UFP TECHNOLOGIES INC - 10-K Annual Report

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For fiscal year ended December 31, 2004 or

o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934)

For the transition period from to .

Commission File Number : 001-12648

UFP Technologies, Inc.

(Exact Name of Company as Specified in Its Charter)

Delaware		04-2314970
(State or Other Jurisdiction of Employer		(I.R.S. Identification No.)
Incorporation or Organization)

172 East Main Street, Georgetown, Massachusetts — USA		01833-2107
(Address of Principal Executive Offices)		(Zip Code)

(978) 352-2200

(Company’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
None		None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Preferred Share Purchase Rights

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

PART I

This report contains certain statements that are “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (the “Act”) and releases issued by the Securities and Exchange Commission. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.

Examples of these risks, uncertainties, and other factors include, without limitation, the following: (i) economic conditions that affect sales of the products of the Company’s packaging customers, (ii) actions by the Company’s competitors and the ability of the Company to respond to such actions, (iii) the ability of UFP Technologies, Inc. (the “Company” or “UFPT”) to obtain new customers and (iv) the ability of the Company to fulfill its obligations on long-term contracts, and (v) the ability of the Company to execute and integrate favorable acquisitions. In addition to the foregoing, the Company’s actual future results could differ materially from those projected in the forward-looking statements as a result of risk factors set forth elsewhere in this report and changes in general economic conditions, interest rates and the assumptions used in making such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

ITEM 1. BUSINESS

The Company’s principal executive offices are located at 172 East Main Street, Georgetown, Massachusetts 01833; telephone number 978-352-2200; corporate web site www.ufpt.com. We make available, free of charge through our website, our annual report on Form 10-K, current reports on Form 10-Q and Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934 as soon as practicable after we electronically file such material with, or furnish it to the Securities and Exchange Commission. The information found on our website is not part of this or any other report we file with or furnish to the SEC.

The Company designs and manufactures interior protective packaging solutions utilizing molded fiber, vacuumformed plastics, and molded and fabricated foam plastic products for, among others, the computer, electronics, medical/pharmaceutical, military, automotive, and industrial markets. The Company also designs and manufactures engineered component solutions using laminating, molding, and fabricating technologies for use primarily in the automotive, beauty, medical, industrial, and sports and leisure markets.

The Company’s high-performance cushion packaging products are made primarily from polyethylene and polyurethane foams, and a wide range of sheet plastics. These products are custom designed and fabricated or molded to provide protection for fragile and valuable items, and are sold primarily to original equipment and component manufacturers in the computer, electronics, telecommunications, industrial, medical and pharmaceutical markets. Molded fiber

products are made primarily from 100% recycled paper principally derived from waste newspaper. These products are custom designed, engineered and molded into shapes for packaging high volume consumer goods, including computer components, medical devices, other light electronics, scented candles, and health and beauty products.

In addition to packaging products, the Company fabricates and molds component products made from cross-linked polyethylene foam and other materials. The Company also laminates fabrics and other materials to cross-linked polyethylene foams, polyurethane foams and other substrates. The Company’s component products include automotive interior trim, athletic and industrial safety belts, components for medical diagnostic equipment, nail files and other beauty aids, and shock absorbing inserts used in athletic and leisure footwear.

Unless the context otherwise requires, the term “Company” or “UFPT” reflects the re-incorporation of UFP Technologies, Inc. and refers to UFP Technologies, Inc., its wholly-owned subsidiaries, MFT and Simco, and United Development Company Limited, of which the Company owns 26.32%.

Market Overview

Packaging Products. The interior cushion packaging market is characterized by three primary sectors: (1) custom fabricated or molded products for low volume, high fragility products; (2) molded or die-cut products for high volume, industrial and consumer goods; and (3) loose fill and commodity packaging materials for products which do not require custom-designed packaging. Packaging products are used to contain, display and/or protect their contents during shipment, handling, storage, marketing, and use. The Company serves both the low volume, high fragility market and the high volume industrial and consumer market with a range of product offerings, but does not materially serve the commodity packaging market.

The low volume, high fragility market is generally characterized by annual production volumes of less than 50,000 pieces. Typical goods in this market include precision instruments, medical devices, sensitive electronic components, and other high value industrial products that are very sensitive to shock, vibration, and other damage that may occur during shipment and distribution. The principal materials used to package these goods include polyethylene and polyurethane foams, foam-in-place polyurethane, and molded expanded polystyrene. Polyurethane foams and polyethylene foams have high shock absorbency, high resiliency, and vibration damping characteristics.

The higher volume consumer packaging market is generally characterized by annual production volumes in excess of 50,000 pieces. Typical goods in this market include toys, light electronics, computers and computer peripherals, stereo equipment, and small appliances. These goods generally do not require as high a level of shock and vibration protection as goods in the low volume, high fragility market. The principal materials used to package these goods include various molded, rigid and foamed plastics, such as expanded polystyrene foam (EPS), vacuum-formed polystyrene (PS) and polyvinyl chloride (PVC), and corrugated die-cut inserts, which generally are less protective and less expensive than resilient foams and molded fiber. The Company believes that molded fiber is being used as an alternative medium to these materials.

Component Products. Component applications of foam and other types of plastics are numerous and diverse. Examples include automotive interior components, medical devices, toys, gaskets,

health and beauty products, and carrying cases. Cross-linked polyethylene foams have many of the same properties as traditional polyethylene foams, including light weight, durability, resiliency and flexibility. Cross-linked foams have many advantages over traditional foams, including the ability to be thermoformed (molded), availability in vibrant colors, a fine cell structure providing improved esthetics and lower abrasiveness, and enhanced resistance to chemicals and ultraviolet light. Certain grades of cross-linked foams can be radiation sterilized and have been approved by the U.S. Food and Drug Administration for open wound skin contact.

Cross-linked foam can be combined with other materials to increase product applications and market applications. For example, cross-linked foams can be laminated to fabrics to produce light weight, flexible and durable insoles for athletic and walking shoes, weight lifting and industrial safety belts, gun holsters, backpacks, and other products for the leisure, athletic and retail markets. The Company believes that, as a result of their many advantages, cross-linked foam and cross-linked foam laminated products are being used in a wide range of markets as substitutes for traditional rubber, leather and other product material alternatives.

Regulatory Climate

The packaging industry has been subject to user, industry, and legislative pressure to develop environmentally responsible packaging alternatives that reduce, reuse and recycle packaging materials. Government authorities have enacted legislation relating to source reduction, specific product bans, recycled content, recyclability requirements and “green marketing” restrictions.

In order to provide packaging that complies with all regulations regardless of a product’s destination, manufacturers seek packaging materials that meet both environmentally related demands and performance specifications. Some packaging manufacturers have responded by: reducing product volume and ultimate waste product disposal through reengineering traditional packaging products; adopting new manufacturing processes; participating in recovery and reuse systems for resilient materials that are inherently reusable; creating programs to recycle packaging following its useful life; and developing materials that use a high percentage of recycled content in their manufacture.

Products

The Company’s products include foam, plastic, and fiber packaging products, and component products.

Packaging Products

The Company designs, manufactures and markets a broad range of packaging products primarily using polyethylene, polyurethane and cross-linked polyethylene foams and rigid plastics. These products are custom designed and fabricated or molded to provide protection for less durable, higher value items, and are primarily sold to original equipment and component manufacturers in the computer, electronics, telecommunications, medical / pharmaceutical, military, automotive, and industrial markets. Examples of the Company’s packaging products include end-cap packs for computers, corner blocks for telecommunications consoles, anti-static foam packs for printed circuit boards, die-cut or routed inserts for attaché cases and plastic trays for medical devices and components. Markets for these products are typically characterized by lower to moderate volumes where performance, such as shock absorbency and vibration damping, is valued.

The Company’s engineering personnel collaborate directly with customers to study and evaluate specific customer requirements. Based on the results of this evaluation, packaging products are engineered to customer specifications using various types and densities of materials with the goal of providing the desired protection for the lowest cost and with the lowest physical package volume. The Company believes that its engineering expertise and breadth of product and manufacturing capabilities have enabled it to provide unique solutions to achieve these goals.

The markets for the Company’s molded fiber packaging and vacuum-formed trays are characterized by high volume production runs and require rapid manufacturing turnaround times. Raw materials used in the manufacture of molded fiber are primarily recycled newspaper, a variety of other grades of recycled paper and water. Raw materials used in vacuum-formed plastics include polystyrene (PS) and polyvinyl chloride (PVC). These products compete with expanded polystyrene (EPS) and manually assembled corrugated die-cut inserts. Sales of these products have been primarily to the computer, consumer electronics and medical industries.

The Company’s molded fiber products provide customers with packaging solutions that are more responsive to stringent environmental packaging regulations worldwide and meet the demands of environmentally-aware consumers, while simultaneously meeting customer cost and performance objectives.

Component Products

The Company specializes in engineered products that use the Company’s close tolerance manufacturing capabilities and its expertise in various foam materials and lamination techniques, and the Company’s ability to manufacture in clean room environments. The Company’s component products are sold primarily to customers in the automotive, sporting goods, medical, beauty, leisure and footwear industries. These products include interior trim parts for automobiles and medical diagnostic equipment, abrasive nail files and anti-fatigue mats, and shock absorbing inserts used in athletic and leisure footwear.

The Company believes that it is one of the largest purchasers of cross-linked foam in the United States and as a result it has been able to establish important relationships with the relatively small number of suppliers of this product. Through its strong relationships with cross-linked foam suppliers, the Company believes that it is able to offer customers a wide range of cross-linked foam products.

The Company benefits from its ability to custom design its own proprietary manufacturing equipment in conjunction with its machinery suppliers. For example, the Company has custom designed its own lamination machines allowing the Company to achieve adhesive bonds between cross-linked foam and fabric and other materials that do not easily combine. These specialty laminates typically command higher prices than traditional foam products.

Marketing and Sales

The Company markets and sells its packaging and specialty products in the United States principally through direct regional sales forces comprised of skilled engineers. The Company also uses independent manufacturer representatives to sell its products. The Company’s sales engineers collaborate with customers and the Company’s design and manufacturing experts to

develop custom engineered solutions on a cost-effective basis. The Company also markets its products through attendance by in-house market specialists at trade shows and expositions. The Company markets a line of products to the health and beauty industry, primarily through distributors. The Company believes that its sales are seasonal, with increased sales in the second half of the year.

The top customer in the Company’s Component Products segment comprises 16% of that segment’s total sales for the year ended December 31, 2004. No one customer accounted for more than 10% of the Packaging segment sales for the year ended December 31, 2004.

Manufacturing

The Company’s manufacturing operations consist primarily of cutting, molding, vacuum forming, laminating and assembly. For custom molded foam products, the Company’s skilled engineering personnel analyze specific customer requirements to design and build prototype products to determine product functionality. Upon customer approval, prototypes are converted to final designs for commercial production runs.

Molded cross-linked foam products are produced in a thermoforming process using heat, pressure, and precision metal tooling.

Cushion foam packaging products that are not cross-linked are fabricated by cutting shapes from blocks of foam using specialized cutting tools, routers and hot wire equipment and assembling these shapes into the final product using a variety of foam welding or gluing techniques. Products can be used on a stand-alone basis or bonded to another foam product or other material such as a corrugated medium.

Laminated products are produced through a process whereby the foam medium is heated to the melting point. The heated foam is then typically bonded to a non-foam material through the application of mechanical pressure.

Molded fiber products are manufactured by vacuum forming a pulp of recycled or virgin paper materials onto custom engineered molds. With the application of vacuum and air, the molded parts are pressed and transferred to an in-line conveyorized dryer, from which they exit ready for packing or subsequent value added operations.

The Company does not manufacture any of the raw materials used in its products. With the exception of certain grades of cross-linked foam, these raw materials are available from multiple supply sources. Although the Company relies upon a limited number of suppliers for cross-linked foam, the Company’s relationships with such suppliers are good, and the Company expects that these suppliers will be able to meet the Company’s requirements for cross-linked foam. Any delay or interruption in the supply of raw materials could have a material adverse effect on the Company’s business.

Research and Development

The Company’s engineering personnel continually explore design and manufacturing techniques as well as new innovative materials to meet the unique demands and specifications of its customers. In addition, the Company regularly undertakes customer-initiated engineering

feasibility studies for which the Company is generally compensated regardless of whether such projects result in commercial production contracts. Because the Company’s products tend to have relatively short life cycles, research and development is an integral part of the Company’s ongoing cost structure.

Competition

The packaging products industry is highly competitive. While there are several national companies that sell interior packaging, the Company’s primary competition to date for its packaging products has been from smaller independent regional manufacturing companies. These companies generally market their products in specific geographic areas from neighboring facilities. In addition, the Company’s foam and fiber packaging products compete against products made from alternative materials, including expanded polystyrene foams, die-cut corrugated, plastic peanuts, plastic bubbles and foam-in-place urethane.

The component products industry is highly competitive. The Company’s component products face competition primarily from smaller companies that typically concentrate on production of component products for specific industries. The Company expects that additional companies will enter the market as it expands. The Company believes that its access to a wide variety of materials, its engineering expertise, its ability to combine foams with other materials such as plastics and laminates, and its ability to manufacture products in a clean room environment will enable it to continue to compete effectively in the engineered component products market. The Company’s component products also compete with products made from a wide range of other materials, including rubber, leather and other foams.

The Company believes that its customers typically select vendors based on price, product performance, product reliability and customer service. The Company believes that it is able to compete effectively with respect to these factors in each of its targeted markets.

Patents and Other Proprietary Rights

The Company relies upon trade secret, patent protection and trademarks to protect its technology and proprietary rights. The Company believes that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how, and the development of new products are generally as important as patent protection in establishing and maintaining a competitive advantage. Nevertheless, the Company has obtained patents and may continue to make efforts to obtain patents, when available, although there can be no assurance that any patent obtained will provide substantial protection or be of commercial benefit to the Company, or that its validity will be upheld if challenged.

The Company has three U.S. patents relating to its molded fiber technology (including certain proprietary machine designs), and has patent applications pending with respect to such technology in certain foreign countries and international patent offices. The Company also has a total of twelve U.S. patents relating to technologies including foam and packaging, rubber mat, patterned nail file, and superforming process technologies. In addition, the Company has patent applications pending in the United States with respect to superforming products and processes. There can be no assurance that any of the Company’s patent applications will be granted, or that any patent or patent application of the Company will provide significant protection for the

Company’s products and technology, or will not be challenged or circumvented by others. The expiration dates for the Company’s patents range from 2006 through 2023.

Environmental Considerations

In addition to offering molded fiber packaging products made from recycled paper derived primarily from post-consumer newspaper waste, the Company actively promotes its philosophy of reducing product volume and resulting post-user product waste. The Company designs products to provide optimum performance with minimum material. In addition, the Company actively participates in a recovery and reuse program for certain of its plastic packaging products. The Company is aware of public support for environmentally responsible packaging and other products . Future government action may impose restrictions affecting the industry in which the Company operates. There can be no assurance that any such action will not adversely impact the Company’s products and business.

Backlog

The Company’s backlog, as of February 18, 2005 and February 16, 2004, totaled approximately $6.6 million and $5.2 million, respectively, for the Packaging segment, and $9.4 million and $6.7 million, respectively, for the Component Products segment. The backlog consists of purchase orders for which a delivery schedule within the next twelve months has been specified by customers. Orders included in the backlog may be canceled or rescheduled by customers without significant penalty. The backlog as of any particular date should not be relied upon as indicative of the Company’s revenues for any period.

Employees

As of February 11, 2005, the Company had a total of 501 full-time employees (as compared to 486 full-time employees as of February 7, 2004) in both the Component Products segment (13 in engineering, 214 in manufacturing operations, 17 in marketing, sales and support services, and 25 in general and administration) and in the Packaging segment (9 in engineering, 184 in manufacturing, 23 in marketing, sales and support services, and 16 in general and administration). The Company is not a party to any collective bargaining agreement. The Company considers its employee relations to be good.

ITEM 2. PROPERTIES

The following table presents certain information relating to each of the Company’s properties:

Location	Square Feet	Lease Expiration Date	Principal Use
Georgetown, Massachusetts(2)	54,000	(owned by the Company)	Headquarters, fabrication, molding, test lab, clean-room, and engineering for Component Products segment
Decatur, Alabama(1), (2)	47,250	12/31/06	Fabrication and engineering for Packaging segment

Decatur, Alabama	14,000	10/31/07	Warehousing and fabrication for Packaging segment
Kissimmee, Florida(1), (2)	49,400	12/31/06	Fabrication, molding, test lab, and engineering for Packaging segment
Haverhill, Massachusetts	48,772	2/28/08	Flame lamination for Component Products segment
Raritan, New Jersey	72,125	2/28/08	Fabrication, molding, test lab, clean-room, and engineering for Packaging segment
Clinton, Iowa	62,000	9/1/06	Molded fiber operations for Packaging segment
Addison, Illinois	45,000	07/31/06	Fabrication and engineering for Packaging segment
Ventura, California	48,300	10/31/05	Fabrication and engineering for Component Products segment
Atlanta, Georgia	47,000	04/30/11	Fabrication and engineering for Component Products segment
Macomb Township, Michigan	70,703	12/31/07	Fabrication and engineering for Component Products segment
El Paso, Texas	24,698	3/31/07	Warehousing and fabrication for Packaging segment

(1) United Development Company Limited, a Florida limited partnership and an affiliate of the Company and certain officers, directors and stockholders of the Company, is the lessor of these properties. United Development Company Limited was consolidated into the Company’s financial statements in 2003 (see Note 1 to the Consolidated Financial Statements).

(2) Subject to mortgage (see Note 8 to the Consolidated Financial Statements).

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE TO SECURITY HOLDERS

None.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price

From July 8, 1996 until April 18, 2001, the Company’s Common Stock was listed on the Nasdaq National Market under the symbol “UFPT.” Since April 19, 2001, the Company’s Common Stock has been listed on the Nasdaq Small Cap Market. The following table sets forth the range of high and low quotations for the Common Stock as reported by Nasdaq for the quarterly periods from January 1, 2003 to December 31, 2004:

Fiscal Year Ended December 31, 2003	High		Low
First Quarter	$	1.43	$	0.65
Second Quarter	1.25		1.00
Third Quarter	1.45		1.10
Fourth Quarter	2.40		1.30

Fiscal Year Ended December 31, 2004	High		Low
First Quarter	$	2.35	$	1.44
Second Quarter	4.05		2.01
Third Quarter	3.60		2.50
Fourth Quarter	4.20		3.08

Number of Stockholders

As of March 16, 2005, there were 127 holders of record of the Company’s Common Stock.

Dividends

The Company did not pay any dividends in 2004, although prior to becoming a public company in December 1993, the Company had from time to time paid cash dividends on its capital stock. The Company presently intends to retain all of its earnings to provide funds for the operation of its business, although it would consider paying cash dividends in the future. The Company’s ability to pay dividends is subject to approval by its principal lending institution.

Stock Plans

The Company maintains three stock option plans to provide long-term rewards and incentives to the Company’s key employees, officers, employee directors, non-employee directors and advisors. The first plan (1993 Employee Stock Option Plan) provides for the issuance of up to 1,550,000 shares of the Company’s common stock. The second plan (1993 Director Plan) provided for the issuance of 110,000 shares of the Company’s common stock to non-employee directors; this plan was frozen with the inception of the 1998 Director Plan, which provides for the issuance of up to 725,000 shares of the Company’s common stock to non-employee directors. Additional details of these plans are discussed in Note 13 to the Consolidated Financial Statements.

The Company also maintains an Employee Stock Purchase Plan, which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986.

The Company also maintains a Stock Plan (2003 Equity Incentive Plan) to provide the Company with the ability to offer equity-based incentives to present and future executives and other employees who are in a position to contribute to the long-term success and growth of the Company.

Each of these plans and their amendments have been approved by the Company’s stockholders.

Summary plan information is as follows:

	Number of shares of UFPT common stock to be issued upon exercise of outstanding options	Weighted average exercise price of outstanding options		Number of shares of UFPT common stock remaining available for future issuance

1993 Employee Plan	694,825	$	1.72	532,418
1993 Director Plan	50,000	4.59		0
1998 Director Plan	430,712	2.07		294,288
1998 Employee Stock Purchase Plan	0	0.00		139,751
2003 Equity Incentive Plan	0	0.00		428,717
Total	1,175,537	$	1.97	1,395,174

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for the five years ended December 31, 2004, is derived from the audited consolidated financial statements of the Company. The consolidated financial statements for fiscal years 2000 and 2001 were audited by Arthur Andersen LLP (“Andersen”), which has ceased operations. The data should be read in conjunction with the consolidated financial statements and the related notes included in this report, and in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Selected Consolidated Financial Data

	Years Ended December 31
	(in thousands, except per share data)
Consolidated statement of operations data:(1)	2004(7)		2003(6)(7)(8)		2002(2)(8)		2001(3)(4)(8)		2000(5)
Net sales	$	68,624	60,902		61,189		61,574		74,492
Gross profit	13,971		10,724		12,105		10,925		17,621
Operating (loss) income	2,144		(1,508	)	466		(3,741	)	3,385
Net (loss) income	871		(1,516	)	(234	)	(3,043	)	1,081
Diluted (loss) earnings per share	$	0.17	(0.34	)	(0.05	)	(0.72	)	0.25
Net (loss) income as adjusted for FAS 142 adoption	871		(1,516	)	(234	)	(2,609	)	1,632
Diluted (loss) earnings per share as adjusted for FAS 142 adoption	0.17		(0.34	)	(0.05	)	(0.61	)	0.37
Weighted average number of diluted shares outstanding	4,995		4,490		4,343		4,245		4,386

	Years Ended December 31
	(in thousands)
Consolidated balance sheet data:(1)	2004(7)		2003(7)	2002	2001	2000
Working capital	$	1,431	1,209	1,540	977	4,139
Total assets	39,632		36,749	35,383	38,102	40,352
Short-term debt and capital lease obligations	9,484		8,173	7,169	7,395	6,084
Long-term debt and capital lease obligations, excluding current portion	7,497		8,119	6,851	6,827	7,589
Total liabilities	25,846		24,058	21,332	23,948	22,825
Stockholders’ equity	$	13,787	12,691	14,050	14,154	17,527

(1) See Note 19 to the Consolidated Financial Statements for segment information.

(2) Amounts include results of operations of the business of Excel Acquisition Group (acquired in January 2002) for the periods subsequent to its acquisition.

(3) Amounts include results of operations of the E-cube product line (acquired in October 2001) for the periods subsequent to its acquisition.

(4) Amounts include restructuring charges of $1 million.

(5) Amounts include results of operations of Simco Industries, Inc. (acquired in January 2000) for the periods subsequent to its acquisition.

(6) Amounts include restructuring charges of $1.4 million

(7) Amounts include results of United Development Company Limited, a 26.32% owned real estate limited partnership. See Note 1 to the Consolidated Financial Statements.

(8) In years where the Company reported a net loss, basic and diluted earnings per share and weighted average shares outstanding are the same.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains certain statements that are “forward-looking statements” as that term is defined under the Act and releases issued by the Securities and Exchange Commission. The words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. The Company’s plans, described below, to execute a program which launched in the fourth quarter of 2004 for an automotive supplier that could be as large as $95 million is an example of a forward looking statement. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.

The $95 million revenue value of the automotive contract is an estimate, based on the automotive supplier’s projected needs. The Company cannot guarantee that it will fully benefit from this contract, which is terminable by the automotive supplier for any reason, subject to a cancellation charge that includes, among others, a provision whereby the customer will reimburse the Company for its total capital investment less any depreciation taken. The Company’s revenues from this contract are directly dependent on the ability of the automotive supplier to develop, market, and sell its products in a timely, cost-effective manner. If the automotive supplier’s needs decrease over the course of the contract, the Company’s estimated revenues from this contract may also decrease. Even if the Company generates revenue from the project, the Company cannot guarantee that the project will be profitable, particularly if revenues from the contract are less than expected. Other examples of these risks, uncertainties, and other factors include, without limitation, the following: (i) economic conditions that affect sales of the products of the Company’s packaging customers, (ii) actions by the Company’s competitors and the ability of the Company to respond to such actions, (iii) the ability of the Company to obtain new customers and (iv) the ability of the Company to execute and integrate favorable acquisitions. In addition to the foregoing, the Company’s actual future results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth elsewhere in this report and changes in general economic conditions, interest rates and the assumptions used in making such forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Investment In and Advances to Affiliated Partnership

The Company has a 26.32% ownership interest in a realty limited partnership, United Development Company Limited (“UDT”). As a result of adopting the provisions of FIN 46, the Company has consolidated the financial statements of UDT as of December 31, 2003, because — when including related party ownership — the Company effectively owns greater than 50% of UDT. Prior to December 31, 2003, this investment was accounted for under the equity method at cost, plus the Company’s proportionate share of the limited partnership’s income, less any distributions received from the limited partnership.

Results of Operations

The following table sets forth, for the years indicated, the percentage of revenues represented by the items as shown in the Company’s consolidated statements of operations:

	2004		2003		2002
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	79.6		82.4		80.2
Gross profit	20.4		17.6		19.8
Selling, general and administrative expenses	17.7		17.8		19.0
Restructuring charge	(0.4	)	2.3		—
Operating income (loss)	3.1		(2.5	)	0.8
Total other expenses, net	1.1		1.4		1.4
Income (loss) before income taxes	2.0		(3.9	)	(0.6	)
Expense (benefit) for income taxes	0.7		(1.4	)	(0.2	)
Net income (loss)	1.3		(2.5	)	(0.4	)

Overview

UFP Technologies is a leading designer and manufacturer of interior protective packaging solutions using molded fiber, vacuumformed plastics and molded and fabricated foam plastic products. The Company also designs and manufactures engineered component solutions using laminating, molding and fabricating technologies. The Company serves numerous markets including computer electronics, medical/pharmaceutical, military, automotive, beauty, industrial and sports and leisure.

Over the past several years, the Company has downsized its operations in response to a general downturn in the economy as well as the loss of a large automotive program. In particular, the Company has consolidated its molded fiber packaging division into a single, large design and manufacturing facility in Clinton, Iowa, which it believes will create a more efficient manufacturing structure. It also consolidated three foam fabricating facilities in the southeast into two. Both of these downsizing efforts were in response to soft demand, primarily in the computer electronics industry. Management believes that the downturn in demand from this industry is permanent as a significant portion of computer electronics manufacturing has moved off-shore.

In 2004, the Company completed its consolidation efforts and shifted its attention to initiatives to grow sales. It strengthened its sales and marketing team, implemented a new sales compensation system, and invested in customer relations management software. It also created market focused teams to develop strategic business plans for targeted markets. The Company intends to become more market-focused in the future.

Late in 2004, the Company launched a portion of its new large eight-year, $95 million automotive program in the Southeast. The total program, which has grown in potential scope from $77 million to $95 million due to design enhancements, will be implemented in phases. The Company expects that phase-in costs on this and other automotive programs will be significant in 2005. The Company expects that sales under this program should ramp-up over

the next couple of years. The Company has met every milestone in this program to date, and will now focus on fulfilling increasing production demand while seeking complementary business for its Southeast manufacturing facility.

2004 Compared to 2003

The Company’s net sales increased 12.7% to $68.6 million for the year ended December 31, 2004, from $60.9 million in 2003. Component Product sales increased 15.5% to $36.1 million in 2004 from $31.3 million in 2003. The increase in sales is primarily due to strong demand from customers in the medical and military markets as well as prototype sales in the automotive industry associated with the Company’s large program that launched late in the fourth quarter of 2004. Packaging sales increased 9.6% to $32.5 million in 2004 from $29.6 million in 2003. The increase in sales is primarily due to growth in sales at the Company’s new plant in El Paso, Texas, and stronger demand for case insert product. The Company has invested in the area of marketing and sales in recent years and attributes a portion of the Company’s sales growth in 2004 to these investments.

Gross profit as a percentage of sales (“Gross Margin”) increased to 20.4% in 2004 from 17.6% in 2003. The improvement in gross margin is primarily attributable to the fixed portion of labor and overhead measured against higher sales in both the Component Product and Packaging segments. In addition, the Company’s molded fiber division (Packaging segment) operated at higher margins due to a more efficient operating structure resulting from the plant consolidations in recent years.

Selling, General and Administrative Expenses (“SG&A”) increased 11.8% to $12.1 million for the year ended December 31, 2004 from $10.8 million in 2003. As a percentage of sales, SG&A was 17.6% and 17.8% in the years ended December 31, 2004 and 2003, respectively. The increase in SG&A dollars is primarily attributable to investments made in the areas of marketing and sales (Component Product and Packaging segments), increased corporate governance and compliance costs (Component Product and Packaging segments) and incremental SG&A associated with the Company’s new automotive program (Component Product segment).

Interest expense decreased to approximately $714,000 for the year ended December 31, 2004, from approximately $784,000 in 2003. The decline in interest expense is primarily attributable to lower average interest rates primarily due to better Company performance.

The Company recorded income tax expense of 36% for the year ended December 31, 2004. It recorded a net tax benefit of 36% of its pre-tax loss in 2003. The tax benefit recorded in 2003 reflects primarily the expected utilization of a net operating loss generated during the year in future federal tax returns. The Company has considered both positive and negative available evidence in its determination that the deferred tax asset will be realized and has not recorded a tax valuation allowance at December 31, 2004. The Company will continue to assess the realizability of deferred tax assets created by recording tax benefits on operating losses and, where appropriate, 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 carryforward period are reduced.

Liquidity and Capital Resources

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

As of December 31, 2004 and 2003, working capital was $1,431,000 and $1,209,000, respectively. The increase in working capital is primarily attributable to higher accounts receivable of approximately $2.7 million due to strong fourth quarter sales and higher inventory balances of approximately $900,000, partially offset by higher short-term debt balances of approximately $1.3 million, higher accounts payable of approximately $1 million and lower current tax assets of approximately $1 million. Cash provided from operations was $1,434,000 and $749,000 for 2004 and 2003, respectively. The primary reason for the increase in cash generated from operations in 2004 is improved profitability in 2004. Net cash used in investing activities in 2004 was approximately $2,129,000 and was used primarily for the acquisition of new manufacturing equipment.

On February 28, 2003, the Company obtained a new credit facility, which has been amended effective December 31, 2003, to reflect, among other things, changes to certain financial covenants. The amended facility is comprised of: (i) a revolving credit facility of $12 million that is collateralized by the Company’s accounts receivable and inventory; (ii) a term loan of $5 million with a 6-year straight-line amortization that is collateralized by the Company’s property, plant and equipment (excluding UDT’s property, plant and equipment); (iii) a term loan of $1.5 million with a 5-year straight-line amortization that is also collateralized by the Company’s property, plant and equipment (excluding UDT’s property, plant and equipment); and (iv) a term loan of $2.5 million with a 15-year straight-line amortization that is collateralized by a mortgage on the Company’s real estate located in Georgetown, Massachusetts. Extensions of credit under this facility are subject to available collateral based upon accounts receivable and inventory levels. Therefore, the entire $12 million may not be available to the Company. For example, as of December 31, 2004, based upon borrowings outstanding of $7.9 million and collateral levels, the Company had availability of $2.9 million of additional credit under this facility. The amount of availability can fluctuate significantly. The amended credit facility calls for interest of Prime or LIBOR plus 2.25% on the revolving credit facility, and Prime plus 0.25% or LIBOR plus 2.5% on all of the term debt. Both components allow for a reduction in rates based upon the Company’s operating performance. Under the amended credit facility, the Company is subject to certain financial covenants including maintaining minimum operating cash, maximum capital expenditures, fixed charge coverage and tangible net worth covenants. As of December 31, 2004, the Company was in compliance with all of these covenants. The Company’s new $12 million revolving credit facility, as amended, is due February 28, 2006, and the $5 million term loan and mortgage are due February 28, 2008. The $1.5 million term loan is due June 30, 2010. The Company plans to seek an extension, or secure a new credit facility prior to its expiration date. There can be no guarantee that the Company will be successful in extending its existing credit facility or obtaining a new credit facility.

As a result of the consolidation of United Development Company Limited, a mortgage note collateralized by the Alabama and Florida facilities, dated September 4, 2002, originally for $470,313, is included within long-term debt in the consolidated financial statements. The note calls for fifty principal payments of $3,406 and one payment of $300,013 due on December 4, 2006. The note bears interest at LIBOR plus 2.75%, adjusted monthly. At December 31, 2004, the outstanding balance was $420,412. At December 31, 2004, the interest rate was approximately 5.1%. Payments on this note are funded through rent payments that the Company

makes on its Alabama and Florida facilities. The Company is not subject to any financial covenants under this mortgage note.

In connection with the eight-year, potential $95 million automotive program, the Company has committed to purchase the second of two new forming lines for approximately $1.9 million that, as of December 31, 2004, has been 60% funded. The Company expects to pay for the remaining 40% of the equipment within the first six-months of 2005. A portion of the remaining 40% will be funded by the undrawn portion of the Company’s $1.5 million term loan.

Aside from the forming line described above, the Company has no additional significant capital commitments in 2005, but plans on adding capacity or to enhance operating efficiencies in its manufacturing plants. The Company may consider the acquisition of companies, technologies or products in 2005, which are complementary to its business. The Company believes that its existing resources, including its revolving loan facility, together with cash generated from operations and funds expected to be available to it through any necessary equipment financing and additional bank borrowings, will be sufficient to fund its cash flow requirements through at least the end of 2005. However, there can be no assurances that such financing will be available at favorable terms, if at all.

Contractual Obligations

The following table summarizes the Company’s contractual obligations at December 31, 2004, and the effect such obligations are expected to have on its cash flow in future periods:

Payments due in:	Operating Leases		Capital Leases		Term Loans		Mortgage		Supplemental Retirement Plan		United Development Company Mortgage		Total
2005	1,812,122		401,469		949,800		168,000		138,000		40,872		$	3,510,263
2006	1,480,739		400,117		986,400		168,000		152,000		379,540		$	3,566,796
2007	1,152,389		384,109		986,400		168,000		147,000		—		$	2,837,898
2008	297,542		304,803		986,400		168,000		147,000		—		$	1,903,745
2009 & thereafter	917,169		557,694		515,612		1,492,000		196,504		—		$	3,678,979
	$	5,659,961	$	2,048,192	$	4,424,612	$	2,164,000	$	780,504	$	420,412	$	15,497,681

Payments on the United Development Company Limited note are funded through rent payments made by the Company on the Company’s Alabama and Florida facilities.

The Company requires cash to pay its operating expenses, purchase capital equipment, and to service the obligations listed above. The Company’s principal sources of funds are its operations and its revolving credit facility. Although the Company generated cash from operations in the year ended December 31, 2004, it cannot guarantee that its operations will generate cash in future periods.

Other

A significant portion of the Company’s Packaging sales of molded fiber products are to manufacturers of computer peripherals and other consumer products. As a result, the Company believes that its sales are seasonally affected, with increased sales in the second half of the year.

The Company does not believe that inflation has had a material impact on its results of operations in the last three years.

Critical Accounting Policies

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, intangible assets, income taxes, warranty obligations, restructuring and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, including current and anticipated worldwide economic conditions both in general and specifically in relation to the packaging industry, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of this Form 10-K. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

The Company has reviewed these policies with its Audit Committee.

Revenue Recognition

The Company recognizes revenue at the time of shipment when title and risk of loss have passed to the customer, persuasive evidence of an arrangement exists, performance of its obligation is complete, its price to the buyer is fixed or determinable, and the Company is reasonably assured of collecting. If a loss is anticipated on any contract, a provision for the entire loss is made immediately. Determination of these criteria, in some cases, require management’s judgments. Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue for any reporting period could be adversely affected.

Long-lived Assets and Intangible Assets

The Company reviews long-lived assets and all intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Goodwill is also reviewed at least annually for impairment. Recoverability of long-lived assets and definite lived intangible assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount. If the operation is determined to be unable to recover the carrying amount of its assets, then long-lived assets are written down to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. Recoverability of goodwill is determined under a two-step process as described in SFAS 142. The fair value of reporting units determined under step one is also based on a discounted cash flow model. At December 31, 2004, no impairment has been identified. Forecasted cash flows are based upon numerous assumptions used by management, such as revenue growth,

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is hereby incorporated by reference to the Company’s definitive proxy statement to be filed by the Company within 120 days after the close of its fiscal year.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,

(a) (1)	Financial Statements

	Index to Consolidated Financial Statements and Financial Statement Schedules
	Report of Registered Public Accounting Firm, PricewaterhouseCoopers, LLP, 2004 and 2003
	Consolidated Balance Sheets as of December 31, 2004 and 2003
	Consolidated Statements of Operations for the years ended December 31, 2004, 2003, and 2002
	Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003, and 2002
	Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003, and 2002
	Notes to Consolidated Financial Statements

(a) (2)	Financial Statement Schedules
	Schedule II — Valuation and Qualifying Accounts

(a) (3)	Exhibits
	Number		Reference
	2.01	Agreement and Plan of Reorganization among the Company, Moulded Fibre Technology, Inc. and UFP Acquisition, Inc.	A-2.01**
	2.03	Merger Agreement relating to the reincorporation of the Company in Delaware.	A-2.02**
	2.02	Agreement of Merger between Moulded Fibre Technology, Inc. and UFP Acquisition, Inc.	C-2.02**
	2.04	Asset Purchase Agreement relating to the purchase of Foam Cutting Engineers, Inc.	I-2**
	2.05	Asset Purchase Agreement relating to the purchase of the assets of Pacific Foam Technologies, Inc.	O-2.05**
	2.06	Stock Purchase Agreement dated January 14, 2000, relating to the acquisition of the stock of Simco Industries, Inc.	P-2.01**
	3.01	Certificate of Incorporation of the Company, as amended.	F-3.01** CC-3.01
	3.02	Bylaws of the Company.	A-3.02**
	4.01	Specimen Certificate for shares of the Company’s Common Stock.	A-4.01**
	4.02	Description of Capital Stock (contained in the Certificate of Incorporation of the Company, filed as Exhibit 3.01).	F-3.01**
	4.03	Rights Agreement (including the Certificate of Designation and form of Rights Certificate attached as Exhibits A and B, respectively, thereto) between the Registrant and American Stock Transfer & Trust Company, as Rights Agent, dated as of January 13, 1999.	J-4**
	10.01	$1,000,000 Mortgage and Promissory Note issued by the Company in favor of Gloucester Bank & Trust Company.	A-10.02**
	10.02	Agreement between the Company and William H. Shaw.	A-10.08, *
	10.03	Agreement and Severance Agreement between the Company and Richard L. Bailly.	A-10.09, *
	10.04	Employee Stock Purchase Plan.	A-10.18**
	10.05	1993 Combined Stock Option Plan, as amended.	K-10.19, *
	10.06	1993 Non-employee Director Stock Option Plan.	B-4.5**
	10.07	Facility Lease between the Company and Raritan Associates.	A-10.22**
	10.08	Facility lease between the Company and Flanders Properties.	A-10.25**

10.09	Amendment to facility lease between the Company and Flanders Properties.	A-10.26**
10.10	Facility Lease between the Company and Dana Evans d/b/a Evans Enterprises.	A-10.27**
10.12	Form of Indemnification Agreement for directors and officers of the Company.	A-10.30**
10.13	Promissory Note of United Development Company Limited in favor of the Company.	O-10.32**
10.14	Facility Lease between Moulded Fibre Technology, Inc. and Lincoln Gilroy II and Patrician Associates, Inc.	C-10.34**
10.15	Facility Lease between the Company and M.D. Hodges Enterprises, Inc.	D-10.35**
10.16	Facility Lease between Moulded Fibre Technology, Inc. and Dead River Properties.	D-10.36**
10.17	Facility Lease between the Company and Clinton Area Development Corporation.	G-10.37**
10.18	Supply Agreement, dated January 1, 1999, between the Company and Woodbridge Foam Corporation	Q-10.38.30**
10.19	Employment Agreement with R. Jeffrey Bailly dated April 4, 1995.	H-10.37, *
10.20	Amended 1998 Employee Stock Purchase Plan.	V**
10.21	Stock Repurchase Agreement, dated December 17, 1999	Q-10.42**
10.22	Facility Lease between the Company and Quadrate Development, LLC	Y-10.43**
10.23	Stock Repurchase Agreement dated February 20, 2001	Y-10.44**
10.24	Facility Lease between Moulded Fibre Technology Inc. and MidState 99 Distribution Building No. 1, LLC	R-10.45**
10.25	Loan Agreement between the Company and Citizens Bank, dated June 4, 2001	S-10.45**
10.26	Amended 1998 Director Stock Option Incentive Plan	V, *
10.27	Amended Facility Lease between the Company and United Development Company Limited.	U-10.27**
10.28	Amended Facility Lease between the Company and United Development Company Limited.	U-10.28**
10.29	Modification Agreement between the Company and Citizens Bank of Massachusetts.	W-10.29**
10.30	Amended Facility Lease between the Company and Ward Hill Realty Associates, LLC, successors in interest to Evans Enterprises of South Beach	X-10.30**
10.31	Credit and Security Agreement between the Company and Fleet Capital Corporation	Z-10.31**

10.32	Facility Lease between Simco Automotive Trim, Inc. and Insite Atlanta, LLC	AA-10.32**
10.33	Amended Credit and Security Agreement between the Company and Fleet Capital Corporation.	BB-10.33**
10.34	Facility lease between the Company and Clinton Base Company LLC	CC-10.34**
10:35	Second Amendment to the Credit Agreement between the Company and Fleet Capital Corporation	DD-10.35**
10.36	Facility Lease between the Company and Kessler Industries Inc.	Filed herewith
14.00	Code of Ethics	BB-14.0**
21.01	Subsidiaries of the Company.	C-21.01**
23.01	Consent of PricewaterhouseCoopers LLP	Filed herewith
31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith
32.01	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith

A. Incorporated by reference to the Company’s Registration Statement on Form S-1 (Registration No. 33-70912). The number set forth herein is the number of the Exhibit in said Registration Statement.

B. Incorporated by reference to the Company’s Registration Statement on Form S-8 (Registration No. 33-76440). The number set forth herein is the number of the Exhibit in said Registration Statement.

C. Incorporated by reference to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1993. The number set forth herein is the number of the Exhibit in said Annual Report.

D. Incorporated by reference to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1994. The number set forth herein is the number of the Exhibit in said Annual Report.

E. [Reserved]

F. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 1996. The number set forth herein is the number of the Exhibit in said Quarterly Report.

G. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995. The number set forth herein is the number of the Exhibit in said Annual Report.

H. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 1995. The number set forth herein is the number of the Exhibit in said Quarterly Report.

I. Incorporated by reference to the Company’s report on 8-K dated February 3, 1997. The number set forth herein is the number of the Exhibit in said report.

BB. Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. The number set forth is the number of the exhibit in said Annual Report.

CC. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2004. The number set forth herein is the number of the exhibit in said Quarterly Report.

DD. Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2004. The number set forth herein is the number of the exhibit in said Quarterly Report.

* Management contract or compensatory plan or arrangement.

** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934, as amended, reference is made to the documents previously filed with the Securities and Exchange Commission, which documents are hereby incorporated by reference.

The SEC allows the Company to incorporate by reference certain information into this annual report on Form 10-K. This means that the Company can disclose important information by reference to other documents the Company has filed separately with the SEC. These documents contain important information about the Company and its financial condition. The Company has incorporated by reference into this annual report the information indicated above. This information is considered to be a part of this annual report, except for any information that is superseded by information that is filed at a later date.

You may read and copy any of the documents incorporated by reference in this annual report at the following locations of the SEC by using the Company’s file number, 001-12648:

Public Reference Room	Midwest Regional Office	Northeast Regional Office
450 Fifth Street, NW	Citicorp Center	233 Broadway
Room 1024	500 West Madison Street, # 1400	New York, NY 10279
Washington, DC 20549	Chicago, IL 60661

You may also obtain copies of this information by mail from the Public Reference Room of the SEC, 450 Fifth Street, NW, Room 1024, Washington, DC 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains a World Wide Web site that contains reports, proxy statements and other information about issuers, including the Company, that file electronically with the SEC. The address of that site is http://www.sec.gov.

Documents incorporated by reference are also available from the Company without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference in this annual report. You can obtain these documents by requesting them by telephone or in writing from the Company at 172 East Main Street, Georgetown, MA 01833, (978) 352-2200.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:	March 30, 2005	By:	/s/ R. Jeffrey Bailly
			R. Jeffrey Bailly, President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

SIGNATURE	TITLE	DATE

/s/ R. Jeffrey Bailly	President, Chief Executive Officer	March 30, 2005
R. Jeffrey Bailly	and Director

/s/ William H. Shaw	Chairman of the Board of Directors	March 30, 2005
William H. Shaw

/s/ Ronald J. Lataille	Chief Financial Officer, Vice President,	March 30, 2005
Ronald J. Lataille	Principal Financial and Accounting Officer

/s/ Richard L. Bailly	Director	March 30, 2005
Richard L. Bailly

/s/ William C. Curry	Director	March 30, 2005
William C. Curry

/s/ Michael J. Ross	Director	March 30, 2005
Michael J. Ross

/s/ Kenneth L. Gestal	Director	March 30, 2005
Kenneth L. Gestal

/s/ Peter R. Worrell	Director	March 30, 2005
Peter R. Worrell

/s/ David B. Gould	Director	March 30, 2005
David B. Gould

/s/ Thomas W. Oberdorf	Director	March 30, 2005
Thomas W. Oberdorf

UFP TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

	December 31
	2004			2003
Assets
Current assets:
Cash	$	317,951		$	310,137
Receivables, net	11,818,906			9,139,314
Inventories	5,236,232			4,412,606
Prepaid expenses	710,694			493,750
Refundable income tax	—			419,658
Deferred income taxes	481,047			1,060,001
Total current assets	18,564,830			15,835,466
Property, plant and equipment	34,663,332			33,172,875
Less accumulated depreciation and amortization	(23,278,982		)	(21,699,717		)
Net property, plant and equipment	11,384,350			11,473,158
Cash surrender value of officers life insurance	125,926			117,870
Deferred income taxes	2,697,293			2,384,777
Goodwill	6,481,037			6,481,037
Other assets	378,768			456,764
Total assets	$	39,632,204		$	36,749,072
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable	$	7,923,470		$	6,737,712
Current installments of long-term debt	1,158,672			1,048,872
Current installments of capital lease obligations	401,469			386,615
Accounts payable	3,665,722			2,632,497
Accrued restructuring charge	36,433			764,745
Accrued taxes and other expenses	3,948,454			3,055,960
Total current liabilities	17,134,220			14,626,401
Long-term debt, excluding current installments	5,850,352			6,222,222
Capital lease obligations, excluding current installments	1,646,723			1,897,128
Minority interest (Note 7)	433,809			455,434
Retirement and other liabilities	780,504			856,692
Total liabilities	25,845,608			24,057,877
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, $.01 par value. Authorized 1,000,000 shares; no shares issued or outstanding	—			—
Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 4,678,566 shares in 2004 and 4,519,666 shares in 2003	46,786			45,197
Additional paid-in capital	8,652,488			8,429,937
Retained earnings	5,087,322			4,216,061
Total stockholders’ equity	13,786,596			12,691,195
Total liabilities and stockholders’ equity	$	39,632,204		$	36,749,072
The accompanying notes are an integral part of these consolidated financial statements.

F-4

UFP TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years ended December 31
	2004			2003			2002
Net sales	$	68,624,098		$	60,902,180		$	61,189,396
Cost of sales	54,652,677			50,178,084			49,084,243
Gross profit	13,971,421			10,724,096			12,105,153
Selling, general and administrative expenses	12,107,012			10,827,528			11,639,156
Restructuring charge	(280,000		)	1,405,000			—
Operating income (loss)	2,144,409			(1,508,432		)	465,997
Other income (expense):
Interest expense	(713,651		)	(783,672		)	(877,703		)
Equity in net income of unconsolidated partnership	12,532			27,156			37,531
Minority interest earnings	(83,358		)	(91,104		)	—
Other, net	—			1,000			(2,945		)
Total other expense	(784,477		)	(846,620		)	(843,117		)
Income (loss) before income tax provision	1,359,932			(2,355,052		)	(377,120		)
Income tax expense (benefit)	488,671			(839,323		)	(143,325		)
Net income (loss)	$	871,261		$	(1,515,729	)	$	(233,795	)
Net income (loss) per share:
Basic	$	0.19		$	(0.34	)	$	(0.05	)
Diluted	$	0.17		$	(0.34	)	$	(0.05	)
Weighted average common shares:
Basic	4,616,983			4,489,984			4,342,879
Diluted	4,994,611			4,489,984			4,342,879

The accompanying notes are an integral part of these consolidated financial statements.

F-5

UFP TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended December 31, 2004, 2003, and 2002

				Additional					Total
	Common Stock			Paid-in		Retained			Stockholders’
	Shares	Amount		Capital		Earnings			Equity
Balance at December 31, 2001	4,217,400	$	42,174	$	8,146,554	$	5,965,585		$	14,154,313
Employee Stock Purchase Plan	52,666	527		48,032		—			48,559
Stock issued in lieu of compensation	95,248	952		80,097		—			81,049
Stock option exercise	375	4		296		—			300
Net loss	—	—		—		(233,795		)	(233,795		)
Balance at December 31, 2002	4,365,689	43,657		8,274,979		5,731,790			14,050,426
Employee Stock Purchase Plan	53,128	531		47,416		—			47,947
Stock issued in lieu of compensation	100,849	1,009		107,542		—			108,551
Net loss	—	—		—		(1,515,729		)	(1,515,729		)
Balance at December 31, 2003	4,519,666	45,197		8,429,937		4,216,061			12,691,195
Employee Stock Purchase Plan	38,229	382		46,733		—			47,115
Stock issued in lieu of compensation	71,283	713		136,037		—			136,750
Exercise of stock options, net of shares presented for exercise	49,388	494		2,122		—			2,616
Tax benefit relating to non-qualified stock option exercise	—	—		37,659		—			37,659
Net income	—	—		—		871,261			871,261
Balance at December 31, 2004	4,678,566	$	46,786	$	8,652,488	$	5,087,322		$	13,786,596

The accompanying notes are an integral part of these consolidated financial statements.

F-6

UFP TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended December 31
	2004			2003			2002
Cash flows from operating activities:
Net income (loss)	$	871,261		$	(1,515,729	)	$	(233,795	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	2,493,300			2,706,392			2,685,650
Equity in net income of unconsolidated affiliate and partnership	(12,532		)	(27,156		)	(37,531		)
Minority interest	83,358			91,104			—
Restructuring charges	(280,000		)	1,405,000			—
Loss on disposal of property, plant and equipment	—			—			2,944
Stock issued in lieu of compensation	136,750			108,551			81,049
Deferred income taxes	304,097			(818,794		)	130,911
Changes in operating assets and liabilities, net of effects from acquisition:
Receivables, net	(2,679,592		)	(597,042		)	910,971
Inventories	(823,626		)	250,940			510,185
Prepaid expenses	(216,944		)	8,685			(4,109		)
Refundable income tax	419,658			(39,283		)	499,148
Accounts payable	733,176			36,273			(935,006		)
Accrued taxes and other expenses	444,181			(807,162		)	(993,081		)
Retirement and other liabilities	(76,188		)	(43,620		)	1,568
Cash surrender value of officers’ life insurance	(8,056		)	(17,571		)	(23,868		)
Other assets	44,744			8,411			(106,106		)
Net cash provided by operating activities	1,433,587			748,999			2,488,930
Cash flows from investing activities:
Additions to property, plant and equipment	(2,141,700		)	(1,240,349		)	(930,318		)
Acquisition of operating assets, less cash acquired	—			—			(150,000		)
Payments received on affiliated partnership	12,532			17,518			62,432
Proceeds from surrender of officers life insurance	—			124,335			—
Proceeds from disposal of property, plant and equipment	—			—			8,477
Consolidation of United Development Company, net of cash	—			200,447			—
Net cash used in investing activities	(2,129,168		)	(898,049		)	(1,009,409		)
Cash flows from financing activities:
Net borrowings under notes payable	1,185,758			536,205			347,846
Change in book overdrafts	300,049			62			(276,396		)
Proceeds from long-term borrowings	768,612			7,500,000			—
Distribution to United Development Company Partners	(104,982		)	—			—
Proceeds from sale of common stock	49,731			47,947			48,859
Principal repayment of long-term debt	(1,030,682		)	(7,396,249		)	(1,466,945		)
Principal repayment of obligations under capital leases	(465,091		)	(254,601		)	(133,829		)
Net cash provided by (used in) financing activities	703,395			433,364			(1,480,465		)
Net change in cash	7,814			284,314			(944		)
Cash at beginning of year	310,137			25,823			26,767
Cash at end of year	$	317,951		$	310,137		$	25,823

The accompanying notes are an integral part of these consolidated financial statements.

F-7

Estimated useful lives of property, plant and equipment are as follows:

Leasehold improvements		Estimated useful life or remaining lease term, whichever is shorter
Buildings and improvements		31.5 years
Equipment		8-10 years
Furniture and fixtures		5 - 7 years

(e) Income Taxes

The Company’s income taxes are accounted for under the asset and liability method of accounting. Under the asset and liability method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax expense (benefit) results from the net change during the year in deferred tax assets and liabilities. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(f) Revenue Recognition

(g) Investments in Realty Partnership

The Company has invested in Lakeshore Estates Associates, a realty limited partnership. The Lakeshore Estates investment is stated at cost, plus or minus the Company’s proportionate share of the limited partnerships’ income or losses, less any distributions received from the limited partnership. The Company has recognized its share of Lakeshore Estates Associates’ losses only to the extent of its original investment in, and advances to, this partnership. The Company’s book value in this investment is zero at December 31, 2004 and 2003, respectively.

(h) Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company reviews long-lived assets and all amortizable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount including associated intangible assets of such operation. If the operation is determined to be unable to recover the carrying amount

F-9

(p) Stock Compensation

The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related Interpretations in accounting for its stock option and employee stock purchase plans. As a result, no compensation cost has been recognized in connection with these plans.

Since the Company accounts for its stock option plans under APB 25, certain pro forma information regarding net income and net income per share is required by Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), as if the Company had accounted for its stock option plans under the fair value approach of SFAS 123. For purposes of the pro forma disclosures, the estimated fair value of the stock plans is fully amortized over the related vesting period of the options.

The Company’s pro forma information is as follows:

	Years Ended December 31
	2004		2003		2002
Net income (loss) as reported	$	871,261	(1,515,729	)	(233,795	)
Pro forma net income (loss)	$	352,177	(1,895,762	)	(495,053	)
Basic net income (loss) per share as reported	0.19		(0.34	)	(0.05	)
Pro forma basic net income (loss) per share	0.08		(0.42	)	(0.11	)
Diluted net income (loss) per share as reported	0.17		(0.34	)	(0.05	)
Pro forma diluted net income (loss) per share	$	0.07	(0.42	)	(0.11	)

The effect of applying SFAS 123 as shown above in the pro forma disclosures is not representative of the pro forma effect on net income (loss) in future years because it does not take into consideration pro forma compensation expenses related to stock options granted prior to 1995.

(2) Supplemental Cash Flow Information

Cash paid for interest and income taxes is as follows:

	Years ended December 31
	2004			2003		2002
Interest	$	697,651		$	764,772	$	850,336
Income taxes (refunds) — net	$	(340,599	)	$	18,754	$	0

F-13

Significant non-cash transactions:

	Years ended December 31
	2004			2003		2002
Property and equipment acquired under capital lease	$	229,540		$	1,397,869	1,050,746
Tax benefit resulting from the exercise of non-qualified stock options	37,659			0		0
Shares presented for stock option exercises	(239,747		)	0		0

Total non-cash transactions	$	27,452		$	1,397,869	$	1,050,746

(3) Receivables

Receivables consist of the following:

	December 31
	2004			2003
Accounts receivable - trade	$	12,328,734		$	9,474,529
Other receivables	33,489			140,400
	12,362,223			9,614,929
Less allowance for doubtful receivables	(543,317		)	(475,625		)
	$	11,818,906		$	9,139,304

(4) Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (“FSAB”) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These standards require that the purchase method of accounting be used for business combinations and eliminate the use of the pooling-of-interests method. Additionally, they require that goodwill and intangible assets with indefinite lives no longer be amortized. The Company was required to adopt SFAS No. 141 and SFAS No. 142 on a prospective basis as of July 1, 2001 and January 1, 2002, respectively. In accordance with the provisions of SFAS No. 142, the Company no longer amortizes goodwill. The Company completed its annual impairment test of goodwill in the second quarter of 2004 and determined that no goodwill was impaired.

F-14

At December 31, 2004 and December 31, 2003, the carrying value of the Company’s patents was $226,507 and $250,196, respectively, net of accumulated amortization. Future patent amortizations for years ended December 31 will be approximately:

2005	34,000
2006	34,000
2007	34,000
2008	34,000
2009	34,000
Thereafter	56,507
Total:	$	226,507

(5) Inventories

Inventories consist of the following:

	December 31
	2004		2003
Raw materials	$	3,180,349	$	2,693,660
Work in process	532,108		296,445
Finished goods	1,523,775		1,422,501
	$	5,236,232	$	4,412,606

(6) Property, Plant and Equipment

Property, plant and equipment consist of the following:

	December 31
	2004		2003
Land	$	409,119	$	409,119
Buildings and improvements	3,809,533		3,685,232
Leasehold improvements	1,905,057		2,032,386
Equipment	25,193,403		22,696,750
Furniture and fixtures	2,158,810		2,086,001
Construction in progress - equipment	1,187,410		2,263,387
	$	34,663,332	$	33,172,875

Depreciation expense for the years ended December 31, 2004, 2003, and 2002 was $2,460,048, $2,636,526, and $2,648,912, respectively.

(7) Investment in and Advances to Affiliated Partnership

The Company has a 26.32% ownership interest in a realty limited partnership, United Development Company Limited (“UDT”). In compliance with FIN 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” the Company has consolidated the financial statements of UDT as of December 31, 2003. Prior to December 31, 2003,

F-15

this investment was accounted for under the equity method at cost, plus the Company’s proportionate share of the limited partnership’s income, less any distributions received from the limited partnership. The Company’s proportionate share of the limited partnership’s net income was approximately $25,000 and $35,000 in 2002 and 2001, respectively. As a result of consolidating UDT, both total assets and total liabilities of the Company increased by $948,000. There was no impact on net income.

(8) Indebtedness

As a component of consolidating UDT’s assets, the Company included $303,653 in cash. Although this cash balance is not legally restricted, the Company does not use this cash in its operations.

At December 31, 2004, the interest rate on these facilities ranged from 3.86% to 5.25%.

As a result of the consolidation of United Development Company Limited, a mortgage note collateralized by the Alabama and Florida facilities, dated September 4, 2002, originally for $470,313 is included within long-term debt in the Consolidated Financial Statements. The note calls for fifty principal payments of $3,406 and one payment of $300,013 due on December 4, 2006. The note bears interest at LIBOR plus 2.75%, adjusted monthly. At December 31, 2004, the outstanding balance was $420,421. At December 31, 2004, the

F-16

interest rate was approximately 5.1%. Payments on this note are funded through rent payments that the Company makes on its Alabama and Florida facilities. The Company is not subject to any financial covenants under this mortgage note.

	December 31
	2004		2003
Mortgage note	$	2,164,000	$	2,332,000
Notes payable - term loans	4,424,612		4,496,000
United Development Company mortgage	420,412		443,094
Total long-term debt	7,009,024		7,271,094
Less current installments	1,158,672		1,048,872
Long-term debt, excluding current installments	$	5,850,352	$	6,222,222

Aggregate maturities of long-term debt are as follows:

Year ending December 31:
2005	$	1,158,672
2006	1,533,940
2007	1,154,400
2008	1,154,400
2009 and thereafter	2,007,612
	$	7,009,024

Long-term debt consists of the following:

(9) Accrued Taxes and Other Expenses

Accrued taxes and other expenses consist of the following:

	December 31
	2004		2003
Compensation	$	1,300,138	$	751,289
Benefits	684,799		718,045
Paid time off	436,067		374,147
Other	1,527,450		1,212,479
	$	3,948,454	$	3,055,960

(10) Restructuring Reserve

On October 22, 2003, the Company’s Board of Directors approved a formal plan of restructure in response to continued losses in the Company’s Packaging plant in Visalia, California. To that effect the Company recorded restructuring charges, in the fourth quarter of 2003, of $1,405,000, consisting of asset impairments of $640,000, severance of $40,000, and future lease commitments of $725,000. Of this amount, approximately $36,000 remains on the balance sheet as of December 31, 2004, primarily reflecting miscellaneous clean-up costs that should be paid in early 2005. During the third quarter of 2004, the

F-17

Company executed a termination agreement for the lease for its Visalia, California property for a lump-sum payment of approximately $100,000. As a result, the Company reversed $280,000 of previously recorded restructuring reserve.

The following table summarizes the restructuring activity:

				Asset						Future Lease
	Total			Impairments			Severance			Commitments
Original provision	$	1,405,000		$	640,000		$	40,000		$	725,000
2003 non cash usage	(640,000		)	(640,000		)	—			—
December 31, 2003 balance remaining	765,000			—			40,000			725,000
2004 non cash usage	(280,000		)							(280,000		)
2004 cash usage	(449,000		)	—			(40,000		)	(409,000		)
12/31/04 balance remaining	$	36,000		$	—		$	—		$	36,000

(11) Income Taxes

The Company’s income tax (benefit) provision for the years ended December 31, 2004, 2003, and 2002 consists of approximately:

	Years ended December 31
	2004		2003			2002
Current:
Federal	$	76,000	$	(51,000	)	$	(312,000	)
State	108,000		31,000			38,000
	184,000		(20,000		)	(274,000		)
Deferred:
Federal	174,000		(798,000		)	146,000
State	131,000		(21,000		)	(15,000		)
	305,000		(819,000		)	131,000
Total income tax provision (benefit)	$	489,000	$	(839,000	)	$	(143,000	)

At December 31, 2004, the Company has net operating loss carry-forwards for federal income tax purposes of approximately $10,541,000 and for state income tax purposes of approximately $2,425,000, which are available to offset future taxable income and expire during the years ending December 31, 2011 through 2022.

The future benefit of the net operating loss carry-forwards acquired from MFT and Simco will be limited to $600,000 per year in accordance with Section 382 of the Internal Revenue Code. As of December 31, 2004, net operating loss carry-forwards acquired from MFT and Simco for federal income tax purposes totaled $1,742,000 and $5,142,000, respectively.

F-18

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are approximately as follows:

	December 31
	2004		2003
Deferred tax assets related to:
Reserves not currently deductible	$	82,000	$	436,000
Research and development credits	246,000		111,000
Compensation programs	163,000		110,000
Retirement liability	292,000		292,000
Net operating loss carryforwards	3,704,000		3,294,000
Other	53,000		25,000
	4,540,000		4,268,000
Deferred tax liabilities related to:
Excess of book over tax basis of fixed assets	1,190,000		538,000
Investee tax loss in excess of book losses	55,000		57,000
Capital leases	117,000		228,000
	1,362,000		823,000
Net deferred tax assets	$	3,178,000	$	3,445,000

The amount recorded as net deferred tax assets as of December 31, 2004 and 2003 represents the amount of tax benefits of existing deductible temporary differences or carry-forwards that are more likely than not to be realized through the generation of sufficient future taxable income within the carry-forward period. The Company believes that the net deferred tax asset of $3,178,000 at December 31, 2004 is more likely than not to be realized in the carry-forward period. Management reviews the recoverability of deferred tax assets during each reporting period.

The actual tax provision for the years presented differs from the “expected” tax provision for those years, computed by applying the U.S. federal corporate rate of 34% to income before income tax expense as follows:

	Years ended December 31
	2004		2003		2002
Computed “expected” tax rate	34.0	%	34.0	%	34.0	%
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit	10.4		(0.7	)	(4.1	)
Officers’ life insurance	0.4		(0.2	)	(1.4	)
Meals and entertainment	2.2		(0.3	)	(5.4	)
R&D credits	(9.9	)	3.5		13.5
Other	(1.2	)	(0.7	)	1.4
Effective tax rate	35.9	%	35.6	%	38.0	%

The impact on the Company’s 2004 effective tax rate from state taxes is higher than usual due to true-up adjustments of state net operating losses.

F-19

(12) Net Income Per Share

Basic income per share is based upon the weighted average common shares outstanding during each year. Diluted income per share is based upon the weighted average of common shares and dilutive common stock equivalent shares outstanding during each year. The weighted average number of shares used to compute both basic and diluted income per share consisted of the following:

	Years ended December 31
	2004	2003	2002
Basic weighted average common shares outstanding during the year	4,616,983	4,489,984	4,342,879
Weighted average common equivalent shares due to stock options	377,628	0	0
Diluted weighted average common shares outstanding during the year	4,994,611	4,489,984	4,342,879

Potential common shares of 93,047 and 38,572 were not included in the computation of diluted weighted average common shares outstanding for years ended December 31, 2003 and 2002, respectively, because their inclusion would be anti-dilutive.

(13) Stock Option and Employee Stock Purchase Plans

The Company maintains a stock option plan to provide long-term rewards and incentives to the Company’s key employees, officers, employee directors, consultants and advisors. The plan provides for either nonqualified stock options or incentive stock options for the issuance of up to 1,550,000 shares of common stock. The exercise price of the incentive stock options may not be less than the fair market value of the common stock on the date of grant, and the exercise price for nonqualified stock options shall be determined by the Stock Option Committee. These options expire over five- to ten-year periods. Options granted under the plan generally become exercisable with respect to 25% of the total number of shares subject to such options at the end of each 12-month period following the grant of the option. At December 31, 2004, there were 694,825 options outstanding under the plan.

Through July 15, 1998, the Company maintained a stock option plan covering non-employee directors (the “1993 Director Plan”). Effective July 15, 1998, with the formation of the 1998 Director Stock Option Incentive Plan (“1998 Director Plan”), the 1993 Director Plan was frozen. The 1993 Director Plan provided for options for the issuance of up to 110,000 shares of common stock. On July 1 of each year, each individual who at the time was serving as a non-employee director of the Company received an automatic grant of options to purchase 2,500 shares of common stock. These options became exercisable in full six months after the date of grant and expire ten years from the date of grant. The exercise price was the fair market value of the common stock on the date of grant. At December 31, 2004, there were 50,000 options outstanding under the 1993 Director Plan.

F-20

The following is a summary of stock option activity under all plans:

			Weighted
	Shares Under		Average Exercise
	Options		Price
Outstanding at December 31, 2001	1,011,012		$	2.85
Granted	159,352		1.17
Exercised	(375	)	0.80
Canceled or expired	(83,500	)	3.77

Outstanding at December 31, 2002	1,086,489		$	2.54
Granted	380,125		1.15
Exercised	—		—
Cancelled or expired	(330,444	)	3.21

Outstanding December 31, 2003	1,136,170		$	1.88
Granted	214,167		2.74
Exercised	(118,800	)	2.04
Cancelled or expired	(56,000	)	3.08

Outstanding December 31, 2004	1,175,537		$	1.97

The weighted-average fair value of options granted during 2004, 2003, and 2002 was $2.34, $0.98, and $0.94, respectively. There were 1,031,287 exercisable options as of December 31, 2004.

The following is a summary of information relating to stock options outstanding and exercisable by price range as of December 31, 2004:

		Options Outstanding			Options Exercisable
		Options Outstanding			Options Exercisable
			Weighted			Weighted
	Outstanding	Weighted average	average			average
Range of	as of	remaining	exercise		Exercisable as	exercise
exercise prices	12/31/04	contractual life	price		of 12/31/04	price
$0.00 - $0.99	112,525	4.2	$	0.80	96,200	$	0.80
$1.00 - $1.99	555,431	6.3	1.26		454,806	1.26
$2.00 - $2.99	295,414	6.2	2.56		295,414	2.56
$3.00 - $3.99	174,867	6.5	3.35		147,367	3.37
$4.00 - $4.99	25,000	3.0	4.19		25,000	1.19
$5.00 - $5.99	—	0	—		—	—
$6.00 - $6.99	12,500	1.5	6.13		12,500	6.13
	1,175,737	6.0	$	1.97	1,031,287	$	2.02

F-22

Included in property, plant and equipment are the following amounts held under capital lease:

	December 31
	2004			2003
Equipment	$	3,071,028		$		2,954,968
Less accumulated amortization	(523,208		)	(331,241			)
	$	2,547,820		$	2,623,727

Future minimum lease payments under noncancelable operating leases and the present value of future minimum lease payments under capital leases as of December 31, 2003, are as follows:

			Operating
Years ending December 31:	Capital Leases		Leases
2005	465,555		1,812,122
2006	462,287		1,480,739
2007	439,434		1,152,389
2008	398,996		297,542
Thereafter	626,919		917,169
Total minimum lease payments	$	2,393,191	$	5,659,961
Less amount representing interest	344,999
Present value of future minimum lease payments	2,048,192
Less current installments of obligations under capital leases	401,469
Obligations under capital lease, excluding current installments	$	1,646,723

Rent expense amounted to approximately $2,153,000, $2,126,000, and $2,156,000 in 2004, 2003, and 2002, respectively. Approximately $244,000, $244,000, and $246,000 in 2004, 2003 and 2002, respectively, was paid to United Development Company Limited (“UDT”), a real estate company of which the Company owns 26.32%, that owns the Decatur, Alabama, and Kissimmee, Florida, facilities. The 2004 rent expense incurred from “UDT” has been eliminated in consolidation.

In connection with the eight-year, potential $95 million automotive program, the Company has purchased a new forming line for approximately $1.7 million in 2003, and a second similar forming line for approximately $1.9 million in 2004.

(b) Legal — The Company is a defendant in various administrative proceedings that are being handled in the ordinary course of business. In the opinion of management of the Company, these suits and claims 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.

F-24

(17) Profit Sharing Plan

The Company maintains a profit-sharing plan for eligible employees. Contributions to the Plan are made in the form of matching contributions to employee 401k deferrals as well as discretionary amounts determined by the Board of Directors, and amounted to approximately $459,000, $345,000, and $360,000 in 2004, 2003, and 2002, respectively.

(18) Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, Disclosures About Fair Value of Financial Instruments, defines the fair value of financial instruments as the amount at which the instrument could be exchanged in a transaction between willing parties.

Cash and cash equivalents, accounts receivable, inventories, prepaid expenses, notes payable to bank, accounts payable, and accrued expenses and payroll withholdings are stated at carrying amounts that approximate fair value because of the short maturity of those instruments.

Long-term debt and capital lease obligations are subject to interest rates currently offered to the Company; therefore, the historical carrying amount approximates fair value.

(19) Segment Data

The Company has adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

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

The accounting policies of the segments are the same as those described in Note 1. Income taxes and interest expense have been allocated based on operating results and total assets employed in each segment.

Inter-segment transactions are uncommon and not material. Therefore, they have not been separately reflected in the financial table below. The totals of the reportable segments’ revenues, net profits and assets agree with the Company’s comparable amount contained in the audited financial statements. Revenues from customers outside of the United States are not material. No one customer accounts for more than 10% of the Company’s consolidated revenues.

F-25

The results for the 2004 Packaging segment include the results of United Development Company Limited.

Financial statement information by reportable segment is as follows:

	Component
2004	Products		Packaging	Total
Sales	$	36,135,175	32,488,923	$	68,624,098
Operating income	967,616		1,176,793	2,144,409
Total assets	21,921,263		17,710,941	39,632,204
Depreciation / amortization	1,111,537		1,381,763	2,493,300
Capital expenditures	1,343,254		828,446	2,171,700
Interest expense	375,822		337,829	713,651
Goodwill	4,463,246		2,017,791	6,481,037

	Component
2003	Products			Packaging			Total
Sales	$	31,264,862		$	29,637,318		$	60,902,180
Operating loss	(451,112		)	(1,057,320		)	(1,508,432		)
Total assets	18,939,567			17,809,505			36,749,072
Depreciation / amortization	1,077,602			1,628,790			2,706,392
Capital expenditures	750,280			490,069			1,240,349
Interest expense	381,832			401,840			783,672
Goodwill	4,463,246			2,017,791			6,481,037

	Component
2002	Products			Packaging			Total
Sales	$	31,011,592		$	30,177,804		$	61,189,396
Operating income	252,561			213,436			465,997
Total assets	17,762,229			17,620,543			35,382,772
Depreciation / amortization	1,018,931			1,666,719			2,685,650
Capital expenditures	516,099			394,872			910,971
Interest expense	(403,870		)	(473,833		)	(877,703		)
Goodwill	4,463,246			2,017,791			6,481,037

F-26

(20) Quarterly Financial Information (unaudited)

	Q1			Q2			Q3		Q4
Year ended 12/31/2003
Net sales	$	14,244,653		$	15,352,933		$	16,056,162	$	15,248,432
Gross profit	2,259,995			2,739,030			3,152,535		2,572,536
Net (loss) income	(368,325		)	(95,577		)	41,304		(1,093,131		)
Basic net loss per share	(0.08		)	(0.02		)	0.01		(0.24		)
Diluted net loss per share	(0.08		)	(0.02		)	0.01		(0.24		)

Year ended 12/31/2004
Net sales	$	15,934,254		$	16,827,393		$	17,657,812	$	18,204,639
Gross profit	3,242,182			3,661,094			3,217,685		3,850,460
Net income	53,963			216,292			190,473		410,533
Basic net income per share	0.01			0.05			0.04		0.09
Diluted net income per share	0.01			0.04			0.04		0.08

F-27

Schedule II

UFP TECHNOLOGIES, INC.

Valuation and Qualifying Accounts

Years ended December 31, 2004, 2003, and 2002

Accounts receivable, allowance for doubtful accounts:

	2004			2003			2002
Balance at beginning of year	$	475,625		$	575,406		$	519,594
Provision charged to expense	165,284			(121,795		)	125,659
Write-offs and recoveries	(97,592		)	22,014			(69,847		)
Balance at end of year	$	543,317		$	475,625		$	575,406

Inventory allowance for obsolescence:

	2004			2003			2002
Balance at beginning of year	$	270,289		$	317,479		$	368,005
Provision charged to expense	175,929			174,500			135,276
Write-offs	(141,945		)	(221,690		)	(185,802		)
Balance at end of year	$	304,273		$	270,289		$	317,479

* * *

F-28

Revenue Recognition

Long-lived Assets and Intangible Assets

Accounts Receivable

Inventory

Deferred Income Taxes

Report of Independent Registered Public Accounting Firm

Years ended December 31, 2004, 2003, and 2002