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, 2003

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 FAX (920) 727-8550

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. [ ]

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 UNDER THE EXCHANGE ACT).
YES [ ] NO [X]

AS OF JULY 31, 2003, 3,375,555 SHARES OF COMMON STOCK WERE OUTSTANDING; ON
NOVEMBER 30, 2002, 3,353,319 SHARES WERE OUTSTANDING. ON NOVEMBER 30, 2002, THE
END OF THE REGISTRANTS SECOND QUARTER OF FISCAL 2002, THE AGGREGATE MARKET VALUE
OF THE COMMON STOCK (BASED UPON THE $5.70 LAST SALE PRICE ON THE NASDAQ STOCK
MARKET, PRIOR TO THAT DATE) HELD BY NON-AFFILIATES (EXCLUDES A TOTAL OF 836,070
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 $14.5 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 specialty print, project management, label and packaging materials,
and direct mail. 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 a variety of related services. Services include the
following:

SPECIALTY PRINT

- CAD and proofing system to assist client product development efforts

- Computer-to-plate pre-press technology

- Printing capabilities include 21 presses that offer the following
technologies: sheet-fed offset, flexographic, UV flexographic, rotary
letterpress and a variety of in-line and off-line variable data imaging
techniques

- Lenticular printing, a technique that creates an illusion of motion,
depth, 3D and other dramatic effects

- Finishing operations that include die-cutting, foil stamping, embossing,
spot UV coating, folding, gluing and stitching

- In-house paper and paperboard sheeting

PROJECT MANAGEMENT

- Turnkey manufacturing solutions and supply chain management

- In-house engineering and product development staffs

LABEL AND PACKAGING MATERIALS

- 12 separate narrow webs, from rotary letterpress to flexo and UV flexo
presses support label requirements

- Solvent-free laminating

- Pressure sensitive labels, vinyl ID cards, scratch-off and pull-tab
pieces and shoe tags

- Folded coupons, IRC's and roll-to-roll coupons

- Label-affixing and card-attaching

- Variable data imaging -- UPC's consecutive numbering and addressing

- Data technology sample maker and plotters for accurate samples and vinyls

- Film over wrapping for products including coupons, fabric softener
sheets, cereal premiums and other promotional items

- ASI certified food-grade clean room meets FDA standards

DIRECT MAIL

- Mailing services that include labeling, personalization, tabbing,
poly-bagging, intelligent collating, insertion, shrink-wrapping, metering
and postage

1

- Computer services that include list management, data conversion, postage
presorting, laser printing, Cheshire labels, bar-coding and Zip+4

- Production services for direct mail brochures, letters, self-mailers,
cd-mailers, labels and vinyl cards

- Distribution services include a computerized inventory system with kit
assembly/order filling capabilities

To leverage its services and ability to be a "single-source solution," and
to seek to provide more stable business of a relatively long-term nature,
Outlook Group has focused on entry into multi-year agreements with customers to
provide "supply chain management" services. Under these agreements, the Company
agrees to provide multiple services (which vary from customer-to-customer) over
a multi-year period. Outlook Group announced three such supply chain management
agreements in fiscal 2003. Although the Company cannot provide assurances, it is
seeking to enter into other similar type agreements.

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 in order to position
itself for strengthened future performance. There can be no assurances, however,
that the Company will be able to successfully implement such strategies or
complete those transactions.

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 creative design staff utilizes a CAD and proofing system to support
client product development. These services include preparatory camera or
computerized plate making, layout, typesetting and other related services.
Computer-to-plate technology helps assure the best possible color match on
press. 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 eight
sheet-fed full-color presses of various sizes, the most sophisticated of which
are capable of six-color printing. The pressroom has UV curing capabilities as
well as reverse printing capabilities.

Lenticular printing is the combining of interlaced electronic images using
a specially designed plastic lenticular lens. This creates the illusion of
depth, motion, 3D, and other dramatic effects. The Company's Lenticular
Solutions operations use a patented lithographic process to create dynamic
printed effects.

Outlook Graphics provides finishing services for printed items, whether or
not printed by the Company. Finishing operations include die cutting, foil
stamping, embossing, spot UV coating, folding, gluing and stitching.

Outlook Graphics provides paperboard packaging and folding carton services.
Paperboard packaging consists of utilizing paperboard stock to print and convert
folding cartons, u-boards and other point of purchase materials. Data technology
sample makers and plotters produce carton samples to customer specifications.

Outlook Graphics contract packaging services include high speed film over
wrapping for products such as coupons, printed pieces, promotional CD ROM's for
mailing, toys and other promotional items for insertion in cereal boxes,
overwrapping packages and packaging items for vending machines or over wrapping
packages and packaging items for insertion into folding cartons or boxes.
Outlook Graphics also maintains an ASI certified food and clean room that meets
FDA standards for cleanliness and quality.

Outlooks Graphics direct mail services include labeling, personalizing,
tabbing, poly bagging, intelligent collating, insertion, shrink wrapping,
metering and postage. Through its Paragon Direct division, computer services
include list management, data conversion, postal pre-sorting, laser printing,
Cheshire labels, bar coding and zip+4. Outlook Graphics offers complete
production services for over wrapping and sampling programs as well as direct
mail brochures, letters, self-mailers, cd-mailers, labels and vinyl cards.
Outlook

2

Graphics offers USPS Direct Mail Preparation/Verification Services, which
provides it the ability to accelerate the cycle for moving materials to the end
user. It has US Postal Service verification for the following services: 1st
class, periodicals, standard A, package services, International, and meter mail.
It also has the capability to drop ship to the Bulk Mailing Center's (BMC's) or
Sectional Center Facilities (SCF's), which will allow clients to achieve greater
postal discounts.

Outlook Graphics offers collateral information management capabilities,
which consist of storing and distributing items upon client order. 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.

Eagle Vision Converting, the Company's sheeting facility, offers sheeting
services with its Jagenberg and Maxson sheeting equipment. The Company offers
vendor managed inventory solutions for its clients for roll and sheet stock
inventory as well as in-house customer skid making to exact client
specifications.

Outlook Web

The Company's Outlook Web operations ("Outlook Web") complements the
Company's other specialty printing operations by offering twelve separate narrow
webs, from rotary letterpress to flexo and UV flexo presses within one strategic
operating facility. These capabilities enhance the Company's ability to
cross-sell its services. In its narrow web offerings, OutlookWeb 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. 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 over wraps, and provides them to
clients in convenient rolls of film.

RECENT ACQUISITIONS

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.

CLIENTS AND MARKETING

Due to the project-oriented nature of the Company's business and variances
from time to time under longer-term agreements, 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 2003 and 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 2003 and 2002. As with most of its
clients, the Company's sales to 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.

As part of its emphasis on longer term, multi-service agreements, the
Company entered into three supply chain management agreements (for periods of up
to 5 years, plus possible extensions) during fiscal 2003. The Company seeks to
focus on these types of agreements to provide stability and a long-term
relationship; however, these types of agreements sometimes require up front
costs and investments in machinery that are recovered over the course of an
agreement, and can thus expose the Company to additional risks relating to the
performance of the related customers.

3

The Company expects that it may continue to experience significant sales
concentration given the relatively large size of projects undertaken for certain
clients, and particularly due to the larger supply chain management agreements.
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 types of agreements with some clients, most clients still
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, 2003
included 20 sales and marketing employees and 10 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 47% of the Company's cost of
goods sold during fiscal 2003 as compared to 44% of the Company's cost of goods
sold during fiscal 2002. 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
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 has experienced some sales loss
from foreign competition, particularly in the printing of calendars.

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.

4

EMPLOYEES

At July 31, 2003, the Company had 457 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 29% of the Company's cost of goods sold
during fiscal 2003 and approximately 28% of cost of goods sold during fiscal
2002.

WEBSITE ACCESS TO REPORTS

The Company maintains a website at www.outlookgroup.com. Since June 2003,
the Company has made available through its website, free of charge, copies of
its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, and amendments to those reports, as soon as reasonably practical
after it electronically files those materials with, or furnishes them to, the
Securities and Exchange Commission. (Prior to June 2003, the website was solely
customer oriented and did not include investor-related information.) Those
reports may be accessed by following the links under "Investors Information" at
the Outlook Group website.

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.

As part of an acquisition 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 building in Neenah,
Wisconsin that is currently used for warehousing. The Company also leases an
approximately 37,500 square foot facility in Neenah, Wisconsin for its sheeting
operations and another 22,500 square foot facility for additional warehouse
space.

As part of the acquisition of Paragon Direct, Inc. in June 2002, the
Company assumed a lease for an approximate 8,500 square foot facility in
Milwaukee, Wisconsin for its Paragon Direct operations.

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 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 adopted Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" during
fiscal 2003. In accordance with the provision of SFAS 144, the Company reviews
property, plant, and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of property, plant and equipment is measured by
comparison of its carrying amount to future net cash flows which the property,
plant and equipment are expected to generate. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the property, plant and equipment, if any, exceeds its
fair market value. The Company had previously written down the value of certain
idle assets by $317,000 and $400,000 as of May 31, 2003 and 2002, respectively.

5

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 D 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.

The Company was sued in the U.S. District Court for the Central District of
California in fiscal 2003 by Silly Productions, Inc. and its owner Thomas Riccio
in Case No. 02-7337. The complaint alleges nine theories of liability, all of
which arise out of the actions of a former employee of the Company. The employee
appears to have stolen small amounts of certain materials during his employment
by the Company, including collectable cards that the Company was printing for
the plaintiffs. The employee then sold the materials. The plaintiffs claim that
the employee's actions destroyed the market for their trading cards by
undercutting the normal retail price for the cards. Although the complaint did
not set forth a specific damages claim, the plaintiff has later claimed in
discovery that its total damages are $4.9 million, consisting primarily of lost
profits. The Company has denied liability, is aggressively defending the claims,
and believes that damages (even if any) would be far below the claimed amount.
The Company's defenses include provisions in the Terms and Conditions of Sale
that exclude claims for lost profits, such as those being asserted by the
Plaintiffs.

In the opinion of management, the Company is not a defendant in any other
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 2003.

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.

6

Paul M. Drewek became the Company's Chief Financial Officer in 1998, and
its Secretary in 1999. Mr. Drewek previously served as principal of Drewek &
Associates (accounting and management consulting). 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 2003 Compared to Fiscal 2002"), and "Liquidity and Capital
Resources."

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 prices as reported on NASDAQ by quarter
for the indicated fiscal years and information as to dividends paid in the
quarters.

The Company declared its first cash dividend of $.05 per common share on
September 24, 2002. The Company intends to make regular cash dividend payments
each quarter, which would result in an annual dividend rate of $.20 cents per
share, assuming no change in the quarterly amount. Future cash dividends will be
subject to board declaration and economic performance and conditions.

As of July 31, 2003, the Company had approximately 464 registered
shareholders of record.

7

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, Disclosure About
Critical Accounting Policies, Notes to Consolidated Financial Statements, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in this report.

8

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, that
relate to the Company's future performance, anticipated financial position, or
results of operations for any other future period, are forward-looking
statements within the Safe Harbor Provision of the Private Securities Litigation
Reform Act of 1995. Such statements which are generally indicated by words or
phrases such as "plan," "estimate," "project," "anticipate," "the Company
believes," "management expects," "currently anticipates," "remains optimistic,"
and similar phrases are based on current expectations and involve risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual future results could differ materially from those anticipated, projected
or estimated. The factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, particularly
in "Results of Operations," and "Liquidity and Capital Resources." The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

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 2003 COMPARED TO FISCAL 2002

The Company's net sales for fiscal 2003 were $61.0 million, down $6.2
million or 9.2% from fiscal 2002 sales of $67.2 million. The Graphics business
segment had sales of $33.4 million, down $2.9 million or 8.0% from fiscal 2002
sales of $36.3 million. The Web business segment had sales of $28.8 million,
down

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$2.6 million or 8.2% from fiscal 2002 sales of $31.4 million. The Company's net
sales performance for fiscal 2003 is summarized in the following chart:

The Company's net sales are comprised as follows:

The continuing and sustained decline in general economic conditions
continue to negatively impact the Company and the industry in which it operates.
In addition, two customers with formerly recurring business in the Graphics
segment (together representing $4.0 million in sales during fiscal 2002) reduced
ongoing projects with the Company; these actions both further reduced sales and
will continue to affect sales going forward. The lower sales reflect continued
weakness in the promotional projects market, especially direct mail. Increased
competitive pressures have also had a negative impact on prices. The potential
for future terrorist attacks, the national and international responses to
terrorist attacks, war with Iraq and other acts of war or hostility have created
many economic and political uncertainties. These events could adversely affect
business and operating results in other ways that presently cannot be predicted.

During the fourth quarter of fiscal 2003, the Company announced that it had
signed a five-year supply chain agreement with International Masters Publishers
Inc (IMP). The IMP contract provides for total net sales of approximately $75
million, although that amount cannot be assured and actual sales under this
agreement will depend upon the actual level of orders and activity. Assuming the
net sales under the IMP contract occur as anticipated, they would substantially
affect the Company's sales and costs. Due to the timing of the contract, only
$658,000 of IMP sales were recorded in fiscal 2003, and IMP sales are not
expected to reach their potential until the second quarter of fiscal 2004. Under
the IMP agreement, the Company incurred significant start-up costs, which will
be recovered over the term of the agreement; therefore, by its nature, this type
of contract exposes the Company to additional risk in the event the customer
does not perform the agreement or other factors arise which were not anticipated
at the onset of this arrangement.

The Company's gross profit as a percentage of net sales decreased to 16.8%
in fiscal 2003 from 18.1% in fiscal 2002. The gross profit margin decreased $1.9
million from fiscal 2002 to $10.3 million. Gross margins decreased primarily as
a result of reduced sales, increases in certain raw materials, 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. As a consequence of the downturn in sales and
termination of certain relationships during the third quarter, the Company was
overstaffed for its remaining business; however, it decided to retain certain
employees in excess of its needs in anticipation of the execution of the IMP
contract, in addition to the regular labor and material costs for production and
services. That decision increased employee-related costs because the Company did
not take certain steps to lower labor costs than it otherwise would have taken.
The Company currently believes that it has sufficient personnel to carry on its
current and anticipated business needs, but will occasionally contract for
and/or hire temporary employees to increase the number of personnel in certain
operations, as project commitments require.

In addition to these factors, the Company incurred approximately $650,000
of direct charges in the fourth quarter for start-up costs related to the IMP
contract. The Company estimates that additional costs for freight, set-up, and
training will be incurred during the remainder of the IMP transition, primarily
in the first quarter

10

of fiscal 2004. Inventory write-offs were $154,000 in fiscal 2003 compared to
$69,000 in fiscal 2002. Inventory at May 31, 2003 was $8.0 million,
approximately $2.5 million higher than at May 31, 2002. The increase in raw
material inventory was primarily for clients whose projects began in the first
quarter of fiscal 2004. In addition, the Company began building finished goods
inventory in conjunction with the signing of several new long-term contracts.

The Company continues its efforts related to continuous process improvement
and is committed to increasing efforts to provide defect-free products and
services, all of which have contributed to the overall reduction of costs. The
Company experienced quality issues in materials supplied by certain vendors,
which negatively affected its performance. The Company is pursuing the
reimbursement from the third party vendors; however, it cannot assure that it
will receive reimbursement for any of these costs. In addition, one of the
Company's presses required unexpected maintenance and repair, which resulted in
a loss of net sales and increased expenses.

The Company's selling, general and administrative expenses decreased
$536,000 and represented 18.0% of the Company's net sales during fiscal 2003 as
compared to 17.2% of net sales in fiscal 2002. The results for fiscal 2003
include an impairment charge of $196,000 ($122,000 net of tax) for the write-off
of technology and $200,000 ($114,000 net of tax) related to the amortization of
a customer list, both of which related to the Company's acquisition of Paragon
Direct in June 2002. 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 has recently made significant investments
in training current and new employees to service the new major accounts, without
the benefit of corresponding increases in sales to offset them.

During fiscal 2002, the Company incurred non-recurring facility relocation
and legal settlement expenses of $835,000. These charges relate to certain
unusual 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 $44,000 from the prior year. The
reduction is due primarily to the extinguishment 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. At May 31, 2003, the Company had $1.5 million
outstanding on its revolving credit facility at a rate of 4.25%, and pays an
unused credit facility charge of 0.25% to maintain its line of credit. The
Company expects that it will continue to use its revolving credit facility to
meet its increased working capital needs as it relates to the new contracts and
increased capital expenditures.

The Company had a $557,000 pre-tax loss before a cumulative effect of
change in accounting principle. The results for fiscal 2003 include a $196,000
pre-tax impairment charge for the write-off of technology and $200,000 related
to the amortization of a customer list both of which related to the Company's
acquisition of Paragon Direct in June 2002 and direct start-up costs related to
the IMP contract of $650,000. Fiscal 2002 pre-tax earnings were $1.0 million.
The fiscal 2002 results include $835,000 for the facility relocation and legal
settlement costs.

The Company's effective tax rate for fiscal 2003 was 40.6% as compared to
34.0% during fiscal 2002.
11

In fiscal 2003 the Company had a net loss per diluted common share of
$(0.10) before a cumulative effect of change in accounting principle. The net
loss reported by the Company including the cumulative effect of change in
accounting principle was $(0.17) per diluted common share. In fiscal 2002, the
Company reported net earnings of $0.19 per diluted common share.

The Company reported a loss related to the cumulative effect of change in
accounting principle (net of tax) of $236,000, or $(0.07) per diluted common
share.

Effective June 1, 2002 the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." This statement changed the accounting for goodwill and
indefinite-lived intangible assets from an amortization approach to an
impairment only approach.

The SFAS No. 142 goodwill impairment model is a two-step process. First, it
requires comparison of the book value of net assets to the fair value of the
related reporting units that have goodwill assigned to them. If the fair value
is determined to be less than book value, a second step is performed to compute
the amount of impairment. In the second step, the implied fair value of goodwill
is estimated as the fair value of the reporting unit used in the first step less
the fair values of all other tangible and intangible assets of the reporting
unit. If the carrying amount of goodwill exceeds its implied fair market value,
an impairment loss is recognized in an amount equal to that excess, not to
exceed the carrying amount of the goodwill.

Under adoption of SFAS No. 142, goodwill and indefinite-lived intangible
assets being amortized, were tested for impairment. Using the SFAS No. 142
approach described above, the Company estimated the fair values of its reporting
units using the present value of future cash flows approach, subject to a
comparison for reasonableness to its market capitalization at the date of
valuation. As a result, the Company recorded a transitional goodwill impairment
charge as of June 1, 2002 of approximately $352,000 ($236,000 net of income
taxes), which is reflected as a cumulative effect of accounting change in the
Consolidated Statement of Earnings.

The change in the carrying amount of goodwill by reportable segments were
as follows:

No treasury stock was purchased during the fiscal year 2003.

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
investor confidence and a volatile stock market have further affected the
markets for the Company's materials. All of the Company's business segments have
been negatively impacted by the weakened economy.

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

12

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.

Selling, general and administrative expenses for fiscal 2002 include
approximately $835,000 of non-recurring facility relocation and legal
settlements costs. Excluding the Company's non-recurring facility relocation and
legal settlement costs, 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 the result of the Company resolving its
outstanding legal issues and the classification of some analogous expenses in
fiscal 2002 in the non-recurring charges. The decrease in bad debt expense
results from adjusting increases to 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. The Company experienced
increases in sales wages and commission expense compared to fiscal year 2001.

Interest expense decreased approximately $311,000 from the prior year. The
reduction is due primarily to the extinguishment 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 zero 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 0.25% to maintain its line of credit.

LIQUIDITY AND CAPITAL RESOURCES

As shown on the Consolidated Statements of Cash Flows, fiscal 2003 cash
provided from operating activities was $539,000 as compared to $7.3 million in
fiscal 2002. In fiscal 2003, the Company used $4.7 million to acquire and
upgrade existing machinery and equipment. In addition, the Company used $1.4
million cash from operations to finance the acquisition of its Paragon Direct
operations in June 2002.

The Company's operating cash was decreased by a $2.5 million increase in
inventory. The Company continues to monitor its inventory requirements and the
credit worthiness of its clients.

Outlook Group's board of directors has authorized the payment of quarterly
cash dividends. The Company has paid approximately $502,000 or $0.15 per common
share in cash dividends in fiscal 2003. A continuation of dividends at that
level or any level is dependent on resources available in future periods. The
Company recently announced its fourth consecutive quarterly cash dividend
payment paid during July 2003. The cash dividend of $0.05 per share will result
in a total payment of approximately $168,000 during the first quarter of fiscal
2004.

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. This acquisition opportunity was financed from
operating cash flows.

As previously reported, the Company holds a single note receivable that is
overdue. The Company has obtained a favorable judgment in excess of the value of
the note and the Company continues to pursue collection. The Company is fully
reserved for the possibility that if collection efforts prove ineffective and no
payments are received, no impact on current earnings would result if the
remaining balance of the note were written off.

13

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 can vary with the Company's selection 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 did not use its
facility during fiscal 2002 or the first nine months of fiscal 2003; however,
the Company is subject to an unused line fee of 0.25% to maintain its credit
facility. As of May 31, 2003, the Company has $1.5 million outstanding on its
revolving credit line at a rate of 4.25%, as a result of increased working
capital needs and increased capital expenditures, and is in compliance with all
of its loan covenants. As of July 31, 2003, the Company has $5.5 million
outstanding on its revolving credit line.

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.

The Company continues 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, or whether the Company will continue to successfully lease the
facility.

The Company's primary source of liquidity has been, and continues to be,
cash flows. The Company's future cash flows are dependent upon and affected by
many factors, including but not limited to the following:

- The ability of the Company to attract new and retain existing clients

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

- The effects of any loss of business of one or more primary customers

- Cancellations or delays of customer orders

- Changes in sales mix

- Changes in general economic conditions and world events

- The Company's ability to successfully complete start-up activities
related to new long-term contracts

- 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

- The ability to hire, train and retain a suitable work force

- Acquisitions or divestiture activities

- Capital asset additions or disposals

- Environmental matters

The Company is dependent upon its ability to retain its existing client
base, and additionally, obtain new clients. It's success will depend upon the
Company's ability to use existing technical and manufacturing capabilities and
knowledge in the development and introduction of new value-added products and
services targeted at new markets and clients through increased marketing
initiatives that allow the Company to differentiate its products and services
from that of its competitor's. The failure to utilize its capabilities or
properly identify and address the evolving needs of targeted customers and
markets, will limit the Company's ability to capture and develop new business
opportunities. In addition, the Company's success is dependent on

14

its ability to manufacture products at a competitive cost and subsequently price
them competitively. The Company's failure to do this could significantly affect
the 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. As with many of
the Company's clients, the timing and volume of activities can vary
significantly from period to period. There can be no assurance that the volume
from any one particular client will continue beyond the current period. The
Company had no clients during fiscal 2002 or fiscal 2003 that accounted for more
than 10% of net sales.

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. During the third quarter
of fiscal 2003, the Company was notified of reductions in volume by two of its
major clients with ongoing projects. These clients represented approximately
$4.0 million of sales during fiscal 2002, and approximately $2.2 million of
sales during fiscal 2003. In addition, approximately $1.0 million of calendar
business was lost due to foreign competition.

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, like the IMP
multi-year contract announced March 25, 2003. The Company continues to
concentrate its efforts on increasing the number of 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. In addition, significant contracts, such
as the contract with IMP, expose the Company to additional risks, which would
result from non-performance by the particular customer because of the relative
significance of those contracts. This would continue to make predictions 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 business in which the Company
operates, produce lower profit margins than others. A substantial change in the
mix of product sales, could materially affect profit margins. The profit margin
experienced for the current period, is not indicative of future profit margins.
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. The Company cannot assure the levels of its sales under
its longer-term contracts, including the IMP contract, due to many factors that
could cause its actual results to differ. These factors include contract
disputes, performance problems, customer financial difficulties or changes in
business strategies, changes in demand for the customer's products and or future
negotiated change to the agreements.

On September 11, 2001, New York City and Washington D.C. suffered serious
terrorist attacks and there is the risk that the United States may suffer
additional attacks in the future. Furthermore, tensions between the United
States and Iraq have recently escalated resulting in war. The ultimate cost
associated with terrorism and the war with Iraq has placed significant burdens
on the United States economy as a whole. The potential for future terrorist
attacks, the national and international responses to terrorist attacks, war with
Iraq and other acts of war or hostility have created many economic and political
uncertainties. These events could adversely affect our business and operating
results in other ways that presently cannot be predicted and for an
undeterminable period of time. Promotional mailings by the Company's clients
were significantly reduced as a result of the terrorist attacks and the
subsequent anthrax mailings. Technologies such as the Internet will continue to
affect the demand for printing services in general and the continuing increases
in postal rates and legislation changes such as "do not call" could impact the
direct mail business.

15

Management's effectiveness in managing its manufacturing process 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.

From time to time, the Company has had significant accounts receivable or
other amounts due from its customers or other parties. On occasion, certain of
these accounts receivable or other amounts due have become unusually large
and/or overdue, and the Company has written off significant accounts receivable
balances. The failure of the Company's customers to pay in full amounts due to
the Company could affect future profitability. Declining general economic
conditions also increase the risk for the Company, as many of its clients could
negatively be impacted by the depressed economy.

The Company uses complex and specialized equipment to provide its services
and manufacture its products; therefore, the Company depends upon the
functioning of such machinery and its ability to acquire and maintain
appropriate equipment. In addition, the Company sometimes must acquire specific
machinery in order to perform tasks for particular customers or types of
projects, and sometimes must make modifications to meet customer needs. Among
other factors, the Company may be affected by equipment malfunctions, the
inability to timely configure machinery, training and operational needs related
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 is dependent upon its ability to hire, train, and retain a
skilled work force. On occasion, the Company will contract for and/or hire
temporary employees to increase the number of personnel in certain operations as
project commitments require. In May 2002, the Company announced a workforce
reduction of approximately 12% of its workforce. The Company currently believes
that it has appropriately aligned its staffing to be consistent with its current
and anticipated levels of business activity. The failure of the Company to
properly align and maintain skilled staffing levels could affect the future
profitability of the Company. In addition, as occurred in the third quarter of
fiscal 2003, the Company may in the future again incur additional employee
expenses because of the need to maintain a work force in excess of current needs
to service anticipated customer products; such a decision would increase
expenses in the short term.

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. Acquisitions,
in particular, are subject to potential problems and inherent risks, including:

- Difficulties in identifying, financing and completing viable acquisitions

- Difficulties in integrating the acquired company, retaining the acquired
company's customers and achieving the expected benefits of the
acquisition, such as expected revenue increases and cost savings

- Loss of key employees of the acquired company

- The resulting diversion of managements' attention away from current
operations

- The assumption of undisclosed liabilities

The Company's failure to successfully implement any initiatives could
affect future profitability.

From time to time, the Company may 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.

16

The Company and the industry in which it operates are subject to
environmental laws and regulation concerning emissions into the air, discharges
into waterways and the generation, handling and disposal of waste materials.
These laws and regulations are constantly evolving, making it difficult to
predict the effect they may have upon the future capital expenditures,
profitability and competitive position of 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.

The Company has no "off balance sheet" arrangements, which would otherwise
constitute balance sheet liabilities. See below, however, for information
regarding the Company's operating leases.

DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL 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, the SEC had suggested the use of a 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 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 agreed to make loans to certain
officers and key employees to purchase the common stock of the Company. At May
31, 2003, the Company had loans totaling $374,000. The loans bear an interest
rate of 4.94% 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, 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.

As a result of legislation enacted on July 30, 2002, the Company will no
longer make or modify loans to its officers; however, outstanding amounts at
that date may continue until paid in accordance with their terms.

DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES

The Company's accounting policies are disclosed in its fiscal 2003 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, fixed assets, and intangible assets.

17

Management has discussed the development, selection and disclosure of these
estimates and assumptions with the audit committee and its board of directors.

REVENUE RECOGNITION

Revenue is recognized by the Company when all of the following criteria are
met: persuasive evidence of a selling arrangement exists; the Company's price to
the customer is fixed; collectibility is reasonably assured; and title has
transferred to the customer. Generally, these criteria are met at the time of
shipment. The Company also offers certain of its customers the right to return
products that do no 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 the customer against amounts due, to reduce the receivable to the
amount that is expected to be collected. These specific reserves are
re-evaluated and adjusted as additional information is received that impacts the
amount reserved. The same technique used to compute this allowance at May 31,
2002 has been used during fiscal 2003. 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 order, 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 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 adopted Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" during
fiscal 2003. In accordance with the provision of SFAS 144, the Company reviews
property, plant, and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of property, plant and equipment is measured by
comparison of its carrying amount to future net cash flows which the property,
plant and equipment are expected to generate. If such assets are considered to
be
18

impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property, plant and equipment, if any, exceeds its fair
market value. The Company had previously written down the value of certain idle
assets by $317,000 and $400,000 as of May 31, 2003 and 2002, respectively.

On June 1, 2002, the Company adopted the provision of SFAS No. 142
"Goodwill and Other Intangible Assets" for evaluating whether goodwill or
indefinite-lived intangible assets are impaired. Going forward the Company will
need to review goodwill and other indefinite-lived intangible assets on at least
an annual basis to determine whether they are impaired.

Under the transitional provisions of SFAS No. 142, the Company has
completed the initial impairment tests on goodwill and other indefinite-lived
intangible assets associated with each of the Company's reporting units, using a
valuation date of June 1, 2002. The Company recognized a goodwill impairment
charge of $352,000 ($236,000 net of taxes) during fiscal 2003, in its Graphics
segment. The impairment has been recorded as a cumulative effect of change in
accounting principle on the consolidated statements of earnings in accordance
with the transitional provisions of SFAS No. 142. In addition, the Company
wrote-off $196,000 ($122,000 net of tax) of technology related to the Company's
acquisition of Paragon Direct in June 2002.

RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB or the
"Board") issued SFAS 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. This pronouncement is not expected to have a material effect on the
Company's financial statements.

In May 2003, the Financial Accounting Standards Boars (FASB or the "Board")
issued SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity" This standard specifies that
instruments within its scope embody obligations of the issuer and that,
therefore, the issuer must classify them as liabilities. This statement is
effective for the Company in fiscal year 2004. This pronouncement is not
expected to have a material effect on the Company's financial statements.

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.

19

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.

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

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures: The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.

Internal Control Over Financial Reporting: There have not been any changes
in the Company's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.

20

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 pursuant to Regulation
14A for its Annual Meeting of Shareholders to be held on or about October 16,
2003 ("2003 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 2003 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 2003
Annual Meeting Proxy Statement, in addition to the table below.

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, 2003:

- -------------------------
(1) Represents options granted under the Company's 1999 Stock Option Plan, and
its predecessor 1990 Stock Option Plan ("1990 Plan"). No further options may
be granted under the 1990 plan, and the numbers of securities remaining are
all 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 2003 Annual Meeting Proxy Statement.

PART IV

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

(a) Documents Filed:

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

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

21

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

(b) Reports on Form 8-K:

The Company filed a Form 8-K dated April 1, 2003 to report the
Company's third quarter results for the period ended March 1, 2003.

22

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, appears on the
indicated page in this Form 10-K Annual Report:

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

F-1

REPORT OF INDEPENDENT AUDITORS

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

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Outlook Group Corp. and its subsidiaries as of May 31,
2003 and 2002, and the results of their operations and their cash flows for each
of the three years in the period ended May 31, 2003, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the index
appearing under Item 14(a)(2) present fairly, in all material respects, the
information set for therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
those 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 for the opinion.

As described in Note B, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets,"
effective June 1, 2002.

/s/ PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
July 17, 2003

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
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

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"). Outlook Foods 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. 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.

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
F-7

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 (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 amount 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, 2003, 33% of the accounts receivable balance relates to five
clients and at May 31, 2002, 33% of the accounts receivable balance relates to
three clients.

Notes receivable at May 31, 2003 and 2002 were $13,000 and $274,000,
respectively. The amounts recorded are net of reserves for potential
uncollectibility of $652,000 and $477,000, respectively. 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 $3,210,000, $3,206,000, and $3,611,000 for the
years ended May 31, 2003, 2002 and 2001, 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 adopted Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" during
fiscal 2003. In accordance with the provision of SFAS 144, the Company reviews
property, plant, and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of property, plant and equipment is measured by
comparison of its carrying amount to future net cash flows which the property,
plant and equipment are expected to generate. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the property, plant and equipment, if any, exceeds its
fair market value. The Company had previously written down the value of certain
idle assets by $317,000 and $400,000 as of May 31, 2003 and 2002, respectively.

Intangible Assets

On June 1, 2002 the Company adopted the provision of SFAS No. 142 "Goodwill
and Other Intangible Assets" for evaluating whether goodwill or indefinite-lived
intangible assets are impaired. Going forward the Company will need to review
goodwill and other indefinite-lived intangible assets on at least an annual
basis to determine whether it has become impaired and thus must be written off.

F-8

Intangible assets are included within other assets and include goodwill,
which represents costs in excess of net assets of businesses acquired, loan
costs, trade names, and capital lease placement fees.

Stock Based Compensation

Statement of Financial Accounting Standards No. 148 ("FAS 148"), 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.

The outstanding stock options at May 31, 2003 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, 2003, 246,750 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 2003 and 2002 was $0.975 and $1.40, respectively. The fair value
of options, at date of grant, for options granted in 2003 and 2002 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. 148, "Accounting for Stock-Based
Compensation," the pro forma effect on the 2003, 2002 and 2001 net earnings
would have been $(6,100), ($43,000), and $(4,300), respectively. The pro forma
effect on the 2003, 2002, and 2001 earnings per share for both basic and diluted
would have been $(.00), $(.01), $(.00), respectively.

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.

Options to purchase 40,159 shares of common stock were outstanding during
fiscal 2003, but were not included in the computation of diluted shares because
the effect of including such options would have been anti-dilutive to the net
loss.
F-9

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 or the
"Board") issued SFAS 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. This pronouncement is not expected to have a material effect on the
Company's financial statements.

In May 2003, the Financial Accounting Standards Boars (FASB or the "Board")
issued SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity." This standard specifies that
instruments within its scope embody obligations of the issuer and that,
therefore, the issuer must classify them as liabilities. This statement is
effective for the Company in fiscal year 2004. This pronouncement is not
expected to have a material effect on the Company's financial statements.

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 -- CHANGE IN ACCOUNTING PRINCIPLE

Effective June 1, 2002 the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." This statement changed the accounting for goodwill and
indefinite-lived intangible assets from an amortization approach to an
impairment only approach.

SFAS No. 142 goodwill impairment model is a two-step process. First, it
requires comparison of the book value of net assets to the fair value of the
related reporting units that have goodwill assigned to them. If the fair value
is determined to be less than book value, a second step is performed to compute
the amount of impairment. In the second step, the implied fair value of goodwill
is estimated as the fair value of the reporting unit used in the first step less
the fair values of all other tangible and intangible assets of the reporting
unit. If the carrying amount of goodwill exceeds its implied fair market value,
an impairment loss is recognized in an amount equal to that excess, not to
exceed the carrying amount of the goodwill.

Under adoption of SFAS No. 142, goodwill and indefinite-lived intangible
assets being amortized, were tested for impairment. Using the SFAS No. 142
approach described above, the Company estimated the fair values of its reporting
units using the present value of future cash flows approach, subject to a
comparison for reasonableness to its market capitalization at the date of
valuation. As a result, the Company recorded a transitional goodwill impairment
charge as of June 1, 2002 of approximately $352,000 ($236,000 net of income
taxes), which is reflected as a cumulative effect of accounting change in the
Consolidated Statement of Earnings.

F-10

As required by SFAS 142, the Consolidated Statements of Earnings for
periods prior to its adoption have not been restated. However, the effect on net
earnings and earnings per shares of excluding goodwill amortization is shown in
the table below:

The change in the carrying amount of goodwill by reportable segments were
as follows:

NOTE C -- INVENTORIES

NOTE D -- BANK REVOLVER LOAN

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,
2003 the Company had $1.5 million outstanding under the Revolver at a rate of
4.25%. The Company is subject to an unused line fee of 0.25% to maintain the
credit facility. The Company had no long-term debt at May 31, 2003 or May 31,
2002.

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. 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.

F-11

NOTE E -- 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, 2003, 2002, and 2001 were $257,000,
$273,000, and $270,000, respectively.

NOTE F -- 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:

The components of the net deferred income tax liability as of May 31, 2003
and 2002 were as follows:

The Company has certain loss and tax credit carryforwards for state income
tax purposes that approximate $7,287,000. Those state carryforwards expire in
varying amounts through 2020.

F-12

NOTE G -- 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. As of May
31, 2003 there were 100,750 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, 2003 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, 2003, 2002, and 2001 are summarized as follows:

NOTE H -- 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, 2003:

Rent expense for the year ended May 31, 2003, 2002, and 2001 was
$2,321,000, $2,587,000, and $2,196,000 respectively.

The Company was sued in the U.S. District Court for the Central District of
California in fiscal 2003 by Silly Productions, Inc. and its owner Thomas Riccio
in Case No. 02-7337. The complaint alleges nine theories of liability, all of
which arise out of the actions of a former employee of the Company. The employee
appears to have stolen small amounts of certain materials during his employment
by the Company, including collectable cards that the Company was printing for
the plaintiffs. The employee then sold the materials. The

F-13

plaintiffs claim that the employee's actions destroyed the market for their
trading cards by undercutting the normal retail price for the cards. Although
the complaint did not set forth a specific damages claim, the plaintiff has
later claimed in discovery that its total damages are $4.9 million, consisting
primarily of lost profits. The Company has denied liability, is aggressively
defending the claims, and believes that damages (even if any) would be far below
the claimed amount. The Company's defenses include provisions in the Terms and
Conditions of Sale that exclude claims for lost profits, such as those being
asserted by the Plaintiffs. The Company does not expect that the ultimate
outcome of this matter will have a material impact on the financial position,
results of operations or cash flows of the Company.

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 year 2002. 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.

As previously reported, the Company and Barrier-NY and their affiliates
settled 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 I -- OPERATING SEGMENTS AND MAJOR CLIENTS

In Fiscal 2002, the Company merged the operations of its Outlook Packaging,
Inc, Oak Creek facility with its Outlook Label Systems, Inc. of Neenah. In
connection with the merging of the facilities, the Company 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, 2003, 2002 and
2001 are as follows:

During fiscal 2003 or 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.

NOTE J -- SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year:

NOTE K -- NOTES RECEIVABLE

The Company holds a single note receivable that is overdue. The Company has
obtained a favorable judgment in excess of the value of the note and the Company
continues to pursue collection. The Company is fully reserved for non-collection
of the note, and there would be no impact on current earnings would result if
the remaining balance of the note were written off.

F-15

NOTE L -- 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, 2003, the Company had loans totaling $374,000. The loans bear an
interest rate of 4.94% 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 will be 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.

As a result of legislation enacted on July 30, 2002, the Company will no
longer make or modify loans to its officers; however, outstanding amounts at
that date may continue until paid in accordance with their terms.

NOTE M -- IMP CONTRACT

On March 16, 2003, the Company entered into a significant long-term
contract with International Masters Publishers Inc. ("IMP") to provide
supply-chain management services over the next five years. The contract provides
for total net sales of approximately $75 million over the term of the contract.
In fiscal 2003, sales under this contract were $658,000, and the Company
incurred certain start-up and other costs related to the contract including
$650,000 in direct charges paid to IMP.

NOTE N -- PARAGON DIRECT ACQUISITION

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

The purchase price was allocated as follows:

The trade name is being amortized over ten years. The customer list was
amortized over twelve months. Subsequent to the acquisition and allocation of
the purchase price, the Company determined that the software it acquired from
Paragon needed to be significantly modified to meet its intended functionality.
As a result, the Company wrote-off $196,000 ($122,000 net of tax) of the value
of the software that was initially capitalized. Due to the materiality of this
acquisition, pro forma financial information is not meaningful and is therefore
not presented.

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

OUTLOOK GROUP CORP. AND SUBSIDIARIES

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

F-18

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 19, 2003
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 , 2003.

OUTLOOK GROUP CORP.
(THE "COMPANY")

EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2003

- -------------------------
* 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.