## NoTES To CoNSolIdATEd FINANCIAl STATEMENTS 

## (1) Summary of Significant accounting Policies 

UFp technologies, Inc. (“the Company”) is an innovative designer and custom converter of foams, plastics, composites and natural fiber products principally serving the medical, automotive, consumer, electronics, industrial and aerospace and defense markets. the Company was incorporated in the state of Delaware in 1993. 

## (a) Principles of consolidation 

the consolidated financial statements include the accounts and results of operations of UFp technologies, Inc., its wholly- owned subsidiaries, Moulded Fibre technology, Inc., simco Industries, Inc. and stephenson & Lawyer, Inc. and its wholly- owned subsidiary, patterson properties Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. 

## (b) use of estimates 

the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United states of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including allowance for doubtful accounts and the net realizable value of inventory, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 

## (c) Fair value Measurement 

the Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurement or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk. 

the Company has not elected fair value accounting for any financial instruments for which fair value accounting is optional. 

## (d) Fair value of Financial instruments 

Cash and cash equivalents, accounts receivable, accounts payable and accrued taxes and other liabilities are stated at carrying amounts that approximate fair value because of the short maturity of those instruments. the carrying amount of the Company’s long-term debt approximates fair value as the interest rate on the debt approximates the Company’s current incremental borrowing rate. 

## (e) cash and cash equivalents 

the Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. At December 31, 2014 and 2013, cash equivalents primarily consisted of money market accounts and certificates of deposit that are readily convertible into cash. 

the Company maintains its cash in bank deposit accounts, money market funds, and certificates of deposit that at times exceed federally insured limits. the Company periodically reviews the financial stability of institutions holding its accounts, and does not believe it is exposed to any significant custodial credit risk on cash. the Company’s main operating account with Bank of America exceeds federal depository insurance limit by approximately $23.2 million. 

## (f) accounts receivable 

the Company periodically reviews the collectability of its accounts receivable. provisions are recorded for accounts that are potentially uncollectable. Determining adequate reserves for accounts receivable requires management’s judgment. Conditions impacting the realizability of the Company’s receivables could cause actual asset write-offs to be materially different than the reserved balances as of December 31, 2014. 

## (g) inventories 

Inventories include material, labor, and manufacturing overhead and are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. 

the Company periodically reviews the realizability of its inventory for potential obsolescence. Determining the net realizable value of inventory requires management’s judgment. Conditions impacting the realizability of the Company’s inventory could cause actual asset write-offs to be materially different than the Company’s current estimates as of December 31, 2014. 

