Feb. 8, 2007-- MOD-PAC CORP a commercial on demand printer and manufacturer of custom paper board packaging, today reported revenue of $12.6 million for the fourth quarter of 2006 which ended December 31, 2006, compared with $24.5 million in the same period of 2005. Fourth quarter 2005 revenue included $14.1 million of amortized revenue associated with a contract buy-out fee from a former customer of the Company. Product sales, which excludes the contract buy out fee and rental income, increased 21.2% to $12.5 million in the fourth quarter of 2006 compared with $10.3 million in the 2005 fourth quarter. For the full year, 2006 revenue was $46.6 million compared with $71.2 million in 2005. Revenue in 2005 included $19.6 million in amortized revenue associated with the contract buy-out fee. Total product sales for 2006 were $46.0 million, down $5.2 million, or 10.1%, from $51.2 million in the prior year. Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP., commented, "We made solid progress in 2006 to fill the capacity vacated by our former customer and continue to grow market share in all of our product lines. Net income has improved the last three consecutive quarters. We believe we can continue to grow as we expand the markets we serve and the services we provide. Our objective is to capture a greater portion of the print value chain that commands larger margins than just printing, and our goal for 2007 is to achieve sales growth in the range of 10% - 15%." Net loss for the fourth quarter of 2006 was $0.56 million, or $0.16 per diluted share, compared with net income of $8.0 million, or $2.30 per diluted share, for the 2005 fourth quarter. Profits in the 2005 quarter were measurably impacted by $14.1 million in amortized revenue related to the contract buy-out fee previously discussed. When compared with the third quarter of 2006, net loss improved $0.16 million, or $0.05 per diluted share, a 22% improvement. For the full year, net loss was $3.4 million, or $1.00 per diluted share compared with net income of $11.0 million, or $2.97 per diluted share, in 2005, which reflect the aforementioned $19.6 million in amortized contract buy-out fees. Product Sales For the fourth quarter 2006, custom folding carton product line sales were $7.1 million, a $1.1 million, or 17.4% increase, over fourth quarter 2005 sales. For the full year, sales for this product line were $29 million, an increase of $5.3 million, or 22.6%, over the prior fiscal year. The Company's ability to provide short run, highly variable print at competitive prices continues to attract new customers as well as increased sales from existing customers. The stock box product line grew 15.2% in the fourth quarter of 2006 to $3.8 million in sales over the fourth quarter of 2005. Sales were $10.8 million for the full year, a 10.4% increase over 2005 sales. Stock boxes are primarily sold to confectioners, and the fourth quarter is historically strong for this product line as a result of the holiday season. Commercial print sales continue to steadily increase through the year, with sales of $0.5 million for the fourth quarter of 2006 compared with $0.1 million in the same period last year. For the full year, commercial print sales were $1.4 million. Sales of this product line can be primarily attributed to the relationships formed in 2006 with nationwide print distributors, although sales growth through the distributor channel is taking longer than expected. Distributor sales were $1.0 million for 2006. Total web-based sales for this year's fourth quarter were $0.31 million, a 23% increase from $0.25 million in the fourth quarter last year and down $0.09 million from the third quarter of 2006. Web-based sales include sales through the Company's branded sites PrintLizard.com(R) and PartyBasics.com(R) as well as through other internet stores which rely on MOD-PAC to provide their customers with personalized print products such as special event napkins. Sales of the Company's personalized print line grew 31.1% in the fourth quarter to $1.06 million and were up 41.4% for the year to $4.8 million. Sales growth was mainly the result of web-based sales from partnerships with other internet stores. Cost of Goods Sold and SG&A Gross margin improved through the year on higher sales to 11.4% in the fourth quarter 2006, up from 11.2% and 6.7% in the 2006 third and second quarters, respectively. Gross margin in the fourth quarter of 2005 was 59.9%. If the contract buy out fee were excluded, the fourth quarter 2005 gross margin would have been 5.8%. The improvement in gross margin over last years' fourth quarter, excluding the contract buy-out fee, and the sequential quarterly improvements were primarily due to higher sales. For the 12-month period, gross margin was 9.3% for 2006 compared with 2005 gross margin of 39.7%, or 16.8% excluding the contract buy-out fee. The year-over-year decline in gross margin was primarily the result of the loss in commercial print volume resulting in the underutilization of manufacturing capacity. Selling, general and administrative (SG&A) expenses were $2.3 million in the fourth quarter of 2006, or 17.9% of revenue, compared with expenses of $2.4 million, or 9.7% of revenue, in the same period last year. Without the impact of the contract buy-out fee, SG&A was 22.9% of revenue in the fourth quarter of 2005. For the full year, SG&A expenses were $9.5 million, or 20.4% of revenue, compared with expenses of $10.5 million, or 14.7% of revenue in 2005. Without the impact of the contract buy-out fee, SG&A was 20.3% of revenue in 2005. Reductions in advertising for website promotion were the primary reason for the decline, partially offset by stock-based compensation expense of $0.38 million due to the adoption of SFAS 123R in 2006. Liquidity Cash, cash equivalents and temporary investments were $3.4 million at December 31, 2006, compared with $3.9 million at December 31, 2005. Compared with the third quarter, cash, cash equivalents and temporary investments increased from $2.5 million at September 30, 2006. For the twelve month period, cash provided by operating activities was $0.8 million compared with cash used in operating activities of $2.8 million for fiscal year 2005. Capital expenditures for the quarter were $0.5 million and were $1.0 million for the full fiscal year, compared with $4.7 million for the prior year. Capital expenditures of approximately $1.2 million are expected in 2007. Depreciation and amortization for the fourth quarter and fiscal year were $1.2 million and $5.0 million, respectively. The Company believes that cash, cash equivalents and temporary investments are sufficient to meet requirements in 2007. In addition, the Company has access to a $6.0 million discretionary line of credit with a commercial bank of which $0.3 million is in use through standby letters of credit. There were no share repurchases by the Company during 2006. The Company has authorization to repurchase 100,885 shares.