OUTLOOK GROUP CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED MAY 31, 2002

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 000-18815

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OUTLOOK GROUP CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WISCONSIN 39-1278569
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

1180 AMERICAN DRIVE, NEENAH, WISCONSIN 54956
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(920) 722-2333

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE

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 FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]

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 THE 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. [ ]

AS OF JULY 31, 2002, 3,348,319 SHARES OF COMMON STOCK WERE OUTSTANDING, AND THE
AGGREGATE MARKET VALUE OF THE COMMON STOCK (BASED UPON THE $4.82 LAST SALE PRICE
ON THE NASDAQ STOCK MARKET) HELD BY NON-AFFILIATES (EXCLUDES A TOTAL OF
1,156,537 SHARES REPORTED AS BENEFICIALLY OWNED BY DIRECTORS, EXECUTIVE OFFICERS
AND GREATER-THAN 10% SHAREHOLDERS -- DOES NOT CONSTITUTE AN ADMISSION AS TO
AFFILIATE STATUS) WAS APPROXIMATELY $10.6 MILLION.

DOCUMENTS INCORPORATED BY REFERENCE

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PART I

ITEM 1. BUSINESS.

GENERAL

Outlook Group Corp. (the "Company") is a printing, packaging and direct
marketing company offering a variety of related services to clients in markets
including contract packaging, collateral information management and
distribution, direct marketing components and services, packaging and label
materials and specialty print and related services. The Company leverages its
core competencies by cross-selling services to provide a single-source solution
for its clients. Founded as a Wisconsin corporation in 1977, the Company
initially concentrated on bulk mailing and commercial printing projects. Over
the years, the Company's business has expanded to include other related
services.

The Company has considered, and continues to consider, a variety of options
for building its business in order to position the Company for strengthened
future performance. As part of a strategy to focus its business on core
competencies of packaging, specialty printing, and direct marketing, the Company
also continues to consider divestiture strategies to the extent that the Company
believes such actions would enhance its ability to achieve successful
operations. In addition, the Company will also consider appropriate acquisitions
to strengthen continuing operations. There can be no assurances, however, that
the Company will be able to successfully implement such strategies or complete
those transactions.

The Company offers a broad array of packaging, specialty printing, and
direct marketing services. The Company focuses on contract packaging, collateral
information and distribution, direct marketing components and services,
packaging and label materials (including printing), and specialty print and
related services. The product line includes folding cartons and paperboard
packaging, overwrapping, flexible film printing and laminating, coupons, labels,
recipe cards and promotional materials as well as traditional commercial
printing of booklets, notepads and brochures.

The Company has two reportable segments. These two segments, Outlook
Graphics and Outlook Web, are strategic operations that offer different products
and services.

Outlook Graphics

Primarily through its Outlook Graphics operations ("Outlook Graphics"), the
Company's pre-press staff prepares projects for printing to client
specifications. These services include preparatory camera or computerized
plate-making, layout, typesetting and other related services. Although Outlook
Graphics does not generally perform pre-press design services, it assists
designers in translating a concept into a printed product.

Outlook Graphics' presses generally use the offset printing process and can
print on a wide range of media from uncoated and coated paper to heavy board,
including paperboard packaging. Outlook Graphics currently utilizes sheet-fed
full-color presses of various sizes, the most sophisticated of which are capable
of six-color printing. Certain presses have interchangeable printing plates that
allow the Company significant flexibility in meeting client needs. The pressroom
has UV curing capabilities along with reverse printing presses that can print 5
over 1 and 6 over 1 plus UV and water based coatings in-line.

Outlook Graphics also provides finishing services for printed items
(whether or not printed by the Company) such as precision trimming, folding and
gluing, die-cutting, binding, shrink-wrapping, collating and packaging products
for mailing and distribution. Outlook Graphics has also developed paperboard
packaging capabilities to serve its clients' needs and enhance the Company's
single source solution approach. Paperboard packaging consists of utilizing
paperboard stock to print and convert folding cartons, u-boards and other point
of purchase materials.

The Company's contract packaging capabilities include packaging for many
other types of items. Recent examples include promotional CD ROM's for mailing,
wrapping toys and other promotional items for insertion in cereal boxes,
overwrapping packages and packaging items for vending machines. Custom-designed
feeding and in-line overwrapping systems increase the efficiency of its
packaging operations. Outlook Graphics

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also maintains an environmentally controlled work area to perform packaging of
items that are included with food and to provide other packaging services for
which cleanliness and specific quality standards are required.

Other services provided by the Company include direct marketing and
distribution. Direct marketing involves literature overwrapping, labeling,
personalizing, inserting, sorting and shipping printed items for bulk mailing.
The Company's zip code sorting allows it to minimize client postal charges by,
in many instances, delivering items by common carrier to a post office near the
destination. The Company is also "Alternative Procedures" qualified by the US
Postal Service, which provides it the ability to accelerate the cycle for moving
materials to the end user. The Company has US Postal Service verification for
the following services: 1st class, periodicals, standard A, package services,
International, and meter mail. The Company has the capability to drop ship to
the Bulk Mailing Center's (BMC's) or Sectional Center Facilities (SCF's), which
will allow greater postal discounts. Direct mailings in fiscal 2002 included
promotional CD ROM packages, catalogs, coupon packages and promotional
materials.

The Company can also offer collateral information management capabilities,
which consist of storing and distributing items upon client order. The Company
does not currently provide these services to clients, as it ceased providing
services for its remaining fulfillment client in August 2002. In most cases,
distribution items are materials such as forms and booklets that are printed by
the Company, often under standing orders from its clients to replenish supplies.
The Company has de-emphasized distribution operations that do not involve
materials printed or packaged by the Company, and the Company sold its other
fulfillment operations in 1997.

As of June 1, 2002, through its Paragon Direct services, to complement its
direct marketing services, the Company offers list processing services, database
services, analytical services, list rental fulfillment, and forms and letter
services. The list processing services assist clients in targeting mailings to
valid addresses, eliminates duplicate addresses, and can optimize postal
discounts through a firm bundling process, all of which contribute to a more
cost effective marketing campaign. The analytical services further enhance a
clients marketing effort as these services can match order files to mail files
as well as produce custom reports based on the timing, frequency and monetary
characteristics of a customer base. These services can develop mailings that are
targeted to their most effective customers, markets and segments and can enhance
marketing decisions that will maximize opportunities and strategies and give an
appropriate means by which to manage those strategies. The Company supports a
wide variety of media types including FTP, e-mail, Diskette, Zip disk, Jaz disk,
CD-ROM, 9-track tape and cartridge. See "Recent Acquisition" below.

Outlook Web

The Company's Outlook Web operations ("Outlook Web") complements the
Company's other specialty printing operations by offering narrow web and wide
web capabilities within one strategic operating facility. Outlook Web provides
flexographic printing, rotary letterpress printing, laminating, and slitting
services. These capabilities, not otherwise available from the Company, enhance
the Company's ability to cross-sell its services. In its narrow web offerings,
Outlook Web manufactures items such as coupons, pressure sensitive specialty
labels, printed vinyl cards (such as temporary credit cards and identification
cards), cartons, and sweepstakes and specialty game pieces. Its most
sophisticated machinery permits one-pass, 14-color printing and lamination of
various substrates using an in-line process.

In its wide web offerings, Outlook Web also provides flexographic printing
and laminating of flexible packaging films and papers. In these processes, the
Company takes flexible packaging materials (which are purchased from others) and
prints, laminates and/or slits the material to client specifications. Outlook
Web prints and laminates materials for items such as pouches, bags, vacuum
packages, packets, security devices and card and food overwraps, and provides
them to clients in convenient rolls of film. These wide web operations were
previously conducted in the Company's former Oak Creek facility.

RECENT ACQUISITION

During June 2002, the Company purchased selected assets of Paragon Direct,
Inc. for $1.4 million in cash plus assumed liabilities. Paragon Direct provides
computer-based information management services for clients in the direct
marketing industry. Through a combination of direct marketing experience and
computer
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technology, Paragon Direct helps companies maximize their marketing programs
through more accurate targeting and project execution. This acquisition
opportunity was financed from operating cash flows.

CLIENTS AND MARKETING

Due to the project-oriented nature of the Company's business, sales to
particular clients may vary significantly from year to year, and period to
period, depending upon the number and size of their projects. The identity of
those clients may also change. During fiscal 2002, no client accounted for more
than 10% of the Company's net sales. During fiscal 2001, one client, Kimberly
Clark (KC), accounted for 10.1% of the Company's net sales. KC represented less
than 10% of the Company's net sales during fiscal 2000 and 2002. Sales to AOL
were less than 10% in fiscal 2002 and fiscal 2001, after having been 12% during
fiscal 2000. As with most of its clients, the Company's sales to AOL and KC are
pursuant to cancelable purchase orders. In particular, sales depend upon the
timing of marketing initiatives that can change frequently and vary
significantly from period to period. There is no assurance that these sales will
continue in the future.

The Company expects that it may continue to experience significant sales
concentration given the relatively large size of projects undertaken for certain
clients. Furthermore, the Company's largest clients may vary from year to year
depending on the number and size of the projects completed for such clients. The
loss of business of one or more principal clients or a change in the number or
character of projects for particular clients could have a material adverse
effect on the Company's sales volume and profitability.

Although the Company is emphasizing longer-term relationships and has
entered into these type of agreements with some clients, clients generally
purchase the Company's services under cancelable purchase orders rather than
long-term contracts. In addition to other long-term arrangements, exceptions
sometimes occur when the Company is required to purchase substantial inventories
or special machinery to meet orders. The Company believes that operating without
long-term contracts is consistent with industry practices, although it increases
the Company's vulnerability to significant period to period changes. Because of
the project-oriented nature of the Company's business, the short-term character
of a substantial portion of its projects and the nature of the orders for the
Company's services, the Company does not believe that backlog is material or
meaningful to its business.

The Company markets its services nationally through certain of its
executive officers and its centralized sales group, which at July 31, 2002
included 21 sales and service employees and 11 manufacturer's representatives.
Sales and marketing activities are centralized and coordinated among the
Company's various operations. The Company generally does not enter into
employment contracts with its employee sales personnel, although it has
agreements with its outside representatives.

RAW MATERIALS

Raw materials necessary to the Company include paper stocks, inks and
plastic films, all of which are readily available from numerous suppliers. The
cost of raw materials represented approximately 44% of the Company's cost of
goods sold during fiscal 2002 as compared to 46% of the Company's cost of goods
sold during fiscal 2001 and 45% of the Company's cost of goods sold in fiscal
2000. The Company has not experienced difficulties in obtaining materials for
its continuing operations in the past and does not consider itself dependent on
any particular supplier for raw materials or for the Company's equipment needs.

COMPETITION

The market for the services provided by the Company is highly competitive,
primarily on the basis of price, quality, production capability, capacity for
prompt delivery and continuing relationships. The Company's principal
competitors, and the scope of the area in which the Company competes, vary based
upon the services offered. Numerous competitors exist for all of the Company's
services. While there are fewer competitors offering converting and packaging
services, competition remains strong. With respect to specialty printing
services, its competitors are numerous and range in size from very large
multi-national companies with substantially greater resources than the Company
to many smaller local companies. With substantial capital requirements necessary
for graphic services equipment in particular, larger companies with greater
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capital resources may have an advantage in financing state-of-the-art equipment.
The Company believes that relatively few competitors offer the wide range of
services provided by the Company. The Company does not believe foreign
competition is significant at this time.

ENVIRONMENTAL MATTERS

The Company and the industry in which it operates are subject to
environmental laws and regulations concerning emissions into the air, discharges
into waterways and the generation, handling and disposal of waste materials.
These laws and regulations are constantly evolving, and it is impossible to
accurately predict the effect they may have upon the future capital
expenditures, earnings and competitive position of the Company. The Company's
past expenditures relating to environmental compliance have not had a material
effect on the Company. Growth in the Company's production capacity with a
resultant increase in discharges and emissions could require significant capital
expenditures for environmental control facilities in the future.

EMPLOYEES

At July 31, 2002, the Company had 462 full-time employees. The Company
contracts for and/or hires temporary employees to increase the number of
personnel in certain operations as project commitments require. The Company
considers its relationship with its employees to be good. Wages and employee
benefits represented approximately 28% of the Company's cost of goods sold
during fiscal 2002 as compared to approximately 31% of cost of goods sold during
fiscal 2001 and 30% of the Company's cost of goods sold during fiscal 2000.

ITEM 2. PROPERTIES.

The Company's offices and main production and distribution facilities are
located in the Town of Menasha, Wisconsin in a facility owned by the Company.
The 345,000 square foot facility (of which approximately 25,000 square feet are
used for offices) was built in stages from 1980 to 1992. The Company also owns
approximately five acres of land adjacent to this facility to provide for future
expansion, if needed.

The Company also owns an 83,000 square foot facility in Neenah, Wisconsin
in which Outlook Web's office and production facilities are located.

The Company owned an 81,000 square foot facility in Oak Creek, Wisconsin in
which Outlook Packaging's office and production facilities were located. This
property was sold during June 2001, although the Company is temporarily leasing
a small portion of that facility until certain unused equipment is sold or
moved. Operations from this facility were moved to the Web facility in Neenah,
Wisconsin.

As part of the purchase of Star Labels in June 2000, the Company acquired a
42,000 square foot facility in Troy, Ohio. This property has been vacated and
its operations moved to Neenah, Wisconsin.

The Company leases an approximately 75,000 square foot office in Neenah,
Wisconsin that is currently used for certain packaging operations and warehouse
space. The Company also leases an approximately 37,500 square foot facility in
Neenah, Wisconsin for its sheeting operations and other warehouse space.

As part of the acquisition of Paragon Direct, Inc. in June 2002, the
Company assumed a lease for an approximate 13,000 square foot facility in
Milwaukee, Wisconsin for its Paragon Direct operations. The lease is on a
month-to-month basis. The Company is currently in the process of negotiating a
longer term arrangement.

In addition to land and buildings, the Company maintains significant
complex and specialized equipment to perform its various graphic services. The
equipment includes presses, machinery dedicated to converting and packaging, and
other machinery described above in Item 1. Certain of the equipment is leased by
the Company. The Company is dependent upon the functioning of such machinery and
equipment, and its ability to acquire and maintain appropriate equipment. Among
other factors, the Company may be affected by equipment malfunctions, training
and operational needs relating to the equipment, which may delay its
utilization, maintenance requirements, and technological or mechanical
obsolescence. With substantial capital

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requirements necessary for graphic services equipment in particular, larger
companies with greater capital resources may have an advantage in financing
state-of-the-art equipment.

The Company continues to apply the criteria established in evaluating and
establishing a reserve for long-lived assets determined to be impaired under
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of." At May 31, 2002 the Company
had recorded an impairment reserve of $400,000 associated with certain machinery
and equipment.

The Company believes that all of its facilities are in good condition and
suited for their present purpose. The Company believes that the property and
equipment currently utilized by it is generally sufficient for its currently
anticipated needs but that expansion of the Company's business or offering new
services, or the optimization of those services could require the Company to
obtain additional equipment or facilities. The Company regularly evaluates its
facility and equipment needs and would sell, or terminate leases to, facilities
or equipment if appropriate.

Substantially all of the Company's assets are pledged as collateral under
financing agreements. See Note C of Notes to Consolidated Financial Statements,
which is incorporated herein by reference, for a description of financing
secured by mortgages on the properties and equipment owned by the Company and
its subsidiary.

ITEM 3. LEGAL PROCEEDINGS.

In the opinion of management, the Company is not a defendant in any legal
proceedings other than routine litigation that is not material to its business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2002.

EXECUTIVE OFFICERS OF THE REGISTRANT.

Certain information as to each of the executive officers of the Company is
set forth in the following table. Officers are elected annually by the Board of
Directors.

Richard C. Fischer has served as Chairman of the Board and Chief Executive
Officer of the Company since 1997; he has been a director of the Company since
1995. He is an investment banker with Fischer and Associates LLC, having also
been affiliated with Marquette Capital Partners from 2000 to 2002.

Joseph J. Baksha has served as President and Chief Operating Officer since
1996, after having served as Vice President of the Company and President of
Outlook Packaging.

Jeffry H. Collier has served as Executive Vice President of the Company
since 1994, and previously served the Company in other capacities.

Paul M. Drewek became the Company's Chief Financial Officer in 1998, and
its Secretary in 1999. Mr. Drewek acted as principal of Drewek & Associates
(accounting and management consulting) from 1997 to 1998. Previously, Mr. Drewek
served as Chief Financial Officer of Allied Computer Group Companies, Inc. (a
computer systems integrator and consulting company) from 1995 to 1997, and prior
thereto as Vice President -- Finance and Administration and Treasurer-CFO of
Joiner Associates Incorporated (a consulting

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and publishing company specializing in total quality management). Mr. Drewek
also is deemed the Company's principal accounting officer.

* * * * *

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The discussions in this report on Form 10-K, and in the documents
incorporated herein by reference, and oral presentations made by or on behalf of
the Company contain or may contain various forward-looking statements.
Statements that are not historical facts, particularly those referring to
expectations as to possible strategic alternatives, future business and/or
operations, in the future tense, or using terms such as "believe", "anticipate,"
"expect" or "intend" involve risks and uncertainties. The Company's actual
future results could differ materially from those discussed, due to the factors
that are noted in connection with the statements and other factors. The factors
that could cause or contribute to such differences include, but are not limited
to, those further described in Items 1 and 2 above in this report and in the
"Management's Discussion and Analysis" (particularly in "Results of
Operations -- Fiscal 2002 Compared to Fiscal 2001"), "Liquidity and Capital
Resources," and "Disclosures Concerning Liquidity and Capital Resources
Including "Off-Balance Sheet" Arrangements" in Item 7 hereof.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock is quoted on the NASDAQ Stock Market. The
following table sets forth high and low closing sales prices as reported on
NASDAQ by quarter for the indicated fiscal years.

The Company has not paid any cash dividends since its inception. The
Company presently intends to employ its earnings in the continued development
and expansion of its business and does not expect to pay any cash dividends in
the foreseeable future; however, these decisions are continually reassessed by
the Board of Directors. For a description of contractual dividend restrictions,
see Note C of Notes to the Consolidated Financial Statements and the discussion
in Management's Discussion and Analysis.

As of July 31, 2002, the Company had approximately 464 registered
shareholders of record.

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ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data of the Company have been derived from
the Company's audited consolidated financial statements and should be read in
conjunction with the consolidated financial statements, related notes and
Management's Discussion and Analysis contained in this report.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following section presents a discussion and analysis of the Company's
results and operations during the past three fiscal years, and its financial
condition at fiscal year end. Statements that are not historical facts,
particularly those referring to expectations as to possible strategic
alternatives, future business and/or operations, in the future tense, or using
terms such as "believe", "anticipate," "expect" or "intend" involve risks and
uncertainties. The Company's actual future results could differ materially from
those discussed, due to the factors that are noted in connection with the
statements and other factors. The factors that could cause or contribute to such
differences include, but are not limited to, those further described in Items 1
and 2 above in this report and in the "Management's Discussion and Analysis"
(particularly in "Results of Operations -- Fiscal 2002 Compared to Fiscal
2001"), "Liquidity and Capital Resources," and "Disclosures Concerning Liquidity
and Capital Resources Including 'Off-Balance Sheet' Arrangements" in Item 7
hereof.

RESULTS OF OPERATIONS

The following table shows, for the fiscal years indicated, certain items
from the Company's consolidated statements of operations expressed as a
percentage of net sales.

FISCAL 2002 COMPARED TO FISCAL 2001

The Company's net sales were $67.2 million for fiscal 2002, down 4.9% or
$3.5 million from fiscal 2001 net sales of $70.7 million. The Graphics business
segment had net sales for fiscal 2002 of $36.3 million, down $1.7 million or
4.5%, from fiscal 2001 net sales of $38.0. The Web business segment had net
sales for fiscal 2002 of $31.4 million, down 6.1% or $2.0 million from fiscal
2001 net sales of $33.5. The economic slowdown experienced in the last six
months of fiscal 2001 continued into fiscal 2002. The effects were exacerbated
by the terrorist attacks of September 11, 2001 and the anthrax scare, which
diminished promotional mailings and related services. The ensuing loss of
general investor confidence and a volatile stock market have further affected
the markets for the Company's services. All of the Company's business segments
have been negatively impacted by the weakened economy. Although the Company has
begun to experience some market improvements during the third and fourth
quarters of fiscal 2002, economic weakness appears to be continuing. The
Company's fulfillment services represented $1.0 million in fiscal 2002 sales;
the Company's remaining fulfillment customer exited in the first quarter of
fiscal 2003. The Company expects that it will continue to be affected by the
national economy, but is not in a position to determine how extensive the
effects of the economic slowdown will be, whether or not it will be negatively
impacted, or for how long it may be impacted by the slowdown.

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Gross profit as a percentage of net sales decreased to 18.1% in fiscal 2002
from 19.8% in fiscal 2001. The gross profit margin decreased $1.8 million from
fiscal 2001 to $12.2 million. Gross margins decreased primarily as a result of
reduced sales, a product sales mix that produced lower overall profit margins
and the continued economic slowdown that continued to put a squeeze on the
already competitive markets in which the Company operates. The combination of
these factors coupled with operating inefficiencies (beyond the non-recurring
charges) as the Company merged its Oak Creek and Neenah Web facilities, also
decreased the Company's gross profit margin as compared to its results of
operations from the prior year. Inventory write-offs were $69,000 in fiscal 2002
compared to $300,000 in fiscal 2001. Inventory at May 31, 2002 was $5.4 million,
approximately $1.3 million lower than at May 31, 2001. During fiscal 2001, the
Company had built up its work in process and finished goods inventory in
anticipation of its facility move from Oak Creek to Neenah, and to attempt to
help ensure that clients would have the necessary finished goods expected to
draw upon during the transition time.

The Company's selling, general and administrative expenses decreased $1.2
million and represented 15.9% of the Company's net sales during fiscal 2002 as
compared to 16.8% of net sales in fiscal 2001. Compared to fiscal 2001, the
Company experienced decreases in travel expenses, professional services, bad
debt expenses, administrative wages, and recruiting expenses. The decrease in
professional services was primarily the result of the Company resolving its
outstanding legal issues. The decrease in bad debt expense results from
decreasing the bad debt reserves based on continued on-going analysis of the
potential exposure. The Company continues to focus on reducing operating
expenses, in particular those that do not contribute to increased sales or
increased profit margins. The Company is deploying resources into marketing
strategies in an attempt to increase the Company's efforts to increase its sales
and marketing concentrations. In fiscal year 2002, the Company experienced
increases in sales wages and commission expenses compared to fiscal year 2001.

During fiscal 2002, the Company incurred non-recurring facility relocation
and legal settlement expenses of $835,000. These charges relate to certain
non-recurring charges generated in the first six months for the relocation of
the Company's former Oak Creek facility to its Neenah facility and the
settlement of a lawsuit related to the Company's Oak Creek production facility.
The Company incurred approximately $900,000 of charges related to the relocation
of the facility. Approximately $300,000 relates to the facility relocation along
with severance costs, and approximately $600,000 associated with equipment
renovations and start-up costs. These costs included "stay" bonuses to certain
Oak Creek employees to incent them to remain through the move. In addition, the
costs included moving and reconfiguring certain items of machinery, its
subsequent installation in Neenah and certain infrastructure changes in Neenah
to accommodate the move. The remaining $65,000 is the net recovery of legal
expenses associated with a lawsuit of the Company's former Oak Creek facility.
The Company recognized a charge of $500,000 in connection with this lawsuit
along with approximately $55,000 of associated legal expense during the first
quarter of fiscal 2002. Through a subsequent lawsuit settlement of litigation
against a third party and insurance proceeds, the Company recognized the
$500,000 legal recovery during the third quarter of fiscal 2002. During the
fourth quarter of fiscal 2002, the Company recognized an additional $120,000 for
recovery of related legal expenses, including some legal expenses incurred
during the previous fiscal year.

Interest expense decreased approximately $311,000 from the prior year. The
reduction is due primarily to the retirement of the Company's long-term debt.
The Company paid off its remaining long-term debt during the second quarter of
fiscal 2002 in conjunction with the sale of its manufacturing facility in Oak
Creek, Wisconsin. The Company's long-term debt decreased from $2.8 million at
May 31, 2001 to $0 at May 31, 2002. The Company did not have to use its line of
credit facility during fiscal 2002 but pays an unused credit facility charge of
..025% to maintain its line of credit.

Fiscal 2002 pre-tax earnings, excluding the non-recurring charges of
$835,000, were $1.8 million, or 2.7% of net sales. This is down approximately
$400,000 from the prior year level of $2.2 million or 3.2% of net sales. The
Company reported pre-tax earnings, including the non-recurring charges, of $1.0
million or 1.5% of net sales.

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The Company's effective income tax rate for fiscal 2002 was 33.0% as
compared to 42.1% during fiscal 2001. The decrease experienced in this rate is
primarily the result of the merger of the Company's Outlook Packaging, Inc. and
Outlook Label Systems, Inc. subsidiaries, and certain state income tax credits.

Fiscal 2002 net earnings per share, excluding the non-recurring charges of
$0.16 per diluted share, yielded $0.35 per diluted share. The Company reported
fiscal 2002 net earnings per share, including all charges, of $0.19 per diluted
share. The Company reported fiscal 2001 net earnings of $0.34 per diluted share.
Net earnings per share were also affected by the Company's purchase of 192,500
shares of treasury stock during fiscal 2002.

FISCAL 2001 COMPARED TO FISCAL 2000

The Company's net sales were $70.7 million for fiscal 2001, down 2.7% or
$2.0 million from fiscal 2000 net sales of $72.7 million. The economic slowdown
experienced in the last six months of fiscal 2001 negatively affected all
business units' sales.

Gross profit as a percentage of net sales decreased to 19.8% in fiscal 2001
from 21.2% in fiscal 2000. The gross profit margin decreased $1.5 million from
fiscal 2000 to $14.0 million. Inventory write-offs were approximately $300,000
in fiscal 2001 and approximately $100,000 in fiscal 2000. As a result of the
implemented inventory programs, raw material levels were down approximately $1.2
million compared to last year. At May 31, 2001 work in process and finished
goods inventory were approximately $1.6 million higher than at May 31, 2000.
This inventory build was done to facilitate the move of the Packaging operations
to the Neenah facility and to insure that clients would have the necessary
finished goods expected to draw upon during this transition time.

Selling, general and administrative expenses decreased approximately
$120,000 during fiscal 2001 and represent 16.8% of net sales as compared to
16.5% of net sales in fiscal 2000. Compared to fiscal 2000, the Company
experienced decreases in administrative wages of $270,000, professional services
of $180,000 and bad debt expense of $300,000. These were offset with increases
of $410,000 in sales wages and commissions, $140,000 in travel related expenses,
and $100,000 in other expenses. These increased expenses reflected the Company's
efforts to increase its sales and marketing concentration given the relatively
weak economy.

Interest expense decreased approximately $230,000 or 38.0% during fiscal
2001. The reduction from fiscal 2000 was due to the nearly $2.0 million decrease
in total debt as well as the Company's increased financial position. The company
did not have to use its line of credit facility during fiscal 2001. During
fiscal 2001, the Company retired its term note and one of its industrial
development bonds.

Fiscal 2001 pretax earnings of $2.2 million represented a decrease of $1.3
million or 37.1% from the fiscal 2000 level of $3.5 million. Pretax earnings
were 3.2% of net sales in fiscal 2001 as compared to 4.8% of net sales in fiscal
2000.

The Company's effective tax rate for fiscal 2002 was 42.1% as compared to
41.8% in fiscal 2000.

Fiscal 2001 yielded net earnings of $0.34 per share. Fiscal 2000 yielded
net earnings of $0.47 per share. Net earnings per share were also affected by
the Company's purchase of treasury stock during fiscal 2001. The Company
purchased 350,000 shares of treasury stock during fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

As shown on the Consolidated Statements of Cash Flows, fiscal 2002 cash
provided from operating activities was $7.3 million as compared to $5.8 million
in fiscal 2001. In fiscal 2002, the Company used $3.5 million to acquire
property, plant and equipment. In addition, the Company used cash to pay down an
additional $2.8 million of long-term debt and purchased $1.2 million of treasury
stock.

The Company's operating cash was increased by a $2.2 million decrease in
accounts and notes receivable. The Company's operating cash was increased by a
$1.3 million decrease in inventory and a $0.2 million increase in accrued
liabilities. During fiscal 2002, the Company provided $0.5 million for
additional reserves of

10

receivables as compared to $0.7 million in fiscal 2001. The Company continues to
monitor its inventory requirements and the credit worthiness of its clients.

The Company holds a single note receivable for approximately $652,000. The
note is overdue and the Company has obtained a favorable judgment in excess of
the value of the note and the Company continues to pursue collection. Although
the Company has previously established a reserve of $477,000, and currently
believes the remaining balance is collectible, the Company may be required to
write-off the remaining balance of the note if collection efforts prove
ineffective and payments are not received.

Net cash used in investing activities represent $3.5 million used to
acquire property, plant and equipment. In addition, the Company received
proceeds of $2.6 million, largely from the sale of the Company's Oak Creek
building and property. The proceeds were used to pay off the remaining IRB
related to the Oak Creek facility. The Company made additional loans of $207,000
in fiscal 2002 to officers under management stock purchase agreements; the loans
are at competitive market interest rates. The total amount loaned to officers
under these agreements is $435,000. As a result of legislation enacted in July
2002, the Company will not make further officer loans.

Net cash used in financing activities was approximately $4.0 million, of
which $2.8 million represents the Company's net reduction of debt. The Company
has extinguished its remaining long-term debt in fiscal year 2002 with the
proceeds from the sale of the Oak Creek facility. The Company also used $1.2
million to purchase treasury stock, of which part was purchased in connection
with the World Class litigation settlement.

The Company maintains a credit facility with a bank that provides for a
maximum revolving credit commitment of $15.0 million. Interest on the debt
outstanding during the year can vary with the Company's selections to have the
debt based upon margins over the bank determined preference or an IBOR rate. The
Company's actual rate is dependent upon the Company's performance against a
specific ratio as measured against a predetermined performance chart. The
Company's failure to meet specified performance measures could adversely affect
the Company's ability to acquire future capital to meet its needs. The Company
has not had to use the facility during fiscal 2002. The Company is subject to an
unused line fee of .025% to maintain the credit facility. As of May 31, 2002,
and at July 31, 2002 , the Company had no amounts outstanding on its revolving
credit line and was in compliance with all of its loan covenants. The facility
is currently being renegotiated and is expected to be at terms the same or more
favorable to the Company.

The Company anticipates capital expenditures of approximately $3.0 million
in fiscal 2003, excluding any acquisition opportunities that may become
available to the Company. The Company intends to finance these expenditures
through funds obtained from operations plus its credit facilities and possible
leasing opportunities.

The Company regularly reassesses how its various operations complement the
Company as a whole and considers strategic decisions to acquire new operations,
expand, terminate or sell certain existing operations. These reviews resulted in
various transactions during recent fiscal years and may result in additional
transactions during fiscal 2003 and beyond. During June 2002, the Company
purchased selected assets of Paragon Direct, Inc. for $1.4 million in cash plus
assumed liabilities. Paragon Direct provides computer-based information
management services for clients in the direct marketing industry. Through a
combination of direct marketing experience and computer technology, Paragon
Direct helps companies maximize their marketing programs through more accurate
targeting and project execution. This acquisition opportunity was financed from
operating cash flows.

The Company is continuing to pursue the sale of its Troy, Ohio facility,
although the Company has not yet received an acceptable offer. The facility is
being leased to a third party on a month to month basis. It is unclear whether
the continuing economic slowdown or other factors will continue to affect the
Company's ability to sell that facility on terms acceptable or profitable to the
Company.

11

FURTHER DISCLOSURES CONCERNING LIQUIDITY AND CAPITAL RESOURCES, INCLUDING
"OFF-BALANCE SHEET" ARRANGEMENTS

On January 22, 2002 the SEC issued FR-61, "Commission Statement about
Management's Discussion and Analysis of Financial Condition and Results of
Operations." The SEC has indicated that, while it intends to consider rulemaking
regarding these topics and other topics covered by the MD&A requirements, the
purpose of its statement is to suggest steps that issuers should consider in
meeting their current disclosure obligations with respect to the topics
addressed.

The Company is currently evaluating FR-61 and the effects it may have, if
any, on this and future filings. The Company has responded to each of the areas
addressed by FR-61. Any statements in this section, which discuss or are related
to future dates or periods, are "forward-looking statements."

FR-61 requires management to identify any known demands, commitments,
events or uncertainties that will result in or that are reasonably likely to
result in the Company's liquidity increasing or decreasing in any material way.
FR-61 also requires management to identify any known material trends, favorable
or unfavorable, in the Company's capital resources including any expected
material changes in the mix and relative cost of such resources.

The Company's primary source of liquidity has been cash flows. The
Company's future cash flows are dependent upon, but not limited to:

- the ability of the Company to attract new and retain existing customers

- the number and size of the projects completed for these customers

- the loss of business of one or more primary customers

- the cancellation or delay of customer orders

- the changes in sales mix

- changes in general economic conditions and world events

- management's effectiveness in managing the manufacturing process

- the ability to collect in full and in a timely manner, amounts due the
Company

- the ability to acquire and maintain appropriate machinery and equipment

- acquisition or divestiture activities

- capital asset additions or disposals

The Company is dependent upon its ability to retain existing, and obtain
new customers. The Company's failure to retain existing customers or obtain new
customers could significantly affect future profitability of the Company. Due to
the project-oriented nature of the Company's business, the Company's largest
clients have historically tended to vary from year to year depending on the
number and size of the projects completed for these clients. The loss of one or
more principal clients or a change in the number or character of projects for
particular clients could have a material adverse effect on the Company's sales
volume and profitability. The timing and volume of activities can vary
significantly from period to period. There is no assurance that the volume from
any particular customer will continue beyond the current period. For example,
the Company's remaining fulfillment client ceased using the Company's services
in the first quarter of fiscal 2003. Although the Company will attempt to find
other fulfillment clients, the termination eliminates a client that represented
$1,000,000 in revenues in fiscal 2002.

Clients generally purchase the Company's services under cancelable purchase
orders rather than long-term contracts, although exceptions sometimes occur when
the Company is required to purchase substantial inventories or special machinery
to meet orders. While the Company believes that operating without long-term
contracts is consistent with industry practices, it is committed to developing
multi-year projects that can add stability to its business. The Company
continues to concentrate its efforts on increasing the number of

12

clients with long-term contracts. However, the failure of the Company to add
multi-year projects would mean that the Company would remain significantly
dependent on project-by-project business, thus increasing the Company's
vulnerability to losses of business and significant period-to-period changes.
This would continue to make prediction of the Company's future results very
difficult. Even though the Company is looking to increase the volume of longer
term contract work, the Company expects that it will continue to experience
significant sales concentration given the relatively large size of projects
accepted for certain clients.

Due to the range of services that the Company provides, the product sales
mix can produce a range of profit margins. Some businesses in which the Company
operates produce lower profit margins than others. The Company believes that
while there may be several competitors for individual services that it offers,
few competitors offer the single source solution that the Company can provide.

Deteriorating or weak economic conditions, including slowdowns at both the
national or local level, could affect future sales and profitability of the
Company. Similarly, world events can affect the Company, as occurred in fiscal
2002 when, in the aftermath of September 11 and the anthrax mailings,
promotional mailings by the Company's clients were significantly reduced.
Technologies such as the Internet will continue to affect the demand for
printing services and the recent increase in postal rates will likely impact the
direct mail business. The Company is not in a position to determine how it will
be affected by these circumstances, how extensive the effects may be, or for how
long it may be impacted by these circumstances.

Management's effectiveness in managing its manufacturing processes will
have a direct impact on its future profitability. The Company regularly makes
decisions that affect production schedules, shipping schedules, employee levels,
and inventory levels. The Company's ineffectiveness in managing these areas
could have an effect on future profitability.

The Company has had significant accounts receivable or other amounts due
from its customers or other parties. From time to time, certain of these
accounts receivable or other amounts due have become unusually large and/or
overdue, and on occasion, the Company has written off significant accounts
receivable balances. As noted above, the Company is attempting to collect a note
receivable through litigation. The failure of the Company's customers to pay in
full amounts due to the Company could affect future profitability. The general
economic slowdown also increases the risk for the Company as many of its clients
could negatively be impacted by the economy or the financial climate.

The Company uses complex and specialized equipment to provide its services,
and manufacture its products; therefore, the Company is dependent upon the
functioning of such machinery, and its ability to acquire and maintain
appropriate equipment. Among other factors, the Company may be affected by
equipment malfunctions, training and operational needs relating to the
equipment, which may delay its utilization, maintenance requirements and
technological or mechanical obsolescence. In addition, larger companies with
greater capital resources may have an advantage in financing state of the art
equipment.

The Company regularly reassesses how its various operations complement the
Company as a whole and considers strategic decisions to acquire new operations
or expand, terminate or sell certain existing operations. There can be no
assurance that any decisions to acquire new operations, expand, terminate or
sell certain existing operations will be implemented successfully. The Company's
failure to successfully implement any initiatives could affect future
profitability.

From time to time, the Company will sell or dispose of assets, which it
feels are under-performing or are no longer needed in the businesses in which
the Company operates. There can be no assurance that the Company will be able to
sell or dispose of the assets in a manner, which is profitable to the Company.
In addition, the Company will make investments in assets that it feels are
needed to acquire and maintain the businesses in which the Company operates.
Again, there can be no assurance that the Company will be able to acquire the
necessary assets, or that the Company can obtain a reasonable return on the
investments.

The Company has no "off balance sheet" arrangements which would otherwise
constitute balance sheet liabilities.

13

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

FR-61 encourages Company's to identify obligations and commitments to make
future payments under contracts, such as debt and lease agreements, and under
contingent commitments, such as debt guarantees. It is also suggested that the
disclosure reference the various parts of a registrant's filings, which discuss
these commitments. The SEC believes that investors would find it beneficial if
aggregated information about contractual obligations and commercial commitments
were provided in a single location such that a total picture of obligations
would be readily available. In addition, they had suggested the use of at least
one additional aid to present the total picture of a registrant's liquidity and
capital resource and the integral role of on and off balance sheet arrangements
may be schedules of contractual obligations and commercial commitments as of the
latest balance sheet date.

The Company has disclosed information pertaining to these events in its
2002 Report on Form 10-K. In addition, the Company has prepared schedules
suggested by the SEC in FR-61 for the period ending May 31, 2002. The Company
had no commercial commitments to report as of the latest balance sheet date.

DISCLOSURES ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED
CONTRACTS ACCOUNTED FOR AT FAIR VALUE

The Company does not have any trading activities that include non-exchange
traded contracts accounted for at fair value.

DISCLOSURES ABOUT EFFECTS OF TRANSACTIONS WITH RELATED AND CERTAIN OTHER PARTIES

As previously reported, the Company has agreed to make loans to certain
officers and key employees to purchase the common stock of the Company. Through
May 31, 2002, the Company had loans totaling $435,000. The loans bear an
interest rate of 4.9% and are for a five year term. It is the Company's policy
that all material transactions between the Company, its officers, directors or
principal shareholders, or affiliates of any of them, shall be on terms no less
favorable to the Company than those which could have been obtained if the
transaction had been with unaffiliated third parties on an arm's length basis,
and such transactions are approved by a majority of the members of the Audit
Committee of the Board of Directors, or a majority of the directors who are
independent and not financially interested in the transactions.

Additionally, in fiscal year 2001, the Company provided some officers and
other key employees with advances on expected bonus amounts, subject to year-end
reconciliation. Because of the rapid deterioration of general economic
conditions in the second half of fiscal 2001, final bonus amounts were
substantially lower than had been expected. In some cases, amounts advanced
against fiscal 2001 bonuses were higher than actual bonus amounts. These amounts
were carried forward, and amounts have, in part, been paid by offsetting bonus
payments earned during fiscal year 2002. At May 31, 2002, $39,236 had been paid
by offsetting bonus payments; the $60,000 balance has been converted into notes
payable by the officer. If the performance criteria are not met, the remaining
notes are payable to the Company in December 2002. As a result of legislation
enacted on July 30, 2002, the Company will no longer make loans to its officers;
however, outstanding amounts at that date may continue until paid in accordance
with their terms.

14

DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES

On December 12, 2001, the SEC issued FR-60 "Cautionary Advice Regarding
Disclosure About Critical Accounting Policies." FR-60 is an intermediate step to
alert companies to prepare adequate disclosure that will facilitate an
understanding of the Company's financial status, and the possibility, likelihood
and implications of changes in its financial and operating status. It encourages
companies to aid awareness in its "critical accounting policies, the judgments
and uncertainties affecting the application of those policies, and the
likelihood that materially different amounts would be reported under different
conditions or using different assumptions."

The Company's accounting policies are disclosed in this 2002 Report on Form
10-K. The more critical of these policies include revenue recognition and the
use of estimates (which inherently involve judgment and uncertainties) in
valuing inventory, accounts receivable and fixed assets.

REVENUE RECOGNITION

The Company recognizes revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred; the
seller's price to the buyer is fixed or determinable; and collectibility is
reasonably assured. These criteria are generally satisfied and the Company
recognizes revenue upon shipment. The Company's revenue recognition policies are
in accordance with Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements." The Company also offers certain of its
customers the right to return products that do not meet the standards agreed
upon. The Company continuously monitors and tracks such product returns, and
while such returns have historically been minimal, the Company cannot guarantee
that it will continue to experience the same return rates that it has in the
past. Any significant increase in product quality failure rates and the
resulting credit returns could have a material adverse impact on the Company's
operating results.

ACCOUNTS AND NOTES RECEIVABLE

The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer's current
credit worthiness, as determined by the review of the customer's current credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon the
Company's historical experience and any specific customer collection issues that
have been identified. The Company values accounts and notes receivable net of an
allowance for uncollectible accounts. The allowance is calculated based upon the
Company's evaluation of specific customer accounts where the Company has
information that the customer may have an inability to meet its financial
obligations (bankruptcy, etc.). In these cases, the Company uses its judgment,
based on the best available facts and circumstances, and records a specific
reserve for that customer against amounts due to reduce the receivable to the
amounts that is expected to be collected. These specific reserves are
reevaluated and adjusted as additional information is received that impacts the
amount reserved. The same technique used to compute this allowance at May 31,
2001 has been used throughout fiscal 2002. However, the ultimate collectibility
of a receivable is dependent upon the financial condition of an individual
customer, which could change rapidly and without advance warning.

INVENTORY

The Company values inventory at the lower of cost or market. Cost is
determined using the first-in, first-out method. Valuing inventories at the
lower of cost or market requires the use of estimates and judgment. As discussed
under "Further Disclosures Concerning Liquidity and Capital Resources, Including
"Off-Balance Sheet" Arrangements," customers may cancel their orders, change
production quantities or delay production for a number of reasons. Any of these,
or certain additional actions, could create excess inventory levels, which would
impact the valuation of inventory. The Company continues to use the same
techniques to value inventory as have been used in the past. Any actions taken
by the Company's customers that could impact the value of inventory are
considered when determining the lower of cost or market valuations. The Company
regularly reviews inventory quantities on hand and records a provision for
excess and obsolete inventory based

15

on its forecast of product demand and production requirements. Generally, the
Company does not experience issues with obsolete inventory due to the nature of
its products. If the Company were not able to achieve its expectations of the
net realizable value of the inventory at its current value, the Company would
have to adjust its reserves accordingly.

FIXED ASSETS AND GOODWILL

The Company continues to apply the criteria established in evaluating and
establishing a reserve for long-lived assets determined to be impaired under
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of." At May 31, 2002 the Company
had recorded an impairment reserve of $400,000 associated with certain machinery
and equipment. On June 1, 2002 the Company adopted the provision of FAS No. 142
"Goodwill and Other Intangible Assets" for evaluating and establishing any
reserves for intangible assets determined to be impaired. Going forward the
Company will need to review goodwill periodically to determine whether it has
become impaired and thus must be written off.

RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("FAS") No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." These
statements eliminate the pooling of interest method of accounting for business
combinations and require that goodwill and certain intangible assets not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized in earnings when incurred. The statements will be
effective for the Company as of June 1, 2002 for existing goodwill and
intangible assets and for business combinations initiated after June 30, 2001.

In July 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for the Company
in fiscal year 2004.

In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." This statement is effective for the
Company in fiscal year 2003.

In May 2002, the FASB issued FAS No. 145, "Rescission of FAS Nos. 4, 44 and
64, Amendment of FAS 13 and Technical corrections as of April 2002." This
statement rescinds FAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," and amends FAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." This statement also rescinds FAS No. 44, "Accounting
for Intangible Assets of Motor Carriers." This statements amends FAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions. This statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings or describe their applicability under changed conditions. The
provisions of this statement related to FAS 13 are effective for transactions
occurring after May 15, 2002. All other provisions of this statement are
effective for the Company in 2003 with early application encouraged.

On July 29, 2002 the FASB issued FAS No. 146, "Accounting for Exit or
Disposal Activities." FAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
(EITF) has set forth in EITF Issue No. 94-3, Liability Recognition of Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). FAS 146 will be effective for exit
or disposal activities that are initiated after December 31, 2002.

16

The Company is currently analyzing the impact these statements will have;
however, the impact is not expected to be material to the Company's financial
position or results of operations.

OTHER

In general, the Company believes that the effects of inflation on the
Company have not been material in recent years.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

The following discussion about the Company's risk management activities may
include forward-looking statements that involve risk and uncertainties. Actual
results could differ materially from those discussed.

The Company has financial instruments, consisting of notes receivable,
which are sensitive to changes in interest rates. However, the Company does not
use any interest-rate swaps or other types of derivative financial instruments
to limit its sensitivity to changes in interest rates because of the relatively
short-term nature of its notes receivable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements (including the notes thereto and the
accountants' report thereon) required by this item are set forth on pages F-1
and following of this Report, and are incorporated herein by reference. See also
"Index to Financial Statements and Financial Statement Schedules" following Item
14 herein.

- -------------------------
(1) Due to the use of weighted average shares outstanding each quarter for
computing net income per share, the sum of the quarterly per share amounts
does not equal the per share amount for the year.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information in response to this item is incorporated herein by reference to
"Election of Directors" and to "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement to be filed

17

pursuant to Regulation 14A for its Annual Meeting of Shareholders to be held on
or about October 17, 2002 ("2002 Annual Meeting Proxy Statement") and "Executive
Officers of the Registrant" in Part I hereof.

ITEM 11. EXECUTIVE COMPENSATION.

Incorporated by reference to "Election of Directors -- Directors' Fees" and
"Executive Compensation" in the 2002 Annual Meeting Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information in response to this item is incorporated herein by reference to
"Security Ownership of Certain Beneficial Owners and Management" in the 2002
Annual Meeting Proxy Statement, in addition to the table below.

EQUITY COMPENSATION PLAN INFORMATION

In addition to the information which is incorporated in this item by
reference to the 2002 Annual Meeting Proxy Statement, the following chart gives
aggregate information regarding grants under all equity compensation plans of
the Company through May 31, 2002:

- -------------------------
(1) Represents options granted under the Company's 1999 Stock Option Plan, and
its predecessor 1990 Stock Option Plan. No further options may be granted
under the 1990 Plan, and the number of securities remaining all are under
the 1999 Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information in response to this item is incorporated by reference to
"Certain Transactions" in the 2002 Annual Meeting Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Documents Filed:

1 and 2. Financial Statements and Financial Statement Schedules. See
the following "Index to Financial Statements and Financial Statement
Schedules," which is incorporated herein by reference.

3. Exhibits. See Exhibit Index included as last part of this report,
which is incorporated herein by reference.

(b) Reports on Form 8-K:

None filed during the fourth quarter of fiscal 2002. However, a Report
on Form 8-K dated June 1, 2002 was subsequently filed to report the
Company's acquisition of certain assets of Paragon Direct, Inc. No
financial statements were filed with that report.

18

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

The following consolidated financial statements of the Company and
subsidiaries are included in this Form 10-K Annual Report:

The following financial statement schedule of the Company, and the
accountants' report thereon, appear on the indicated pages in this Form 10-K
Annual Report:

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
Outlook Group Corp. and Subsidiaries
Neenah, Wisconsin

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity, and cash
flows present fairly, in all material respects, the financial position of
Outlook Group Corp. and its subsidiaries at May 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 2002 in conformity with accounting principles accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis or the opinion.

PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
June 27, 2002

F-2

OUTLOOK GROUP CORP.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

F-3

OUTLOOK GROUP CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

F-4

OUTLOOK GROUP CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of these financial statements.

F-5

OUTLOOK GROUP CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of the financial statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF ACCOUNTING POLICIES

The following is a summary of Outlook Group Corp. and its wholly owned
subsidiaries ("Company") significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements:

Estimates

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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include all the accounts of Outlook
Group Corp. and its wholly owned subsidiaries: Outlook Label Systems, Inc.
("Outlook Label"), and Outlook Foods, Inc. ("Outlook Foods"), which is inactive.
The Company's former Outlook Packaging, Inc. subsidiary was merged at December
31, 2001 with Outlook Label.

All inter-company accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.

Revenue Recognition

The Company recognizes revenue when all of the following criteria are met:
persuasive evidence of an arrangement exists; delivery has occurred; the
seller's price to the buyer is fixed or determinable; and collectibility is
reasonably assured. These criteria are generally satisfied and the Company
recognizes revenue upon shipment.

Shipping and Handling Fees and Costs

During the fourth quarter of fiscal year 2001, the Company adopted the
provisions of the Emerging Issues Task Force ("EITF") Issue No, 00-10
"Accounting for Shipping and Handling Fees and Costs." In accordance with the
provisions of EITF 00-10, certain shipping and handling fees and costs, which
the Company had previously recorded on a net basis as a component of net sales,
are reflected in costs of goods sold, as appropriate.

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, demand deposits, and short-term investments with maturities of
three months or less at the time of purchase.

Accounts and Notes Receivable

The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer's current
credit worthiness, as determined by the review of the customer's current credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon the
Company's historical experience and any specific customer collections issues
that have been identified. The Company values accounts and notes receivable net
of an allowance for uncollectible accounts.

The allowance is calculated based upon the Company's evaluation of specific
customer accounts where the Company has information that the customer may have
an inability to meet its financial obligations

F-7

(bankruptcy, etc.). In these cases, the Company uses its judgment, based on the
best available facts and circumstances, and records a specific reserve for that
customer against amounts due to reduce the receivable to the amounts that is
expected to be collected. These specific reserves are reevaluated and adjusted
as additional information is received that impacts the amount reserved.

As of May 31, 2002 and 2001, 33% of the accounts receivable balance relates
to three clients.

Notes receivable at May 31, 2002 and 2001 were $273,000 and $2,196,000,
respectively. The amounts recorded are net of reserves for potential
uncollectibility of $477,000. The carrying value of these notes approximates
fair value, as they are interest bearing at rates that approximate market rates
of interest.

Inventories

The Company values inventory at the lower of cost or market. Cost is
determined using the first-in, first-out method. Valuing inventories at the
lower of cost or market requires the use of estimates and judgment. The Company
regularly reviews inventory quantities on hand and records a provision for
excess and obsolete inventory based on its forecast of product demand and
production requirements. Generally, the Company does not experience issues with
obsolete inventory due to the nature of its products.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is
recorded using the straight- line method over the estimated useful lives of the
assets as follows:

Buildings and improvements.................................. 10-40 years
Machinery and equipment..................................... 5-10 years

Depreciation expense was $3,206,000, $3,611,000, and $3,701,000 for the
years ended May 31, 2002, 2001 and 2000, respectively. Significant additions or
improvements extending the useful lives of assets are capitalized. Repairs and
maintenance are charged to earnings as incurred. Upon retirement or disposal of
assets, the applicable costs and accumulated depreciation are eliminated from
the accounts and the resulting gain or loss is included in income.

The Company continues to apply the criteria established in evaluating and
establishing a reserve for long-lived assets determined to be impaired under
Statement of Financial Accounting Standards ("FAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed of." At May 31, 2002 the Company
had recorded an impairment reserve of $400,000 associated with certain machinery
and equipment. On June 1, 2002 the Company adopted the provision of FAS No. 142
"Goodwill and Other Intangible Assets" for evaluating and establishing any
reserves for intangible assets determined to be impaired. Going forward the
Company will need to review goodwill periodically to determine whether it has
become impaired and thus must be written off.

Applying the criteria established by FAS 121, the Company determined that
certain machinery and equipment were impaired and has a reserve of $400,000 and
$300,000 as of May 31, 2002 and 2001, respectively, based upon fair market value
of the assets.

Intangible Assets

Intangible assets are included within other assets and include goodwill,
which represents costs in excess of net assets of businesses acquired, loan
costs and capital lease placement fees. The Company continually reviews goodwill
and other intangible assets to assess recoverability based upon estimated future
results of operations and cash flows at the aggregate business unit level. At
May 31, 2002 and May 31, 2001 the Company had $1,153,000 and $1,271,000 recorded
as the value of goodwill, respectively. These values are net of accumulated
goodwill amortization of $709,000 and $591,000 respectively.

F-8

Stock Based Compensation

Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting
for Stock-Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations.

Income Taxes

Deferred tax assets, net of any applicable valuation allowance, and
deferred tax liabilities are established for the future tax effects of temporary
differences between the bases of assets and liabilities for financial and income
tax reporting purposes, as measured by applying current tax laws.

Earnings Per Share

Basic earnings per share is computed by dividing net earnings by the
weighted average shares outstanding during each period. Diluted earnings per
share is computed similar to basic earnings per share except that the weighted
average shares outstanding is increased to include the number of additional
shares that would have been outstanding if stock options were exercised and the
proceeds from such exercise were used to acquire shares of common stock at the
average market price during the period.

The following is a reconciliation of the average shares outstanding used to
compute basic and diluted earnings per share.

Reclassifications

Certain reclassifications have been made in the prior years' financial
statements to conform to the current year's presentation.

Recently Issued Accounting Standards

In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("FAS") No. 141, "Business
Combinations" and No. 142, "Goodwill and Other Intangible Assets." These
statements eliminate the pooling of interest method of accounting for business
combinations and require that goodwill and certain intangible assets not be
amortized. Instead, these assets will be reviewed for impairment annually with
any related losses recognized in earnings when incurred. The statements will be
effective for the Company as of June 1, 2002 for existing goodwill and
intangible assets and for business combinations initiated after June 30, 2001.

In July 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement is effective for the Company
in fiscal year 2004.

In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of." This statement is effective for the
Company in fiscal year 2003.

F-9

In May 2002, the FASB issued FAS No. 145, "Rescission of FAS Nos. 4, 44 and
64, Amendment of FAS 13 and Technical corrections as of April 2002." This
statement rescinds FAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," and amends FAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." This statement also rescinds FAS No. 44, "Accounting
for Intangible Assets of Motor Carriers." This statements amends FAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions. This statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings or describe their applicability under changed conditions. The
provisions of this statement related to FAS 13 are effective for transactions
occurring after May 15, 2002. All other provisions of this statement are
effective for the Company in 2003 with early application encouraged.

On July 29, 2002 the FASB issued FAS No. 146, "Accounting for Exit or
Disposal Activities." FAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for pursuant to the guidance that the Emerging Issues Task Force
(EITF) has set forth in EITF Issue No. 94-3, Liability Recognition of Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). FAS 146 will be effective for exit
or disposal activities that are initiated after December 31, 2002. Early
application is encouraged.

The Company is currently analyzing the impact these statements will have;
however, the impact is not expected to be material to the Company's financial
position or results of operations.

NOTE B -- INVENTORIES

Inventories consist of the following at May 31:

NOTE C -- LONG-TERM DEBT

Long-term debt consists of the following at May 31:

On May 12, 1999, the Company entered into an Amended and Restated Loan and
Security Agreement (the "Agreement") with its bank, which provided a revised
credit facility. Under the Agreement, the lender provides a $15,000,000 credit
facility comprised of a revolving line of credit commitment (the "Revolver") and
letters of credit. Borrowings under the Revolver bear interest, at the Company's
option, at a bank determined reference rate or an IBOR based rate. At May 31,
2002 the Company had no borrowings or outstanding letters of credit under the
Revolver. The Company is subject to an unused line fee of .025% to maintain the
credit facility.

Substantially all of the Company's assets have been pledged as collateral
on the debt agreement. The creditor party to the revolving credit arrangement
has a priority security interest over the remaining creditors.

F-10

The revolving credit agreement is subject to the terms of certain agreements
which contain provisions setting forth, among other things, fixed charges
restrictions, net worth and debt-to-equity requirements, and restrictions on
property and equipment additions, loans, investments, other borrowings, and
acquisitions and redemption's of the Company's stock or the issuance of stock
except for cash. Additionally, the Company may not pay cash dividends without
the prior consent of certain of its lenders.

NOTE D -- EMPLOYEE BENEFIT PLANS

The Company offers a 401(k) savings plan for all employees that meet
certain eligibility requirements. Employee contributions to the plan are made
through payroll deductions. In addition, the Company matches 40-50% of the first
6% of each employee's contribution. Employer matching contributions under the
401(k) plan for the years ended May 31, 2002, 2001, and 2000 were $273,000,
$270,000, and $217,000, respectively.

The Company is not obligated to provide any post-retirement medical or life
insurance benefits or any post-employment benefits to its employees.

NOTE E -- INCOME TAXES

The provision for income taxes consist of the following:

The reconciliation of income tax computed at the statutory federal income
tax rate to the Company's effective income tax rate, expressed as a percentage
of pre-tax earnings is as follows:

F-11

The components of the net deferred income tax liability as of May 31, 2002
and 2001 were as follows:

The Company has certain loss and tax credit carryforwards for state income
tax purposes that approximate $6,972,000. Those state carryforwards expire in
varying amounts through 2019.

NOTE F -- STOCK OPTIONS

In 1990, the shareholders approved the 1990 Stock Option Plan (the "1990
Plan") that provided for the granting of options as an incentive to officers and
certain key salaried employees. The 1990 Plan provided for the issuance of up to
200,000 shares of common stock at an exercise price not less than the market
price of the common stock on the date of the grant. Options granted prior to
1996 became exercisable six months after the date of grant. Options granted
during 1996 and 1997 became exercisable one year after the date of grant.
Options granted during 1999 became exercisable six months after grant. In
addition, during fiscal 1997, the Company granted its non-employee directors
stock options for a total of 18,000 shares apart from the 1990 Plan; these
options have subsequently expired. As of May 31, 2002 there were 116,000 options
outstanding under the 1990 Plan. No additional options can be awarded under the
1990 Plan.

In 1999, the shareholders approved the 1999 Stock Option Plan ("the 1999
Plan") that also provides for the granting of stock as an incentive to officers,
directors and certain key salaried employees. The 1999 Plan provides for the
issuance of options on up to 200,000 shares of common stock at an exercise price
that may not be less than the market price of the common stock on the date of
the grant. Options granted under the 1999 plan become exercisable over a
three-year vesting period from the date of the grant. As of May 31, 2002 there
were 146,000 options outstanding under the 1999 Plan.

Transactions under the option plans and the directors options during the
years ended May 31, 2002, 2001, and 2000 are summarized as follows:

F-12

The outstanding stock options at May 31, 2002 have a range of exercise
prices between $3.94 and $5.81 per share, a weighted average contractual life of
approximately 5 years, and a maximum term of 10 years from the date of grant. At
May 31, 2002, 262,000 options are exercisable at a weighted average exercise
price of $4.57. The weighted average fair value at date of grant for options
granted during 2002 and 2001 was $1.40 and $1.48, respectively. The fair value
of options, at date of grant, for options granted in 2002 and 2001 was estimated
using the Black-Scholes option-pricing model with the following assumptions:

The Company applies Accounting Principles Board Opinion No. 25, under which
no compensation cost has been recognized in the statement of operations. Had
compensation cost been determined under an alternative method suggested by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the pro forma effect on the 2002, 2001 and 2000 net earnings
would have been $(43,000), $(4,300) and $(135,000), respectively. The pro forma
effect on the 2002, 2001, and 2000 earnings per share for both basic and diluted
would have been $(.01), $(.00), $(.03), respectively.

NOTE G -- COMMITMENTS AND CONTINGENCIES

The Company has a number of operating lease agreements primarily involving
manufacturing equipment and warehouse space. These leases are non-cancelable and
expire on various dates as shown below.

The following is a schedule, by fiscal year, of the rental payments due
under non-cancelable operating leases, as of May 31, 2002:

Rent expense for the years ended May 31, 2002, 2001 and 2000 was
$2,587,000, $2,196,000 and $2,308,000 respectively.

During fiscal 2002, the Company incurred non-recurring facility relocation
and legal settlement expenses of $835,000. These charges relate to certain
non-recurring charges generated in the first six months for the relocation of
the Company's former Oak Creek facility to its Neenah facility and the
settlement of a lawsuit related to the Company's Oak Creek production facility.
The Company has previously reported litigation against it by Health Jet, Inc.
d/b/a Chung's Gourmet Foods ("Chung's"), seeking damages of $4.9 million. In
August 2001, the Company and Chung's entered into a settlement agreement solely
for the purpose of avoiding the burden, expense and uncertainty of litigation.
Although neither party admitted any liability in the settlement agreement, the
Company paid Chung's $500,000 pursuant to the agreement. The Company recognized
the $500,000 legal settlement expense in the first quarter of fiscal 2002 along
with approximately $55,000 of associated legal expense. The Company continued to
proceed on an action against a third party seeking indemnification in connection
with the Chung's action. In March 2002, the Company and the third party entered
into a settlement agreement, and the Company negotiated a settlement with its
insurance carrier. The settlements totaled $500,000 and were recognized during
the third quarter of fiscal 2002. The Company has received $470,000, and will be
paid the balance from the third party from April 2002 to March 2004. The Company
subsequently recovered $120,000 of the legal fees related to this lawsuit from
its insurer.

F-13

This additional net recovery of $65,000 is included in facility relocation and
legal settlement costs on the consolidated statement of operations. Of the
remaining $900,000 of facility relocation and administrative expenses,
approximately $300,000 relates to the facility relocation along with severance
costs, and approximately $600,000 associated with equipment renovations and
start-up costs. These costs included "stay" bonuses to certain Oak Creek
employees to incent them to remain through the move. In addition, the costs
included moving and reconfiguring certain items of machinery, its subsequent
installation in Neenah and certain infrastructure changes in Neenah to
accommodate the move.

As previously reported, the Company and Barrier-NY and their affiliates
settled their litigation in December 2000. As part of the settlement, the
Company agreed to purchase up to 450,000 shares of Outlook Group common stock
owned by Mr. Shemesh, president of Barrier, for $7.00 per share. In addition,
the Company provided certain credits of up to $0.275 per share sold against
notes receivable due from Barrier. The 450,000 shares were recorded as
redeemable equity based upon the market value of the common stock at the date of
the settlement. At May 31, 2001, the Company had purchased, as scheduled,
350,000 shares. In July 2001, the Company purchased the remaining 100,000
shares, and Mr. Shemesh paid the Company in full, net of credits of
approximately $320,000, the outstanding notes receivable of approximately $1.3
million. At the time the litigation commenced and was settled, Mr. Shemesh was a
greater-than 5% shareholder of the Company.

NOTE H -- OPERATING SEGMENTS AND MAJOR CLIENTS

In April of 2001, the Company announced its plans to merge the operations
of its Outlook Packaging, Inc, Oak Creek facility with its Outlook Label
facility in Neenah. That merger was completed during the second quarter of
fiscal 2002. In connection with the merging of the facilities, the Company has
changed its reporting to two reportable segments. These two segments, Outlook
Graphics and Outlook Web, are strategic operations that offer different products
and services. Outlook Graphics produces custom printed products on a wide range
of media including newsprint, coated paper and heavy board, including paperboard
packaging. Outlook Graphics also provides finishing services, contract
packaging, direct marketing and collateral information management and
distribution services. Outlook Web manufactures items such as coupons, pressure
sensitive specialty labels, printed vinyl cards cartons sweepstakes and
specialty game pieces, flexographic printing, slitting and laminating of
flexible packaging films.

The accounting policies of the reportable segments are the same as those
described in Note A, Summary of Significant Accounting Policies. The Company
evaluates the performance of its reportable segments based on the income from
operations of the respective business units.

F-14

Summarized financial information for the years ended May 31, 2002, 2001 and
2000 are as follows:

During fiscal 2002, no clients accounted for more than 10% of the Company's
net sales. During fiscal 2001, one client, Kimberly Clark (KC), accounted for
10.1% of the Company's net sales. KC represented less than 10% of the Company's
net sales during fiscal 2000 and 2002. Sales to AOL were less than 10% in fiscal
2002 and fiscal 2001, after having been 12% during fiscal 2000.

NOTE I -- SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year:

NOTE J -- NOTES RECEIVABLE

The Company maintains a single note receivable for approximately $652,000
as of May 31, 2002. The note is overdue and the Company has obtained a favorable
judgment in excess of the value of the note and the Company continues to pursue
collection. Although the Company has previously established a reserve of
$477,000, and currently believes the remaining balance is collectible, the
Company may be required to write-off the remaining balance of the note if
collection efforts are ineffective and payments are not received.

F-15

NOTE K -- RELATED PARTY TRANSACTIONS

As previously reported, the Company has agreed to make loans to certain
officers and key employees to purchase the common stock of the Company. Through
May 31, 2002, the Company had loans totaling $435,000. The loans bear an
interest rate of 4.9% and are for a five year term. It is the Company's policy
that all material transactions between the Company, its officers, directors or
principal shareholders, or affiliates of any of them, shall be on terms no less
favorable to the Company than those which could have been obtained if the
transaction had been with unaffiliated third parties on an arm's length basis,
and such transactions are approved by a majority of the members of the Audit
Committee of the Board of Directors, or a majority of the directors who are
independent and not financially interested in the transactions.

Additionally, in fiscal year 2001, the Company provided some officers and
other key employees with advances on expected bonus amounts, subject to year-end
reconciliation. Because of the rapid deterioration of general economic
conditions in the second half of fiscal 2001, final bonus amounts were
substantially lower than had been expected. In some cases, amounts advanced
against fiscal 2001 bonuses were higher than actual bonus amounts. These amounts
were carried forward, and amounts have, in part, been paid by offsetting bonus
payments earned during fiscal year 2002. At May 31, 2002, $39,236 had been paid
by offsetting bonus payments; the $60,000 balance has been converted into notes
payable by the officer. If the performance criteria are not met, the remaining
notes are payable to the Company in December 2002. As a result of legislation
enacted on July 30, 2002, the Company will no longer make loans to its officers;
however, outstanding amounts at that date may continue until paid in accordance
with their terms.

NOTE L -- SUBSEQUENT EVENT

During June 2002, the Company purchased selected assets of Paragon Direct,
Inc. for $1.4 million in cash plus assumed liabilities. The Paragon Direct
business was combined into the Company's Graphics division. Paragon Direct
provides computer-.based information management services for clients in the
direct marketing industry. Through a combination of direct marketing experience
and computer technology, Paragon Direct helps companies maximize their marketing
programs through more accurate targeting and project execution. This acquisition
opportunity was financed from operating cash flows.

F-16

STATEMENT OF MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements and accompanying information were
prepared by and are the responsibility of management. The statements were
prepared in conformity with generally accepted accounting principles and, as
such, include amounts that are based on management's best estimates and
judgments.

The internal control systems are designed to provide reliable financial
information for the preparation of financial statements, to safeguard assets
against loss or unauthorized use and to ensure that transactions are executed
consistent with company policies and procedures. Management believes that
existing internal accounting control systems are achieving their objectives and
that they provide reasonable assurance concerning the accuracy of the financial
statements.

Oversight of management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors, through an
Audit Committee that consists solely of outside directors. The committee meets
periodically with financial management to ensure that it is meeting its
responsibilities and to discuss matters concerning auditing, internal accounting
control and financial reporting. The independent accountants have free access to
meet with the Audit Committee without management's presence.

F-17

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders
Outlook Group Corp. and Subsidiaries
Neenah, Wisconsin

Our audits of the consolidated financial statements referred to in our
report dated June 27, 2002 (which report and consolidated financial statements
are included in this Form 10-K) also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
June 27, 2002

F-18

OUTLOOK GROUP CORP. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

F-19

OUTLOOK GROUP CORP. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

F-20

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.

OUTLOOK GROUP CORP.

AUGUST 28, 2002
BY /s/ RICHARD C. FISCHER
------------------------------------
RICHARD C. FISCHER, CHAIRMAN

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard C. Fischer, Joseph J. Baksha and Paul M.
Drewek, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.

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 INDICATED, AS OF AUGUST 28, 2002.

OUTLOOK GROUP CORP.
(THE "COMPANY")

EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2002

- -------------------------
* Excluding exhibits and/or schedules which are identified in the document. The
Company agrees to furnish supplementary a copy of any omitted exhibit or
schedule to the Commission upon request.

** Designates compensatory plans and agreements for executive officers.