BUFFALO, N.Y.--May 7, 2007-- MOD-PAC CORP., a commercial on demand printer and manufacturer of custom paper board packaging, today reported revenue of $11.3 million for the first quarter of 2007 which ended March 31, 2007, compared with $11.5 million in the same period of 2006. Gross margin for the first quarter was 12.9%, a 5.4 percentage point improvement compared with 7.5% in the first quarter of the prior year. Net loss for the first quarter improved by $0.4 million to $0.7 million, or $0.22 per diluted share, compared with a net loss of $1.1 million, or $0.33 per diluted share, in the prior year first quarter, a 35% improvement year-over-year. Earnings before interest, taxes, depreciation and amortization, and non-cash option expense (Adjusted EBITDA) improved to a positive $0.18 million compared with a negative $0.26 million in the first quarter of 2007. Mr. Daniel G. Keane, President and CEO of MOD-PAC CORP., commented, "Although first quarter sales were softer than we anticipated, we believe that sales should strengthen during the remainder of the year. Gross margin for the quarter improved, despite the reduction in sales, on a stronger mix of product sales and operational efforts to improve raw material yield. We are continually refining and adjusting our sales efforts in order to investigate new market opportunities and win new business." Product Sales For the first quarter 2007, custom folding carton product line sales were $6.7 million compared with $7.1 million in the first quarter of 2006. Five key custom folding carton accounts had lower first quarter order levels as compared with the prior year but management expects that the pace of orders should resume to historical levels for the remainder of the year. New orders and existing customer growth were not enough to offset the lower sales. Sales of the Company's stock box product line were $2.8 million, relatively unchanged from the prior year's first quarter sales. First quarter 2007 commercial print sales grew 113% to $0.5 million compared with sales of $0.2 million in the first quarter of 2006. The increase in sales from the prior year was a direct result of the growth in orders from nationwide print distributors, which comprised more than 80% of commercial print sales in this quarter. Total web-based sales for this year's first quarter were $0.44 million, an 18% increase from $0.38 million in the first quarter last year. Higher web-based sales were primarily through partnerships formed with internet stores, which rely on MOD-PAC to provide their customers with personalized print products such as customized napkins and invitations. Personalized print sales for the first quarter of 2007 were $1.1 million compared with $1.2 million in the same period the prior year. Cost of Goods Sold and SG&A In spite of the decrease in revenue, gross margin was 12.9% for the first quarter of 2007, an increase from 7.5% in the first quarter of 2006 and up from 11.4% in the fourth quarter of the prior year. The improvement year-over-year was a result of improved product mix within the custom folding carton product line, as well as an effort to improve raw material yield, particularly with paperboard materials. First quarter selling, general and administrative (SG&A) expenses remained relatively unchanged at 22.7% of sales on a year-over-year comparative basis. On an absolute basis, SG&A expenses were $2.56 million compared with $2.62 million in the first quarter the prior year. Liquidity Cash, cash equivalents and temporary investments were $1.3 million at March 31, 2007, compared with $3.4 million at December 31, 2006. The expected lower balances were a result of higher working capital needs in the quarter, including a higher accounts receivable balance at the end of the quarter due to strong sales in March. Finished goods inventory increased from $1.6 million at December 31, 2006, to $2.1 million at March 31, 2007, as a result of shipment timing and some inventory build-up for a recently new custom folding carton customer. Capital expenditures for the first quarter were $0.06 million compared with $0.1 million for the first quarter of 2006. Capital expenditures of approximately $1.2 million, exclusive of the Company's recent asset purchase transaction, are expected in 2007. Depreciation and amortization for the first quarter of 2007 was $1.2 million. The Company has access to an $8.0 million committed line of credit with a commercial bank of which $0.25 million is in use through standby letters of credit. The Company believes that cash, cash equivalents and the line of credit are sufficient to meet requirements in 2007. There were no share repurchases by the Company during the first quarter of 2007. The Company has authorization to repurchase 100,885 shares. Outlook Mr. Keane added, "We are excited about the transaction we announced at the beginning of May to acquire certain assets of DDM-Digital Imaging, Data Processing and Mailing Services, LC . Our strategy has been to enhance complementary services that we offer to our customers in order to capture a larger portion of print value-chain. This transaction brings expertise in direct mail database management, postal regulations and market knowledge that will benefit our current customers, as well as prospective customers, in a wider range of markets. We will be integrating these new services over the next few months."