SECURITIES AND EXCHANGE COMMISSION

Form 10-K

For the fiscal year ended: December 31, 2003

Commission file number: 0-50063

MOD-PAC CORP.

1801 Elmwood Avenue
Buffalo, New York 14207

Registrant’s telephone number
including area code (716) 873-0640

Securities registered pursuant to Section 12(b) of the Act: None

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

$.01 par value Common Stock; $.01 par value Class B Stock
(Title of Class)

     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 twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.

Yes  x      No  o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

     Indicate by checkmark if the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o      No x

     As of March 12, 2004, 3,741,405 shares were outstanding, consisting of 2,770,397 shares of Common Stock $.01 Par Value and 971,008 shares of Class B Stock $.01 Par Value. The aggregate market value, as of June 27, 2003, of the shares of Common Stock and Class B Stock of MOD-PAC CORP. held by non-affiliates was approximately $17,830,000 (assuming conversion of all of the outstanding Class B Stock into Common Stock and assuming the affiliates of the Registrant to be its directors, executive officers and persons known to the Registrant to beneficially own more than 10% of the outstanding capital stock of the Corporation).

DOCUMENTS INCORPORATED BY REFERENCE.

     Portions of the Company’s 2003 Annual Report to Shareholders are incorporated into Parts I, II and III of this Report. Portions of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held May 20, 2004 are incorporated by reference into Part III of this Report.

PART I

Item 1.   BUSINESS

     MOD-PAC CORP. is a specialized short-run printer and a designer and manufacturer of paperboard packaging. We provide products in two primary categories, folding cartons and full color print-on-demand.

Folding Cartons:

Custom We engineer, print and finish paper-board packaging for consumer goods. Our cartons fill unique requirements such as protective structure, marketing aesthetics, and product differentiation. Our customers are generally in the healthcare, pharmaceuticals, confectionary and automotive sectors, including private label manufacturers. These customers have requirements that are characterized by high product variability and short production cycles.

Stock Boxes Primarily for the global confectionary market, we also provide stock boxes during the holiday season to gift retailers and for general consumer use.

Full Color Print-on-Demand:

Short-run Commercial Printing: Sold through a single internet-based outlet, VistaPrint Limited, that aggregates orders from around the world, we take advantage of these large order flows to provide select products such as business cards, direct mail pieces and marketing brochures on an as ordered basis. This effective approach eliminates the need to stock inventory and is targeted toward the extensive small office/home office market (SOHO).

Personalized Printed Products: In addition to providing marketing products to the SOHO market, we provide distinctive designs for social occasions. We personalize specialty items such as invitations, napkins, and stationery.

General Development of Business

     The spin-off from Astronics Corporation on March 14, 2003 was a watershed event in the Company’s history. The spin-off was accomplished by means of a distribution (the Distribution) of all of the outstanding shares of MOD-PAC CORP.’s common stock and Class B stock. The shares of MOD-PAC CORP. were distributed on a pro rata basis to the shareowners of Astronics in a tax-free distribution. The Astronics Board of Directors set a one-for-two distribution ratio, in which (i) each Astronics common stock owner received one share of MOD-PAC CORP. common stock for every two shares of Astronics common stock owned on the record date for the Distribution and (ii) each Astronics Class B stock owner received one share of MOD-PAC CORP. Class B stock for every two shares of Astronics Class B stock owned on the record date for the Distribution. At the time of the Distribution, MOD-PAC CORP. became a separately traded, publicly held company.

     In connection with the Distribution, MOD-PAC CORP. declared and recorded a dividend to Astronics as of December 31, 2002 in the amount of $7 million. At December 31, 2002 the Company owed Astronics $4,751,000. This amount was repaid with a portion of the proceeds of a $10 million seven-year term note that the Company closed with HSBC Bank USA on February 20, 2003.

     Other major factors affecting the development of the business in 2003 were the 28% sale growth and the $8.5 million of capital expenditures undertaken to support this growth.

Practices as to Maintaining Working Capital

     “Liquidity” on page 9 of the Annual Shareholders’ Report for the year ended December 31, 2003 is incorporated herein by reference.

Competitive Conditions

In each of the markets we serve there are many competitors. In the folding carton industry, our competitors include approximately 300 companies, many of which are independent and privately held. Within this market we also compete with the folding carton operations of large integrated paper companies such as Smurfit- Stone Container Corporation, and Mead Westvaco and large, publicly held converting companies such as Caraustar and Graphic Packaging Corporation.

In the quick print sector of the commercial printing industry, there are over 28,000 general and commercial quick print establishments that we compete with. In addition, we have several large competitors in this sector, such as Modern Postcard, Taylor Corporation and BCT International.

Our success is dependent upon, and we compete based upon, our competitive pricing, innovative and responsive customer support and short lead-time delivery performance. We believe that our investments in state-of-the-art process and systems technology will enable us to continue to meet market pricing, introduce new product designs, be responsive to customer needs and shorten lead-times, while maintaining or improving our delivery time.

Employees

The Company employed approximately 405 employees as of December 31, 2003. The Company considers its relations with its employees to be good.

Raw Materials and Components

     Our principal raw materials are paperboard, paper and ink. These commodities are all available from multiple sources. We purchase most of these raw materials from a limited number of strategic and preferred suppliers. Although the paper industry is cyclical and prices can fluctuate, we have not been significantly impacted in recent years by increases in paper prices.

International Quality Standards

Our principal printing and packaging plant is ISO 9001 certified for folding carton production and ISO 9001 compliant for commercial printing. ISO 9001 standards are an international consensus on effective management practices with the goal of ensuring that a company can consistently deliver its products and related services in a manner that meets or exceeds customer quality requirements. ISO 9001 standards set forth the requirements a company’s quality systems must meet to achieve a high standard of quality. As an ISO 9001-registered manufacturer, we can represent to our customers that we maintain high quality industry standards in the education of our employees and the design and manufacture of our products.

Environmental and Other Governmental Regulation

     We are subject to various federal, state and local laws relating to the protection of the environment. We continually assess our obligations and compliance with respect to these requirements. We believe that we are in material compliance with all existing applicable environmental laws and permits and our current expenditures will enable us to remain in material compliance. Because of the complexity and changing nature of environmental regulatory standards, it is possible that situations will arise from time to time requiring us to incur expenditures in order to ensure environmental regulatory compliance. However, we are not aware of any environmental condition or any operation at any of our facilities, either individually or in the aggregate, which would cause expenditures having a material adverse effect on our results of operations or financial condition and, accordingly, have not budgeted any material capital expenditures for environmental compliance for fiscal 2004.

     Our operations are also governed by many other laws and regulations, including those relating to workplace safety and worker health. We believe that we are in material compliance with these laws and regulations and do not believe that future compliance with such laws and regulations will have a material adverse effect on our operating results or financial condition.

Available information

     The Company files its financial information and other materials required by the SEC electronically with the SEC. These materials can be accessed electronically via the Internet at www.sec.gov. Such materials and other information about the Company are available through the Company’s website at www.modpac.com under the investors information section.

Item 2.  PROPERTIES

     We maintain our corporate headquarters and conduct our operations at the following facilities:

We believe that our properties have been adequately maintained, are in generally good condition and are suitable for our business as presently conducted. We also believe our existing facilities provide sufficient production capacity for our present needs and for our anticipated needs in the foreseeable future.

Item 3.   LEGAL PROCEEDINGS

     There are no material pending legal proceeding to which the Registrant or any of its subsidiaries is a party or of which any of their property is the subject.

     Not applicable.

PART II

     On March 14, 2003, the Company was spun-off from Astronics Corporation in a tax-free distribution to the shareholders of Astronics Corporation and became listed on the NASDAQ national market under the symbol MPAC. Except for a special $7,000,000 dividend paid to Astronics Corporation on December 31, 2002 in connection with its spin-off from Astronics, the Company has not paid any cash dividends in the three year period ended December 31, 2003. It has no plans to pay dividends as it plans to retain all cash from operations as a source of capital to finance growth in the business. The Company’s term loan agreement limits the Company’s ability to pay dividends to 75% of earnings after December 31, 2002. There were approximately 806 registered shareholders for the Company’s Common stock and 1,756 registered shareholders for the Class B stock, as of March 12, 2004.

Quarterly information on the range of prices for the Company’s Common Stock appears on page 23 of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2003 and is incorporated herein by reference.

Item 6.   SELECTED FINANCIAL DATA

     The data under the caption “Financial Highlights” on page 1 of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2003 is incorporated herein by reference.

     Management’s discussion and analysis of financial condition, changes in financial condition and results of operations appears on pages 8 through 11 of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2003, and is incorporated herein by reference.

Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Market risk disclosures appear on page 10 of the Company’s Annual Report to Shareholders for the fiscal year ended December 31, 2003, and is incorporated herein by reference.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Financial Statements of MOD PAC CORP., which are incorporated by reference in this Annual Report on Form 10-K, are described in the accompanying Index to Financial Statements at Item 15 of this Report.

     Not applicable.

Item 9A.  CONTROLS AND PROCEDURES

     The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2003. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2003. There were no material changes in the Company’s internal controls over financial reporting during the fourth quarter of 2003.

PART III

     The information regarding directors is contained under the captions “Election of Directors” and “Security Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year and is incorporated herein by reference.

     The information regarding the Company’s code of ethics; audit committee and audit committee financial experts is contained under the captions “Corporate Governance and Board Matters” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year and is incorporated herein by reference.

     The executive officers of the Company, their ages, their positions and offices with the Company, and the date each assumed their office with the Company are as follows:

The principal occupation and employment for Mr. Daniel Keane for the past five years has been with the Company. Mr. Kevin T. Keane is also Chairman of the Board of Astronics Corporation, the former parent of MOD-PAC CORP.; In addition to being Chairman, Mr. Kevin Keane was, President and CEO of Astronics Corporation from 1974-2002. Mr. Kevin Keane is the father of Mr. Daniel Keane. Mr. Rider was Vice President — Finance and Chief Financial Officer of Astronics Corporation from July 2000 until the Spin-Off of MOD-PAC from Astronics. Prior to July 2000 he was a partner in the accounting firm of Ernst & Young LLP.

Item 11.   EXECUTIVE COMPENSATION

     The information contained under the caption “Executive Compensation” and “Summary Compensation Table” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year is incorporated herein by reference.

     The information contained under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year is incorporated herein by reference.

Equity Compensation Plan Information

MOD-PAC CORP. Employee Stock Option Plan

     Prior to our Spin-off from Astronics, we established an Employee Stock Option Plan. Our employee stock option plan is a stock-based incentive program primarily for our officers and managers. Under the plan, the compensation committee of our board of directors may grant options to officers and managers who are expected to contribute to our success. The aggregate number of shares of our Common Stock that may be issued under this plan cannot exceed 800,000 shares (subject to adjustment to reflect share distributions). In determining the size of stock option grants, our compensation committee will focus primarily on our performance and the role of our executives and managers in accomplishing performance objectives. Stock options granted under the plan will generally become exercisable in equal installments over a five-year period and are granted with an exercise price equal to the fair market value of our Common Stock as of the date of the grant.

MOD-PAC CORP. Directors Stock Option Plan

     Prior to our Spin-off from Astronics, we established the Director Stock Option Plan for non-salaried outside directors. The plan provides for grants of options to our outside directors to purchase up to an aggregate of 200,000 shares of our Common Stock (subject to adjustment to reflect share distributions). Outside directors are eligible to receive options under this plan at the discretion of a committee appointed by our board of directors who are not eligible to participate in the plan. Under our plan, the option price will be not less than the fair market value of the shares optioned on the date of the grant. There will not be a limit on the number of options that a participant may be granted under our plan. Options will be exercisable beginning six months after the grant and for so long as the holder remains our director, but not longer than ten years from the date of the grant.

     The following table provides information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2003.

Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information contained under the caption “Certain Relationships and Related Transactions” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information contained under the caption “Appointment Of Independent Auditors” in the Company’s definitive Proxy Statement to be filed within 120 days of the end of our fiscal year is incorporated herein by reference

PART IV

SCHEDULE II

MOD-PAC CORP.

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)

     All other consolidated financial schedules are omitted because they are inapplicable, not required, or the information is included elsewhere in the consolidated financial statements or the notes thereto.

3.  Exhibits

     (b) Reports on Form 8-K

          (i) The company furnished a report on form 8-K dated April 29, 2003 reporting the issuance of a press release related to its financial results for the first quarter of 2003.

          (ii) The company furnished a report on form 8-K dated July 28, 2003 reporting the issuance of a press release related to its financial results for the second quarter of 2003.

          (iii) The company furnished a report on form 8-K dated October 27, 2003 reporting the issuance of a press release related to its financial results for the third quarter of 2003.

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, on March 25, 2004.

MOD-PAC CORP.

     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 dates indicated.