including restrictions on ~~November 30, 2018.~~certain payments, permitted indebtedness, and permitted investments.

~~As of September~~At June 30, ~~2017,~~2022, the Company had noapproximately $100 million in borrowings outstanding under the ~~credit facility. Included in~~Second Amended and Restated Credit Agreement, which were used as partial consideration for the ~~credit facility were~~DAS Medical and Advant acquisitions, and also had approximately ~~$300,000~~$0.7 million in standby letters of credit outstanding, drawable as a financial guarantee on worker’s compensation insurance policies. ~~As of September~~At June 30, ~~2017,~~2022, the applicable interest rate was approximately 3.4% and the Company was in compliance with all covenants under the ~~credit facility.~~Second Amended and Restated Credit Agreement.

~~In 2012,~~Long-term debt consists of the following (in thousands):

	June 30, 2022
Revolving credit facility	$	62,000
Term loan		38,000
Total long-term debt		100,000
Current portion		(4,000	)
Long-term debt, excluding current portion	$	96,000

Future maturities of long-term debt at June 30, 2022 are as follows (in thousands):

	Term Loan		Revolving credit facility		Total
Remainder of 2022	$	2,000	$	-	$	2,000
2023	$	4,000	$	-	$	4,000
2024	$	4,000	$	-	$	4,000
2025	$	4,000	$	-	$	4,000
2026	$	24,000	$	62,000	$	86,000
	$	38,000	$	62,000	$	100,000

Derivative Financial Instruments

The Company used interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on certain of its variable-rate debt instruments. The Company does not enter into derivative instruments for any purpose other than cash flow hedging. Derivative financial instruments expose the Company ~~financed~~to credit risk and market risk. Credit risk is the ~~purchase~~failure of ~~two molded fiber machines through five-year term loans~~the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, creating credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, in these circumstances the Company is not exposed to the counterparty’s credit risk. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile. Market risk is the adverse effect on the value of a derivative instrument that ~~mature~~results from a change in ~~October 2017.~~ interest rates.

The ~~annual~~Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company’s debt obligations exposed the Company to variability in interest payments due to changes in interest rates. The Company believed that it was prudent to limit the variability of a portion of its interest payments. To meet this objective, in connection with the first Amended and Restated Credit Agreement, the Company entered into a $20 million, 5-year interest rate swap agreement under which the Company receives three-month LIBOR plus the applicable margin and pays a 2.7% fixed rate plus the applicable margin. The swap modified the Company’s interest rate exposure by converting the previous term loan from a variable rate to a fixed rate in order to hedge against the possibility of rising interest rates during the term of the loan.

The notional amount was approximately $7.1 million at June 30, 2022. The fair value of the swap as of June 30, 2022 was approximately $6 thousand and is ~~fixed at 1.83%~~included in other assets. The fair value of the swap as of December 31, 2021 was approximately $(176) thousand and is included in other liabilities. Changes in the ~~loans~~fair value and net cash settlement amounts related to the swap are ~~secured by~~recorded in other expense and resulted in income of approximately $67 thousand and $182 thousand, respectively, during the ~~related molded fiber machines.~~ three- and six-month periods ending June 30, 2022. In the same periods in 2021, change in the fair value of the swap resulted in income of $64 thousand and expense of $144 thousand, respectively.

As ~~of September 30, 2017,~~ the ~~outstanding~~Company has paid the remaining balance of the term loan ~~facility~~that was ~~approximately $84,000.~~associated with the swap in its entirety, there is no longer underlying debt to hedge against with the swap. The changes in the fair value of the swap will continue to be accounted for as a financial instrument until the sooner of the time that the Company elects to cancel it or until its maturity, which will occur on February 1, 2023.

Future Liquidity

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service its contractual obligations. The Company’s principal sources of funds are its operations and its ~~revolving~~amended and restated credit facility. The Company ~~generated~~used cash of approximately ~~$13.0 million from~~$35 thousand in operations during the ~~nine-month period~~six months ended ~~September~~June 30, ~~2017; however,~~2022; and the Company cannot guarantee that its operations will generate cash in future periods. The Company’s longer-term liquidity is contingent upon future operating ~~performance.~~performance and draws on the revolving credit facility are possible.

Throughout fiscal ~~2017,~~2022, the Company plans to continue to add capacity to enhance operating efficiencies in its manufacturing plants. ~~The Company is in the process of further expanding its Newburyport, Massachusetts, manufacturing plant.~~ The Company may consider additional acquisitions of companies, technologies, or products that are complementary to its business. The Company believes that its existing resources, including its revolving credit facility, together with cash expected to be generated from operations, ~~and funds expected to be available to it through any necessary equipment financings and additional bank borrowings,~~ will be sufficient to fund its cash flow requirements, including capital asset acquisitions, through the next twelve months.

The Company may also require additional capital in the future to fund capital expenditures, acquisitions, or other investments. These capital requirements could be substantial. The Company anticipates that any future expansion of its business will be financed through existing resources, cash flow from operations, the Company's revolving credit facility, or other new financing. The Company cannot guarantee that it will be able to meet existing financial covenants or obtain other new financing on favorable terms, if at all. The Company's liquidity will be impacted to the extent additional stock repurchases are made under the Company's stock repurchase program.

Subsequent event

On July 26, 2022, pursuant to a share purchase agreement and related agreements, the Company sold its molded fiber business (“MFT”) and related real estate in Iowa to CKF USA INCORPORATED (“CKF”) (a Delaware Corporation) for approximately $32 million. The purchase price is subject to adjustment based upon MFT’s final working capital at closing. A portion of the purchase price is being held in escrow to indemnify CKF against certain claims, losses, and liabilities. The Securities Purchase Agreement contains customary representations, warranties, and covenants customary for transactions of this type. MFT’s annual revenue was approximately $21.3 million for the year ended December 31, 2021.

In addition, subsequent to quarter-end, the Company repaid $38 million on its revolving line of credit utilizing the proceeds received from both the above noted MFT sale and from the June 30, 2022 sale of its Georgetown, MA manufacturing facility.

Stock Repurchase Program

The Company accounts for treasury stock under the cost method, using the first-in, first-out flow assumption, and includes treasury stock as a component of stockholders’ equity. On June 16, 2015, the Company announced that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. Under the program, the Company is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The stock repurchase program will end upon the earlier of the date on which the plan is terminated by the Board or when all authorized repurchases are completed. The timing and amount of stock repurchases, if any, will be determined based upon our evaluation of market conditions and other factors. The stock repurchase program may be suspended, modified, or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program. The Company did not repurchase any shares of its common stock under this program in the first ~~nine~~six months of ~~2017. Through September~~2022. At June 30, ~~2017, the Company had repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587,000. At September 30, 2017,~~2022 approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization.

Commitments and Contractual Obligations

There have been no material changes outside the ordinary course of business to our contractual obligations and commitments, as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

ITEM 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Off-Balance-Sheet Arrangements~~

In addition to operating leases, the Company’s off-balance-sheet arrangements include standby letters of credit which are included in the Company’s revolving credit facility. As of September 30, 2017, there was approximately $300,000 in standby letters of credit drawable as a financial guarantee on worker’s compensation insurance policies.

~~ITEM 3:~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

There have been no material changes in our market risks as previously disclosed in Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.

~~ITEM 4:~~

~~CONTROLS AND PROCEDURES~~

ITEM 4:CONTROLS AND PROCEDURES

As of the end of the period covered by this report (the “Evaluation Date”), the Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in ~~SEC~~Exchange Act Rule 13a-15(e) or 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the ~~Securities~~ Exchange Act, ~~of 1934, as amended,~~ is (i) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

~~There~~The Company closed the acquisitions of Contech, DAS Medical, and Advant Medical on October 12, 2021, December 22, 2021, and March 17, 2022, respectively. The new acquisitions’ total assets and revenues constituted approximately 42.7% and 31.8%, respectively, of the Company’s consolidated total assets and revenues as shown on our consolidated financial statements as of and for the period ended June 30, 2022. As the acquisitions occurred in the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022, the Company excluded all of the acquired businesses internal control over financial reporting from the scope of the assessment of the effectiveness of the Company’s disclosure controls and procedures. This exclusion is in accordance with the general guidance issued by the Staff of the Securities and Exchange Commission that an assessment of a recently-acquired business may be omitted from the scope within the first year of acquisition if specified conditions are satisfied.

An evaluation was also performed under the supervision and with the participation of our management, including the Company’s Chief Executive Officer and Chief Financial Officer, of any change in our internal control over financial reporting that occurred during our last fiscal quarter that has ~~been no~~materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Except as described above, that evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during ~~the most recent~~our latest fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II:OTHER INFORMATION

~~PART II:~~

~~OTHER INFORMATION~~

ITEM 1:LEGAL PROCEEDINGS

~~ITEM 1A:~~

~~RISK FACTORS~~

~~There have been no~~The Company is not a party to any material ~~changes from~~litigation or other material legal proceedings. From time to time, the ~~risk factors previously disclosed~~Company may be a party to various suits, claims and complaints arising in ~~Part 1 - Item 1A~~the ordinary course of business. In the opinion of management of the Company, these suits, claims and complaints should not result in final judgments or settlements that, in the aggregate, would have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 1A:RISK FACTORS

The Company faces a number of uncertainties and risks that are difficult to predict and many of which are outside of the Company's control. For a detailed discussion of the risks that affect our business, please refer to Part I, Item IA, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2021 and Part II, Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. There have been no material changes from the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and our Quarterly Report on Form-Q for the quarter ended March 31, 2022.

ITEM 2: ~~ITEM 2:~~

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Issuer’s Purchases of Equity Securities~~

On June 16, 2015, the Company issued a press release announcing that its Board of Directors authorized the repurchase of up to $10.0 million of the Company’s outstanding common stock. The Company did not repurchase any shares of its common stock under this program in the first nine months of 2017. Through September 30, 2017, the Company had repurchased a total of 29,559 shares of its common stock under this program at a cost of approximately $587,000. At September 30, 2017, approximately $9.4 million was available for future repurchases of the Company’s common stock under this authorization.None

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

~~ITEM 6:~~

~~EXHIBITS~~

None

ITEM 4: MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5:OTHER INFORMATION

None

ITEM 6:EXHIBITS

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Exhibit No.		Description
3.01		Restated Certificate of Incorporation (1)***
10.01		Amended and Restated 2009 Non-Employee Director Stock Incentive Plan(1)***
31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
32.1		Certifications pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

Exhibit No.		Description
101.INS		Inline XBRL Instance Document.*
101.SCH		Inline XBRL Taxonomy Extension Schema Document.*
101.CAL		Inline XBRL Taxonomy Calculation Linkbase Document.*
101.LAB		Inline XBRL Taxonomy Label Linkbase Document.*
101.PRE		Inline XBRL Taxonomy Presentation Linkbase Document.*
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.*

~~__________________~~

104

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101)

* Filed herewith.

** Furnished herewith.

*** Previously filed.

(1)	~~Filed herewith.~~

Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 14, 2022.

~~Furnished herewith.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

UFP TECHNOLOGIES, INC.

Date: August 9, 2022	~~Date: November 9, 2017~~	By: /s/ R. Jeffrey Bailly
		R. Jeffrey Bailly
		Chairman, Chief Executive Officer, President, and Director
		(Principal Executive Officer)

Date: August 9, 2022

	~~Date: November 9, 2017~~	By: /s/ Ronald J. Lataille
		Ronald J. Lataille
		Chief Financial Officer
		(Principal Financial Officer)

~~EXHIBIT INDEX~~

~~Exhibit No.~~	~~Description~~

~~31.1~~	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.*
~~31.2~~	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.*
~~32.1~~	Certifications pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
~~101.INS~~	XBRL Instance Document.*
~~101.SCH~~	XBRL Taxonomy Extension Schema Document.*
~~101.CAL~~	XBRL Taxonomy Calculation Linkbase Document.*
~~101.LAB~~	XBRL Taxonomy Label Linkbase Document.*
~~101.PRE~~	XBRL Taxonomy Presentation Linkbase Document.*
~~101.DEF~~	XBRL Taxonomy Extension Definition Linkbase Document.*

~~__________________~~

~~Filed herewith.~~

~~Furnished herewith.~~

Delaware	04-2314970
(State or other jurisdiction of incorporation or organization)	(~~IRS~~I.R.S. Employer Identification No.)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	UFPT	The NASDAQ Stock Market L.L.C.

	Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	~~Accelerated filer~~		☒
	~~Non–accelerated filer~~		~~☐ [Do not check if a smaller reporting company]~~
	~~Smaller reporting company~~		☐
	Emerging growth company ☐		☐

		~~Page~~

PART I - FINANCIAL INFORMATION		3

Item 1.	Financial Statements		3

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017 (unaudited)~~2022 and December 31, ~~2016~~2021 (unaudited)		3

	Condensed Consolidated Statements of Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~September~~June 30, ~~2016~~2021 (unaudited)		4

	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and June 30, 2021 (unaudited)		5

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2022 and ~~September~~June 30, ~~2016~~2021 (unaudited)		56

	Notes to Interim Condensed Consolidated Financial Statements		67

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		1223

Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk		1729

Item 4.	Controls and Procedures		1729

PART II - OTHER INFORMATION			1730

Item ~~1A. Risk Factors~~1.	Legal Proceedings		1730

Item 1A.	Risk Factors		30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		1730

Item ~~6. Exhibits~~3.	Defaults Upon Senior Securities		1730

~~Signatures~~Item 4.	Mine Safety Disclosures		1830

~~Exhibit Index~~Item 5.	Other Information		1830

Item 6.	Exhibits		30

Signatures			31

	September 30, 2017			December 31, 2016			June 30, 2022			December 31, 2021
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	37,246		$	31,359		$	5,576		$	11,117
Receivables, less allowance for doubtful accounts of $602 at September 30, 2017 and $567 at December 31, 2016		22,044			21,249
Receivables, net								57,913			39,384
Inventories		13,136			14,151			50,556			33,436
Prepaid expenses		2,234			2,281
Prepaid expenses and other current assets								11,552			3,383
Refundable income taxes		979			807			102			0
Total current assets		75,639			69,847			125,699			87,320
Property, plant and equipment		103,797			96,806			137,443			126,837
Less accumulated depreciation and amortization		(51,815	)		(48,290	)		(71,325	)		(70,268	)
Net property, plant and equipment		51,982			48,516			66,118			56,569
Goodwill		7,322			7,322			114,921			107,905
Intangible assets, net		79			318			70,514			67,585
Non-qualified deferred compensation plan								4,008			4,327
Finance lease right of use assets								241			271
Operating lease right of use assets								12,420			9,053
Other assets		2,069			1,931			1,130			1,102
Total assets	$	137,091		$	127,934		$	395,051		$	334,132

Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,958		$	4,002		$	23,443		$	10,611
Accrued expenses		5,356			4,698			17,928			12,700
Short-term debt		84			856
Deferred revenue								5,612			4,247
Finance lease liabilities								58			58
Operating lease liabilities								2,341			2,181
Income taxes payable								0			909
Current installments of long-term debt								4,000			4,000
Total current liabilities		10,398			9,556			53,382			34,706
Long-term debt, excluding current installments								96,000			71,000
Deferred income taxes		3,713			3,459			3,329			3,263
Non-qualified deferred compensation plan		1,949			1,682			4,054			4,337
Finance lease liabilities								186			215
Operating lease liabilities								10,229			6,903
Other liabilities		118			184			20,581			19,262
Total liabilities		16,178			14,881			187,761			139,686
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized; zero shares issued or outstanding		-			-
Common stock, $.01 par value, 20,000,000 shares authorized; 7,299,721 and 7,270,162 shares issued and outstanding, respectively at September 30, 2017; and 7,242,023 and 7,212,464 shares issued and outstanding, respectively at December 31, 2016		73			72
Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued								0			0
Common stock, $.01 par value, 20,000,000 shares authorized; 7,596,090 and 7,566,531 shares issued and outstanding, respectively, at June 30, 2022; 7,564,645 and 7,535,086 shares issued and outstanding, respectively, at December 31, 2021								76			75
Additional paid-in capital		26,580			25,216			34,342			34,151
Retained earnings		94,847			88,352			174,594			160,807
Treasury stock at cost, 29,559 shares at September 30, 2017 and December 31, 2016		(587	)		(587	)
Accumulated other comprehensive loss								(1,135	)		0
Treasury stock at cost: 29,559 shares at June 30, 2022 and 29,559 shares at December 31, 2021								(587	)		(587	)
Total stockholders’ equity		120,913			113,053			207,290			194,446
Total liabilities and stockholders' equity	$	137,091		$	127,934		$	395,051		$	334,132

													Three Months Ended						Six Months Ended
	Three Months Ended September 30						Nine Months Ended September 30						June 30,						June 30,
	2017			2016			2017			2016			2022			2021			2022			2021
Net sales	$	35,684		$	37,220		$	110,623		$	109,626		$	94,343		$	50,655		$	165,585		$	99,254
Cost of sales		27,491			28,768			82,973			83,161			70,019			37,241			124,128			73,231
Gross profit		8,193			8,452			27,650			26,465			24,324			13,414			41,457			26,023
Selling, general & administrative expenses		5,693			6,027			18,070			18,402			12,078			7,228			22,088			14,538
Restructuring costs		-			25			63			203
Material overcharge settlement		-			(1,681	)		(121	)		(2,114	)
Loss (Gain) on sale of fixed assets		-			-			3			(4	)
Acquisition costs														242			0			1,017			0
Change in fair value of contingent consideration														6,002			0			6,002
Gain on sale of property, plant & equipment														(6,197	)		(21	)		(6,209	)		(21	)
Operating income		2,500			4,081			9,635			9,978			12,199			6,207			18,559			11,506
Interest income		63			42			147			104			(11	)		(21	)		(23	)		(5	)
Interest expense		(12	)		(17	)		(39	)		(53	)		744			0			1,083			0
Other (income) expenses														(157	)		4			(209	)		(7	)
Income before income tax expense		2,551			4,106			9,743			10,029			11,623			6,224			17,708			11,518
Income tax expense		856			1,437			3,248			3,550			2,694			1,509			3,921			2,640
Net income	$	1,695		$	2,669		$	6,495		$	6,479		$	8,929		$	4,715		$	13,787		$	8,878

Net income per share:
Basic	$	0.23		$	0.37		$	0.90		$	0.90		$	1.18		$	0.63		$	1.83		$	1.18
Diluted	$	0.23		$	0.37		$	0.89		$	0.89		$	1.17		$	0.62		$	1.81		$	1.17
Weighted average common shares outstanding:
Basic		7,264			7,195			7,240			7,183			7,563			7,527			7,554			7,517
Diluted		7,353			7,282			7,326			7,265			7,608			7,573			7,618			7,575


Comprehensive Income
Net Income													$	8,929		$	4,715		$	13,787		$	8,878
Other comprehensive income:
Foreign currency translation adjustment														(1,516	)		0			(1,135	)		0
Other comprehensive loss														(1,516	)		0			(1,135	)		0
Comprehensive income													$	7,413		$	4,715		$	12,652		$	8,878

Three and Six Months Ended June 30, 2022
						Additional					Accumulated								Total
	Common Stock					Paid-in			Retained		Other Comprehensive			Treasury Stock					Stockholders'
	Shares			Amount		Capital			Earnings		Income (Loss)			Shares		Amount			Equity
Balance at December 31, 2021		7,535		$	75	$	34,151		$	160,807	$	0			30	$	(587	)	$	194,446
Share-based compensation		46			1		691			0		0			0		0			692
Net share settlement of RSUs		(20	)		0		(1,299	)		0		0			0		0			(1,299	)
Other comprehensive income		-			0		0			0		381			-		0			381
Net income		-			0		0			4,858		-			-		0			4,858
Balance at March 31, 2022		7,561		$	76	$	33,543		$	165,665	$	381			30	$	(587	)	$	199,078
Share-based compensation		4			0		781			0		0			0		0			781
Exercise of stock options		1			0		21			0		0			0		0			21
Net share settlement of RSUs		-			0		(3	)		0		0			-		0			(3	)
Other comprehensive loss		-			0		0			0		(1,516	)		-		0			(1,516	)
Net income		-			0		0			8,929		0			-		0			8,929
Balance at June 30, 2022		7,566			76		34,342			174,594		(1,135	)		30		(587	)		207,290

Three and Six Months Ended June 30, 2021
						Additional					Accumulated							Total
	Common Stock					Paid-in			Retained		Other Comprehensive		Treasury Stock					Stockholders'
	Shares			Amount		Capital			Earnings		Income (Loss)		Shares		Amount			Equity
Balance at December 31, 2020		7,500		$	75	$	32,484		$	144,921	$	0		30	$	(587	)	$	176,893
Share-based compensation		34			0		501			0		0		0		0			501
Net share settlement of RSUs		(14	)		0		(738	)		0		0		0		0			(738	)
Net income		-			0		0			4,163		-		-		0			4,163
Balance at March 31, 2021		7,520		$	75	$	32,247		$	149,084	$	0		30	$	(587	)	$	180,819
Share-based compensation		4			0		620			0		0		0		0			620
Exercise of stock options		7			0		162			0		0		0		0			162
Net share settlement of RSUs		-			0		(2	)		0		0		-		0			(2	)
Net income		-			0		0			4,715		0		-		0			4,715
Balance at June 30, 2021		7,531			75		33,027			153,799		0		30		(587	)		186,314

Fair value of considerations transferred
Cash paid at closing	$	23,608
Other liability		395
Cash from Advant		(2,840	)
Total consideration	$	21,163

Purchase price allocation
Accounts receivable	$	2,299
Inventory		2,410
Other current assets		213
Property, plant, and equipment		5,704
Customer contracts & relationships		2,925
Intellectual property		2,127
Non-compete agreement		259
Lease right of use assets		289
Other assets		42
Goodwill		7,139
Total identifiable assets	$	23,407
Accounts payable		(772	)
Accrued expenses		(668	)
Income taxes		(66	)
Deferred taxes		(449	)
Lease liabilities		(289	)
Net assets acquired	$	21,163

Cash paid at closing	$	95,000
Contingent liability (Earn-out)		5,188
Non-compete agreements		8,855
Cash from DAS		(8,316	)
Working capital adjustment		(115	)
Total consideration	$	100,612

Purchase price allocation
Accounts receivable	$	2,351
Inventory		7,570
Other current assets		68
Property, plant, and equipment		3,314
Customer contracts & relationships		36,730
Intellectual property		2,380
Non-compete agreement		4,697
Lease right of use assets		1,221
Goodwill		51,985
Total identifiable assets	$	110,316
Accounts payable		(5,238	)
Accrued expenses		(3,238	)
Deferred revenue		(7	)
Lease liabilities		(1,221	)
Net assets acquired	$	100,612

Fair value of considerations transferred
Cash paid at closing	$	9,766
Contingent liability (Earn-out)		4,543
Other liability		500
Cash from Contech		(266	)
Total consideration	$	14,543

Purchase price allocation
Accounts receivable	$	2,851
Inventory		2,320
Other current assets		37
Property, plant, and equipment		1,170
Customer contracts & relationships		3,043
Intellectual property		2,247
Non-compete agreement		86
Lease right of use assets		1,523
Goodwill		4,278
Total identifiable assets	$	17,555
Accounts payable		(1,015	)
Accrued expenses		(414	)
Deferred revenue		(60	)
Lease liabilities		(1,523	)
Net assets acquired	$	14,543

	Three-month Period Ended June 30, 2021		Six-month Period Ended June 30, 2021
	(Unaudited)		(Unaudited)
Sales	$	68,741	$	132,603
Operating income	$	8,641	$	15,409
Net income	$	7,364	$	12,825
Earnings per share:
Basic	$	0.98	$	1.71
Diluted	$	0.97	$	1.69

	Contract Liabilities
	Six Months Ended June 30,
	2022			2021
Deferred revenue - beginning of period	$	4,247		$	1,887
Increases due to consideration received from customers		3,378			1,869
Revenue recognized		(2,013	)		(727	)
Deferred revenue - end of period	$	5,612		$	3,029

	Contract Assets
	Six Months Ended June 30,
	2022			2021
Unbilled receivables - beginning of period	$	74		$	271
Increases due to revenue recognized, not invoiced to customers		1,937			935
Decreases due to customer invoicing		(1,784	)		(1,008	)
Unbilled receivables - end of period	$	227		$	198

	Allowance for Credit Losses
	Six Months Ended June 30,
	2022			2021
Allowance - beginning of period	$	519		$	484
Provision for expected credit losses		159			88
Amounts written off against the allowance		(14	)		(8	)
Allowance - end of period	$	664		$	564

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016		232,578		$	16.53
Granted		12,336			27.05
Exercised		(51,285	)		26.88
Expired		(3,750	)		18.85
Outstanding at September 30, 2017		189,879		$	17.41		3.55	$	2,029
Exercisable at September 30, 2017		184,879		$	17.23		3.60	$	2,011
Vested and expected to vest at September 30, 2017		189,879		$	17.41		3.55	$	2,029

	Shares Under Options			Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		98,671		$	33.53
Granted		9,876			77.28
Exercised		(1,295	)		16.32
Outstanding at June 30, 2022		107,252		$	37.77		5.81	$	4,483
Exercisable at June 30, 2022		97,376		$	33.76		5.39	$	4,461
Vested and expected to vest at June 30, 2022		107,252		$	37.77	$	5.81	$	4,483

Expected volatility		~~29.1%~~	34.7%
Expected dividends		None
Risk-free interest rate		~~1.84%~~	2.9%
Exercise price		$~~27.05~~	77.28
Expected term (in years)		~~5.8~~	6.2
Weighted-average grant date fair value	$30.37	~~$8.51~~

	Restricted Stock Units			Weighted Average Award Date Fair Value
Unvested at December 31, 2016		46,558		$	20.05
Awarded		22,770			24.70
Shares vested		(13,419	)		23.54
Unvested at September 30, 2017		55,909		$	20.96

	June 30, 2022			December 31, 2021
Level 2
Assets (Liabilities):
Derivative financial instruments	$	6		$	(176	)
Level 3
Purchase price contingent consideration (Note 2):
Accrued contingent consideration (earn-out)	$	(15,733	)	$	(9,731	)
Present value of non-competition payments		(9,348	)		(8,855	)

	Three Months Ended September 30,				Nine Months Ended September 30,
Share-based compensation related to:	2017		2016		2017		2016
Common stock granted to the Board of Directors	$	-	$	-	$	105	$	105
Common stock granted to the Chief Executive Officer		100		100		300		300
Stock options granted to directors		-		-		105		105
Stock options granted to employees		4		34		25		107
Restricted Stock Unit awards to employees		102		95		307		254
Total share-based compensation	$	206	$	229	$	842	$	871

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021		101,168		$	41.78
Awarded		51,981			74.94
Shares vested		(49,575	)		41.05
Shares forfeited		(21	)		74.75
Outstanding at June 30, 2022		103,553		$	53.59

	Three Months Ended September 30,										Nine Months Ended September 30,
	2017					2016					2017					2016
Market	Net Sales		%			Net Sales		%			Net Sales		%			Net Sales		%

Medical	$	16,712		46.8	%	$	16,548		44.5	%	$	52,822		47.7	%	$	48,953		44.7	%
Consumer		6,006		16.8	%		5,648		15.2	%		15,713		14.2	%		15,303		14.0	%
Automotive		5,174		14.5	%		6,942		18.7	%		18,018		16.3	%		20,485		18.7	%
Aerospace & Defense		2,682		7.5	%		2,516		6.8	%		8,290		7.5	%		7,929		7.2	%
Industrial		2,591		7.3	%		2,792		7.5	%		7,629		6.9	%		8,441		7.7	%
Electronics		2,519		7.1	%		2,774		7.5	%		8,151		7.4	%		8,515		7.8	%
Net Sales	$	35,684		100.0	%	$	37,220		100.0	%	$	110,623		100.0	%	$	109,626		100.0	%

	Patents			Non- Compete			Customer List			Total
Estimated useful life (in years)		14			5			5
Gross amount at September 30, 2017	$	429		$	512		$	2,046		$	2,987
Accumulated amortization at September 30, 2017		(429	)		(496	)		(1,983	)	$	(2,908	)
Net balance at September 30, 2017	$	-		$	16		$	63		$	79

Estimated useful life (in years)		14			5			5
Gross amount at December 31, 2016	$	429		$	512		$	2,046		$	2,987
Accumulated amortization at December 31, 2016		(429	)		(449	)		(1,791	)	$	(2,669	)
Net balance at December 31, 2016	$	-		$	63		$	255		$	318

Remainder of 2022	$	3,642
2023		4,771
2024		4,764
2025		4,764
2026		4,762
Thereafter		47,811
Total	$	70,514

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Restructuring Costs	2017		2016		2017		2016
Relocation	$	-	$	25	$	63	$	203
Total	$	-	$	25	$	63	$	203