FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark one) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1999 ------------------ or: / / 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: 0-20967 ------- UFP TECHNOLOGIES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 04-2314970 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 172 EAST MAIN STREET, GEORGETOWN, MASSACHUSETTS 01833 -- USA ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (978) 352-2200 -------------- (Registrant's telephone number, including area code) ----------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes X No --- --- As of November 8, 1999, 4,859,632 shares of registrant's Common Stock, $.01 par value, were outstanding. UFP TECHNOLOGIES, INC. INDEX Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets......................................1 September 30, 1999 and December 31, 1998 Consolidated Statements of Operations......................................2 Three Months and Nine Months Ended September 30, 1999 and 1998 Consolidated Statements of Cash Flows......................................3 Nine Months Ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements.................................4 Item 2. Management's Discussion and Analysis of Financial ...............................8 Condition and Results of Operations Item 3 Quantitative and Qualitative Disclosure about Market Risk ......................11 PART II - OTHER INFORMATION....................................................................12 SIGNATURES ....................................................................................13 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UFP TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS 30-SEP-99 31-DEC-98 ------------------- ----------------- ASSETS (Unaudited) (Audited) Current assets Cash and cash equivalents $ 321,864 $ 512,356 Accounts receivable 9,200,597 7,867,647 Inventories 5,248,533 4,091,770 Prepaid expenses and other current assets 630,155 688,191 ------------------- ----------------- Total current assets 15,401,149 13,159,964 ------------------- ----------------- Property, plant and equipment 21,751,372 20,025,618 Less accumulated depreciation and amortization (10,493,777) (9,086,763) ------------------- ----------------- Net property, plant and equipment 11,257,595 10,938,855 ------------------- ----------------- Goodwill, net 4,500,539 4,711,463 Other assets 1,087,359 1,138,560 ------------------- ----------------- Total assets $ 32,246,642 $ 29,948,842 =================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 6,319,548 $ 4,150,000 Current installments of long-term debt 62,959 59,411 Current installments of capital lease obligations 1,036,324 851,042 Accounts payable 2,181,725 2,589,492 Accrued expenses and payroll withholdings 3,543,905 3,410,929 ------------------- ----------------- Total current liabilities 13,144,461 11,060,874 Long-term debt, excluding current installments 523,601 568,678 Capital lease obligations, excluding current installments 716,121 1,554,647 Retirement and other liabilities 765,509 869,218 ------------------- ----------------- Total liabilities 15,149,692 14,053,417 ------------------- ----------------- Stockholders' equity Preferred stock. $.01 value. Authorized 1,000,000; no shares issued or outstanding. Common stock. $0.01 value. Authorized 20,000,000; issued and outstanding 4,844,632 at September 30, 1999, and 4,707,354 at December 31, 1998. 48,447 47,074 Additional paid-in capital 9,781,358 9,613,859 Retained earnings 7,267,145 6,234,492 ------------------- ----------------- Total stockholders equity 17,096,950 15,895,425 ------------------- ----------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,246,642 $ 29,948,842 =================== ================= The accompanying notes are an integral part of these condensed consolidated financial statements. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 1 of 13 UFP TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED 30-SEP-99 30-SEP-98 30-SEP-99 30-SEP-98 --------- --------- --------- --------- Net sales $ 14,439,589 12,661,734 42,809,943 34,729,759 Cost of sales 10,920,052 9,143,693 32,170,066 25,218,157 ---------------- ---------------- ---------------- --------------- Gross profit 3,519,537 3,518,041 10,639,877 9,511,602 Selling, general and administrative expenses 2,856,526 2,572,460 8,436,471 7,283,700 ---------------- ---------------- ---------------- --------------- Operating income 663,011 945,581 2,203,406 2,227,902 Interest expense 162,967 125,106 476,371 403,990 Other income (840) (6,751) (840) (42,665) ---------------- ---------------- ---------------- --------------- Income before income taxes 500,884 827,226 1,727,875 1,866,577 Income taxes 200,423 335,000 695,223 765,000 ---------------- ---------------- ---------------- --------------- Net income $ 300,461 492,226 1,032,652 1,101,577 ================ ================ ================ =============== Basic net income per share $ 0.06 0.10 0.21 0.24 Diluted net income per share $ 0.06 0.10 0.21 0.23 Weighted average number of shares used in computation of per share data: Basic 4,844,632 4,688,441 4,808,871 4,675,590 Diluted 4,904,751 4,786,905 4,918,295 4,832,057 The accompanying notes are an integral part of these consolidated financial statements - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 2 of 13 TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED 30-SEP-99 30-SEP-98 --------------------- ------------------ Cash flows from operating activities: Net income $ 1,032,652 $ 1,101,577 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,628,738 1,361,881 Equity in net income (loss) of unconsolidated affiliate and partnership - (17,984) Deferred income taxes - 523 Stock issued in lieu of compensation 168,000 44,000 Changes in operating assets and liabilities: Accounts receivable (1,332,950) (942,758) Inventories (1,156,763) (178,367) Prepaid expenses and other current assets 57,712 67,493 Accounts payable (407,767) 366,612 Accrued expenses and payroll withholdings 132,976 797,574 Retirement and other liabilities (103,801) 145,000 --------------------- ------------------ Net cash provided by operating activities 18,797 2,745,551 Cash flows from investing activities: Additions to property, plant and equipment (1,725,754) (950,160) Payments from affiliates 21,430 - Change in other assets 19,388 108,689 --------------------- ------------------ Net cash used in investing activities (1,684,936) (841,471) Cash flows from financing activities: Net borrowings (repayments) under notes payable 2,169,548 (900,000) Principal repayments of long-term debt (41,529) (95,393) Principal repayments of capital lease obligations (653,244) (653,575) Net proceeds from sale of common stock 872 71,249 --------------------- ------------------ Net cash provided by (used in) financing activities 1,475,647 (1,577,719) --------------------- ------------------ Net change in cash and cash equivalents (190,492) 326,361 Cash and cash equivalents, at beginning of period 512,356 233,452 --------------------- ------------------ Cash and cash equivalents, at end of period 321,864 559,813 ===================== ================== The accompanying notes are an integral part of these consolidated financial statements - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 3 of 13 UFP TECHNOLOGIES, INC. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The interim consolidated financial statements of UFP Technologies, Inc. (the Company) presented herein, without audit, have been prepared pursuant to the rules of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all the information and note disclosures required by generally accepted accounting principles. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1998, included in the Company's 1998 Annual Report on Form 10-K as provided to the Securities and Exchange Commission. The condensed consolidated balance sheet as of September 30, 1999, the consolidated statements of operations for the three and nine months ended September 30, 1999 and 1998, and the consolidated statements of cash flows for the nine months ended September 30, 1999 and 1998, are unaudited but, in the opinion of management, include all adjustments (consisting of normal, recurring adjustments) necessary for fair presentation of results for these interim periods. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for the nine months ended September 30, 1999, are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 1999. (2) Inventory Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: 30-SEP-99 31-DEC-98 --------- --------- Raw materials $ 3,222,099 $ 2,634,482 Work-in-process 759,854 504,489 Finished goods 1,266,580 952,799 --------- ---------- Total inventory 5,248,533 4,091,770 ========= ========== Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 4 of 13 (3) Common Stock At December 31, 1998, 775,000 options were outstanding under the Company's 1993 Employee Stock Option Plan ("1993 Plan"). The purpose of these options is to provide long-term rewards and incentives to the Company's key employees and officers. In the first nine months of 1999, 54,444 options were issued, 135,250 options were exercised, and 148,000 options expired under the 1993 Plan. At September 30, 1999, 546,194 options were 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 will 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 September 30, 1999, 55,000 options were outstanding under the 1993 Director Plan. Effective July 15, 1998, the Company adopted the 1998 Director Stock Option Incentive Plan ("1998 Director Plan") for the benefit of non-employee directors of the Company. The 1998 Director Plan provides for options for the issuance of up to 300,000 shares of common stock. These options become exercisable in full six months after the date of grant and expire ten years from the date of grant. In connection with the adoption of the 1998 Director Plan, the 1993 Director Plan was discontinued; however, the options outstanding under the 1993 Director Plan were not affected by the adoption of the new plan. In the first nine months of 1999, 38,400 options were issued. At September 30, 1999, 48,200 options were outstanding under the 1998 Director Plan. On April 18, 1998, the Company adopted the 1998 Stock Purchase Plan which provides that all employees of the Company who work more than twenty hours per week and more than five months in any calendar year and who are employees on or before the applicable offering period are eligible to participate. The Stock Purchase Plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986. Under the Stock Purchase Plan participants may have withheld up to 10% of their base salaries during the six month offering periods ending June 30 and December 31 for the purchase of the Company's common stock at 85% of the lower of the market value of the common stock on the first or last day of the offering period. The Stock Purchase Plan provides for the issuance of up to 150,000 shares of common stock. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 5 of 13 (4) Earnings per share The Company has adopted the provisions of the Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding. Diluted earnings per share is based upon the weighted average of common shares and dilutive common stock equivalent shares outstanding during each period. The weighted average number of shares used to compute diluted income per share consisted of the following: Three Months Ended Nine Months Ended 30-Sep-99 30-Sep-98 30-Sep-99 30-Sep-98 --------------------------------- --------------------------------- Weighted average common shares outstanding 4,844,632 4,688,441 4,808,871 4,675,590 Weighted average common equivalent shares due to stock options 60,119 98,464 109,424 156,467 -------------- --------------- --------------- --------------- 4,904,751 4,786,905 4,918,295 4,832,057 ============== =============== =============== =============== 5) Segment Reporting The Company has adopted Statement of Financial Accounting Standards 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: Protective Packaging and Specialty Applications. Within the Protective 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 Specialty 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 of the Company's annual report on Form 10-K for the year ended December 31, 1998, as filed with the Securities and Exchange Commission. The Company evaluates the performance of its operating segment based on net income. 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. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 6 of 13 THREE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------- Specialty Packaging Total UFPT -------------------- ------------------- -------------------- Net sales $ 6,241,608 $ 8,197,981 $ 14,439,589 Net income (42,236) 342,697 300,461 THREE MONTHS ENDED SEPTEMBER 30, 1998 ------------------------------------------------------------------- Specialty Packaging Total UFPT -------------------- ------------------- -------------------- Net sales $ 3,610,302 $ 9,051,432 $ 12,661,734 Net income 89,442 402,784 492,226 NINE MONTHS ENDED SEPTEMBER 30, 1999 ------------------------------------------------------------------- Specialty Packaging Total UFPT -------------------- ------------------- -------------------- Net sales $ 18,199,784 $ 24,610,159 $ 42,809,943 Net income 98,754 933,898 1,032,652 NINE MONTHS ENDED JUNE 30, 1998 ------------------------------------------------------------------- Specialty Packaging Total UFPT -------------------- ------------------- -------------------- Net sales $ 10,099,083 $ 24,630,676 $ 34,729,759 Net income 264,328 837,249 1,101,577 - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 7 of 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales Net sales for the three-month period ended September 30, 1999, were $14.4 million or 14.0% above sales of $12.7 million in the same period last year. Sales for the nine-month period ended September 30, 1999, increased 23.3% to $42.8 million from $34.7 million last year. The increases in sales are attributable to sales growth within the company's specialty segment primarily due to the acquisition of Pacific Foam in December 1998, partially offset by reductions in sales within the company's packaging segment primarily as a result of the completion of a large program from one of the company's customers. Gross Profit Gross profit as a percentage of sales (gross margin) decreased in both the three- and nine-month periods ended September 30, 1999, over the respective periods last year. Gross margins for the three-month periods ended September 30, 1999 and 1998, were 24.4% and 27.8%, respectively. Gross margins were 24.9% and 27.4% for the respective nine-month periods. The decreases in gross margin are attributable to the Company's continued investment in programs within the specialty products segment. Selling, General and Administrative Expenses Selling, General and Administrative expenses ("SG&A") were $2.9 million, or 19.8% of sales, for the three-month period ended September 30, 1999, compared to $2.6 million, or 20.3% of sales, in the same period a year ago. For the nine-month period ended September 30, 1999, SG&A expenses were $8.4 million, or 19.7% of sales, compared to $7.3 million, or 21.0% of sales, in the same period a year ago. The increases in SG&A primarily result from SG&A of Pacific Foam. The decreases in SG&A as a percentage of sales result from economies of scale achieved with sales growth. Other Interest expense for the three-month period ended September 30, 1999, increased to $163,000 from $125,000 in the comparable last year period. For the nine-month period ended September 30, 1999, interest expense increased to $476,000 from $404,000 for the same period last year. The increase in both periods is primarily due to higher average borrowings due to the financing of the acquisition of Pacific Foam. The Company's effective tax rates for the three and nine-month periods ended September 30, 1999, were 40.0% and 40.2% compared to 40.5% and 41.0% for the respective periods last year. 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. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 8 of 13 At September 30, 1999 and December 31, 1998, the Company's working capital was approximately $2,257,000 and $2,099,000 respectively. During the nine-month period ended September 30, 1999, operations provided cash of $19,000 compared to $2,746,000 in the same period last year. The decrease in cash is primarily a result of higher inventory levels as well as a decrease in accounts payable during the current period compared to an increase in accounts payable in the same period last year. Cash used for investing activities of $1,684,000 primarily reflect purchases of machinery and equipment for production purposes as well as a continued investment in new computer equipment and systems. Net cash provided by financing activities for the nine-month period ended September 30, 1999, was approximately $1,476,000 compared to cash used in financing activities of approximately $1,578,000 in the same period last year. The change is due to the financing of working capital requirements as well as higher capital expenditures. While the Company does not have any significant capital commitments, it intends to continue to invest in capital equipment to support its operations. The Company is also engaged in discussions with certain parties regarding potential strategic acquisitions, but presently does not have any agreements to enter into any such acquisitions. The Company intends to fund any such acquisitions with working capital and bank financing. The Company has an $8,000,000 revolving bank loan facility, of which $6,320,000 was outstanding on September 30, 1999. Borrowings through this credit facility are unsecured, and bear interest at LIBOR plus 1.25% or prime. In addition the Company has a $10,000,000 acquisition line of credit of which no amounts were outstanding at September 30, 1999. At September 30, 1999, the Company had capital lease obligations and other notes payable of approximately $1,752,000 and $587,000, respectively. At September 30, 1999, the current portion of all debt, including the revolving bank loan, was approximately $7,419,000. The Company believes that its existing resources, including its revolving loan facility and acquisition line of credit, 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 next twelve months. However, there can be no assurances that such financing will be available at favorable terms, if at all. Year 2000 Readiness Disclosure The Year 2000 issue is the potential for system and processing failure of date-related data and the result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 9 of 13 The Company has established a Year 2000 Compliance Committee (the "Committee) which is comprised of members of senior management, finance, MIS, operations and engineering. The committee's mandate is to design and implement a Compliance Plan that minimizes the risk of material adverse impact to the Company resulting from events triggered by the turn of the century. The Committee has defined three categories of internal elements that are subject to risk; computer hardware and software, manufacturing equipment and building equipment. Computer hardware and software includes networking, operating and application software currently being used by the Company as well as those that are planned to be installed prior to the year 2000, and the hardware platforms upon which they operate. Manufacturing equipment includes machinery and equipment, owned or leased, that is used by the Company in the process of manufacturing inventory for resale. Building equipment includes all other devices that potentially have microprocessing chips that were not included in computer hardware and software and manufacturing equipment, including, but not limited to, fax machines, security systems, heating/air conditioning, telephone and other communication systems, copiers, sprinklers and elevators. The approach for minimizing risk of noncompliance within each of these elements includes four distinct phases: Inventory, Assessment, Conversion and Implementation. In the Inventory phase the Company identifies the items within each of the three previously defined elements. The Company has substantially completed this phase. The Assessment phase includes identifying which of the items in the inventory are non-compliant. The items in Inventory are assessed in an order of priority based upon the Committee's opinion of their relative importance to the Company's operations. The Company has completed the assessment phase for many of the items in the computer hardware and software and the manufacturing equipment elements. The Company is still in the process of assessing the compliance status of some of its building equipment. In the Conversion phase the Company repairs or replaces those items that are non-compliant. The Company is in the process of implementing new financial and manufacturing software ("New Software") throughout all of its plants that is Year 2000 compliant which should result in substantial compliance within the computer hardware and software element. The Company has not yet identified a manufacturing machine that is not Year 2000 compliant. In the Implementation phase, the Company plans to put into operation repaired or new devices that are Year 2000 compliant. At this time, the Company expects the implementation of the new software systems and their related hardware platforms as well as upgrades to existing systems and platforms to extend into the fourth quarter of 1999. The company cannot assure that it will fully complete the implementation phase by the beginning of the year 2000, which could materially adversely affect the company's business and financial condition. Independent of its own internal elements, the Company is dependent upon the customers who order its products and upon numerous third parties who supply various items including materials, supplies, services, utilities and other items the Company uses in the ordinary course of business. Included within these third parties is a group of several key foam raw material suppliers that collectively supply a significant portion of the Company's foam used in production. The Company is in the process of evaluating the compliance status of its customers and third party suppliers. However, the Company may not ever be able to estimate the nature or extent of any potential adverse impact - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 10 of 13 resulting from the failure of third parties, such as its suppliers, service providers and customers, to achieve Year 2000 compliance. Moreover, such third parties, even if Year 2000 compliant, could experience difficulties resulting from Year 2000 issues relating to their suppliers, service providers and customers. As a result, although the Company does not currently anticipate that it will experience any significant shipment delays from its major suppliers or any major sales delays from its major customers due to Year 2000 issues, the Company cannot provide any assurance that these third parties will not experience Year 2000 problems or that any may have a material adverse effect on the Company's business, results of operations and financial condition. The Company has included the cost of the new software in its financial plan for 1999 and 2000. The software and hardware costs will be capitalized and depreciated in compliance with the Company's capitalization policy. Although the decision to implement the New Software potentially resolves the Year 2000 problem for the majority of the Company's computer applications, it was made for operating reasons and is considered normal capital expenditures. As a result, the Company does not expect to incur material costs above and beyond the cost of implementing the New Software. The Company expects to be substantially compliant by the Year 2000, but can give no assurance as to the readiness of its key material and service providers. As a result, the Company expects to complete a Contingency Plan (the "Plan") that will address the operating issues in the event that any of its material or service providers fail to perform as a result of a Year 2000 problem. In addition, the Plan will address operating considerations in the event that any of the Company's internal elements fail to perform as expected. The Company can give no assurance that the Plan will be effective. To the extent that the Company does not identify or properly address any material non-compliant systems or equipment operated by the Company or by third parties, such as the Company's suppliers, service providers and customers, the most reasonably likely worst case Year 2000 scenario is a systemic failure beyond the control of the Company, such as a prolonged telecommunications or electrical failure, or a general disruption in the United States or global business activities that could result in a significant economic downturn. The Company believes that the primary business risks, in the event of such failure or other disruption, would include but not be limited to, loss of customers or orders, increased operating costs, inability to obtain inventory on a timely basis, disruptions in product shipments, or other business interruptions of a material nature, as well as claims of mismanagement, misrepresentation, or breach of contract, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The following discussion of the Company's market risk includes "forward-looking statements" that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Market risk represents the risk of changes in value of a financial instrument caused by fluctuations in interest rates, foreign exchange rates, and equity prices. At September 30, 1999, the Company's cash and cash equivalents consisted of bank accounts in U.S. dollars, and their valuation would not be affected by market risk. The Company has debt instruments where interest is based upon the prime rate and, therefore, future operations could be affected by interest rate changes; however, the Company believes that the market risk of the debt is minimal. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 11 of 13 PART II - OTHER INFORMATION UFP TECHNOLOGIES, INC. Item 1 Legal Proceedings: No material litigation. Item 2 Changes in Securities: None Item 3 Defaults Upon Senior Securities: None Item 4 Submission of Matters to a Vote of Security Holders. None Item 5 Other Information: None Item 6 Exhibits and Reports on Form 8-K. (a) Exhibits furnished: 10.42 Loan agreement between Registrant and Citizens Bank of Massachusetts (27) Financial Data Schedule (b) Reports on Form 8-K: The Company did not file a report on Form 8-K for the reporting period. - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 12 of 13 UFP TECHNOLOGIES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UFP TECHNOLOGIES, INC. (Registrant) November 15, 1999 /s/ R. Jeffrey Bailly Date ------------------------------------------------------ R. Jeffrey Bailly President, Chief Executive Officer and Director November 15, 1999 /s/ Ronald J. Lataille Date ------------------------------------------------------ Ronald J. Lataille Vice President, Treasurer, and Chief Financial Officer - ------------------------------------------------------------------------------- UFP Technologies, Inc. Q3 1999 10-Q 13 of 13