OUTLOOK GROUP CORP - 10-Q Quarterly Report

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

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

For the quarterly period ended August 30, 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

OUTLOOK GROUP CORP.
(Exact name of registrant as specified in its charter)

Wisconsin 39-1278569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1180 American Drive
Neenah, Wisconsin 54956
(Address of principal executive offices, including zip code)

(920) 722-2333
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
--- ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

3,359,233 shares of common stock, $.01 par value, were outstanding at September
30, 2003.

OUTLOOK GROUP CORP. AND SUBSIDIARIES
INDEX

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The condensed consolidated financial statements included herein, have
been prepared by the Company and have not been audited. However, the
foregoing statements contain all adjustments (consisting only of normal
recurring accruals) that are, in the opinion of Company management,
necessary to present fairly the financial position of the Company at
August 30, 2003, the results of operations for the three-month periods
ended August 30, 2003 and August 31, 2002, and the results of cash
flows for the three-month periods ended August 30, 2003 and August 31,
2002. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations of the Securities and Exchange Commission,
although the Company believes that the disclosures are adequate to make
the information presented not misleading.

The results of operations for interim periods are not necessarily
indicative of the results of operations for the entire year. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Company's 2003 Form 10-K.

OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The accompanying notes are an integral part of these financial statements

OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

OUTLOOK GROUP CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

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

OUTLOOK GROUP CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Net Earnings (Loss) Per Common Share:

Basic earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average shares outstanding during each period.
Diluted earnings (loss) per share is computed similar to basic earnings
(loss) 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 42,452 shares of common stock were
outstanding at August 30, 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 for the quarter.

2. Inventories:

Inventories consist of the following (in thousands):

3. Income Taxes:

The effective income tax rate used to calculate the income tax expense
(benefit) for the quarters ended August 30, 2003 and August 31, 2002 is
based on the anticipated income tax rate for the entire fiscal year.

4. Stock Option Accounting

The Company has elected to account for all stock option plans in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. No stock-based employee
compensation expense related to stock options is reflect in net
earnings (loss) as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock
on the date of grant. Had compensation cost been applied utilizing the
fair value recognition provisions of SFAS No. 123 and 148, the pro
forma effect on the results of operations for the quarter ended August
30, 2003 and August 31, 2002 net earnings would have been $(0) and
($6,100), respectively. The pro forma effect on the August 30, 2003 and
August 31, 2002 earnings per share for both basic and diluted would
have been $(0.00) and $(0.00), respectively.

5. Accounting Periods:

The Company has adopted 13-week quarters; however, fiscal year-end
remains May 31.

6. Segment Reporting:

The Company has two reportable segments, Graphics and Web. Each are
strategic operations that offer different products and services. The
Graphics operation produces custom printed products on a wide range of
media including newsprint, coated paper, and heavy board, including
paperboard packaging. It also provides finishing services, promotional
contract packaging, direct mailing and distribution services. The Web
operation manufactures items such as coupons, pressure sensitive
specialty labels, printed vinyl cards, continuous forms, cartons,
sweepstakes and specialty game pieces, and printed film for meat,
coffee, snack food and non-food industries. The Web operation has
flexographic, rotary letterpress, laminating and slitting capabilities.

The Company evaluates the performance of its reportable segments based
on the net earnings (loss) of the respective operations. Summarized
financial information for the three-month periods ending August 30,
2003 and August 31, 2002 are as follows:

INCOME STATEMENT DATA:

* The net earnings for the Graphics segment includes a cumulative effect of a
change in accounting principle charge of $236 (net of tax).

BALANCE SHEET DATA:

7. 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.
At August 30, 2003, the Company had loans totaling $274,000. The loans
bear an interest rate of 4.9% and are for five-year terms. 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 transactions had been with
unaffiliated third parties on an arm's length basis, and such
transactions are approved by a majority of the members of the Audit
Committee of the Board of

Directors, or a majority of the directors who are independent and not
financially interested in the transactions.

On July 22, 2003, the Company received into treasury 17,072 shares of
common stock from an officer of the company at $6.1466 per share, the
average of the high and low trading prices for that day and the
preceding two trading days. The Company applied the value of the shares
received as a reduction of the note due the Company, in accordance with
its terms.

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

During the first quarter of 2004, three officers of the Company
tendered 24,648 shares of common stock in settlement of the option
price and related tax withholding in connection with the exercise of
outstanding stock options. The shares received are held in treasury at
August 30, 2003.

8. Commitments and Contingencies

The Company previously reported that it 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. 02-07337. The
compliant 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 collectible 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, if any, would be far below the claimed amounts.
The Company's defenses include provision 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.

9. Recently Issued Financial Accounting Pronouncements:

In May 2003, the Financial Accounting Standards Board (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.

10. Subsequent Events

The Company declared a quarterly cash dividend of $0.05 per common
share outstanding on September 18, 2003. The dividend is payable on
October 14, 2003 to shareholders of record on October 7, 2003. Based on
the current number of shares outstanding, the payment will be
approximately $168,000.

ITEM 2. MANAGEMENTS'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 first three months of fiscal 2003 and 2002,
and its financial condition at August 30, 2003. Statements that are not
historical facts, that relate to the Company's future performance, anticipated
financial position, or results of operations for fiscal 2004 or 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," "Liquidity and Capital
Resources," and "Disclosures Concerning Liquidity and Capital Resources
Including 'Off-Balance Sheet' Arrangements." 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.

The dollar amounts in the tables in this section are presented in thousands,
except for per share amounts or where otherwise indicated.

RESULTS OF OPERATIONS

The Company's net sales for the first quarter of fiscal 2004 were $17.1 million,
up slightly from the first quarter of fiscal 2003. The Graphics business segment
had first quarter net sales of $10.5 million, up 12.4% from the first quarter of
fiscal 2003, due largely to sales under the new IMP contract. The Web business
segment had first quarter net sales of $7.4 million, down 6.9% from the first
quarter of fiscal 2003, primarily due to decreased volumes in its label
business. The Company's net sales performance for the first quarter of fiscal
2004 is summarized in the following chart:

For the year-to-date period, the Company's sales are comprised as follows:

The Company's gross profit margin for the first quarter of fiscal 2004 was 14.7%
of net sales, down from 21.6% in the prior year. Gross margins decreased
primarily as a result of a product sales mix that produced lower overall profit
margins, a printing industry that, in general, suffers from overcapacity and
severe pricing pressures, the continuing effects of a slumping economy,
increases in certain raw materials, and the investments in start-up costs for
three new long-term supply-chain contracts. The Company believes it has now
incurred the bulk of the transition and start-up costs related to these
contracts and expects that sales under these agreements will be at the contract
amounts beginning with the second quarter of fiscal 2004. The Company
experienced problems with one of its equipment suppliers during the first
quarter of fiscal 2004, which caused additional labor and overtime to be
incurred in order to meet production schedules. The Company has resolved its
differences with this supplier and

has agreed to a reimbursement from the supplier for $175,000 of those costs.
Both the additional costs and the settlement relating to the costs were recorded
in the first quarter of fiscal 2004.

Selling, general and administrative expenses were 16.7% of net sales for the
first quarter of fiscal 2004, or $2.8 million. During the first quarter of
fiscal 2003, the Company had selling, general and administrative costs of $2.6
million. The increase is primarily the result of investments in training current
and new employees to service the new major accounts, without the benefit of
corresponding increases in sales to offset them. The Company continues to focus
on reducing its operating expenses; in particular those that do not contribute
to increased sales or increased profit margins. The Company is deploying
additional resources into marketing strategies in an attempt to increase the
Company's sales and marketing concentrations.

The Company's operating loss for the first quarter of fiscal 2004 was
approximately $333,000 or 1.9% of net sales. The Company reported an operating
profit during the first quarter of fiscal 2003 of approximately $1.1 million

The Company had $49,000 of interest expense during the first quarter of fiscal
2004. The Company maintains a revolving credit facility, which it uses to
finance increased working capital needs related to the start-up of the supply
chain agreements. As of August 30, 2003 the Company had $7.0 million outstanding
on its revolving credit agreement. Borrowings during the first quarter of fiscal
2004 were used primarily to fund capital expenditures of $1.4 million as well as
the purchase and production of inventory related to its longer-term contracts.
As of October 10, 2003, the Company had $8.2 million outstanding on its
revolving credit agreement. The Company expects that it will continue to use its
revolving credit facility for the foreseeable future, and as contracts mature
and assuming sales at contract levels, the Company's use of its revolving credit
facility is expected to diminish.

The Company is currently accruing income tax expense (benefit) at the expected
annual rate of 38.0%, although quarter-to-quarter fluctuations may occur.

The Company reported a net loss for the first quarter of fiscal 2004 of $207,000
or ($0.06) per diluted common share. The Company reported a net profit for the
first quarter of fiscal 2003 of $422,000 or $0.13 per diluted common share. The
results for the first quarter of fiscal 2003 include a loss related to the
cumulative effect of a change in accounting principle (net of tax) of $236,000
or $(0.07) per diluted common share.

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities, as shown on the Condensed Consolidated
Statements of Cash Flows, was approximately $4.0 million for the first quarter
of fiscal 2004, as compared to $1.1 million during the first quarter of fiscal
2003. The Company experienced a $3.0 million increase in inventory during the
first three months of fiscal 2004. This increase was primarily in raw materials
as the Company adjusted its inventory to meet client forecasts and production
schedules. In addition, the Company purchased completed inventory from IMP as
part of its contract obligation and had approximately $1.2 million of that
inventory remaining as of August 30, 2003. Accounts and notes receivable
increased by approximately $3.0 million during the first three months of fiscal
2004. The largest share of this increase is related to the invoicing under the
IMP contract. At August 30, 2003, the Company has approximately $2.1 million in
accounts receivable related to the IMP contract. Depreciation and amortization
for the first three months of fiscal 2004 and fiscal 2003 was approximately
$784,000 and $776,000 respectively.

The Company used approximately $1.5 million of cash in acquiring and upgrading
existing machinery and equipment during the first three months of fiscal 2004.
The Company expects that it will invest approximately $3.5 million during fiscal
2004 in capital expenditures, but excluding any acquisition opportunities that
become available. The Company intends to finance these expenditures through
funds obtained from operations plus its credit facilities and possible leasing
opportunities. The Company has approximately $10.3 million in minimum lease
payments under existing operating leases as of August 30, 2003; the majority are
for production related machinery and equipment. The Company does not currently
have any capital lease obligations.

The Company had $5.3 million of cash provided by financing activities. The
Company has borrowed $5.5 million against its revolving credit facility to
finance its increased working capital needs and capital expenditures during the
first three months of fiscal 2004. Borrowings during the first quarter of fiscal
2004 were primarily used to fund capital expenditures of $1.5 million and to
purchase and build inventory under its longer-term contracts. In addition the
Company paid dividends to shareholders of approximately $168,000.

The Company recently announced its quarterly cash dividend payment on September
18, 2003. The cash dividend of $0.05 per share will result in a total payment of
approximately $168,000 during the second quarter of fiscal 2004. A continuation
of dividends at this level in future quarters would require similar resources in
future periods.

During June 2002, the Company purchased selected assets of Paragon Direct, Inc.
for $1.2 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 has fully
reserved for this note and no impact on current earnings would result if the
note were written off.

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. As of August 30, 2003, the Company has
$7,000,000 outstanding on its revolving credit facility, as a result of
increased working capital needs and increased capital expenditures, and is in
compliance with all of its loan covenants.

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. These reviews
resulted in various transactions during recent fiscal years and may results in
additional transactions during fiscal 2004 and beyond.

The Company has accepted an offer, in principle, to sell its Troy, Ohio
facility. It is anticipated that the sale will be completed by December 31,
2003, although the transaction remains subject to closing conditions and the
Company cannot assure that it will be complete. Pending due diligence by the
prospective owners and other pre-closing matters, the Company continues to lease
this vacant building to a third party on a month-to-month basis.

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

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

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

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

o Cancellations or delays of customer orders

o Changes in sales mix

o Changes in general economic conditions and world events

o Management's effectiveness in managing the manufacturing
process

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

o The ability to acquire and maintain appropriate machinery and
equipment

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

o Acquisitions or divestiture activities

o Capital asset additions or disposals

o Environmental matters

The Company's success 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 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 2003 that accounted for more than 10%
of net sales. During the first quarter of fiscal 2004, International Masters
Publishing Inc. accounted for approximately 24.5% of net sales.

The loss of IMP sales, or 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 $2.2 million of sales during fiscal 2003.

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. 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. This would continue to make prediction of the
Company's future results very difficult. Even though the Company is looking to
increase the volume of longer-term contract work, the Company expects that it
will continue to experience significant sales concentration given the relatively
large size of projects accepted for certain clients.

Due to the range of services that the Company provides, the product sales mix
can produce a range of profit margins. Some 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 changes 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 may place 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 the national "do not call" list
will likely impact the direct mail business.

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 adverse 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 has acquired specialized machinery related to the IMP
arrangement and may need to acquire specific machinery in order to perform tasks
for a particular customer or types of projects, and may need to make
modifications to meet customer needs. Among other factors, the Company may be
affected by equipment malfunctions, the inability to configure machinery on a
timely basis, 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. 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:

o Difficulties in identifying, financing and completing viable
acquisitions

o 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

o Loss of key employees of the acquired company

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

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

The Company 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 has disclosed information pertaining to these events in its fiscal
2003 Report on Form 10-K. In addition, the Company has prepared schedules
suggested by the SEC for the period ending August 30, 2003. The Company had no
commercial commitments to report as of the latest balance sheet date.

Operating leases 10,320 2,161 5,985 2,174 0
Unconditional purchase
obligations 0 0 0 0 0
Other long-term
obligations 0 0 0 0 0
---------- ---------- ---------- ---------- ----------
Total contractual cash
obligations $ 10,320 $ 2,161 $ 5,985 $ 2,174 $ 0
========== ========== ========== ========== ==========

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 August 30, 2003,
the Company had loans totaling $274,000. The loans bear an interest rate of 4.9%
and are for a five-year term. It is the Company's policy that all material
transactions between the Company, its officers, directors or principal
shareholders, or affiliates of any of them, shall be on terms no less favorable
to the Company than those which could have been obtained if the transaction had
been with unaffiliated third parties on an arm's length, 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.

On July 22, 2003 the Company repurchased 17,072 shares of common stock from Mr.
Baksha at $6.1466 per share, the average of the high and low trading prices for
that day and the preceding two trading days. The proceeds were then used to
repay a $100,000 note due the Company, in accordance with its terms.

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

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.
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 specified quality standards. 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, 2003 has been used during the first three months of
fiscal 2004. 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 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 has established a reserve of $247,000 as of
August 30, 2003.

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.

The Company recorded 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 operations.

ITEM 3. 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 is exposed to changing interest rates, principally under its
revolving credit facility. Currently, 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.

ITEM 4. 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.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

31.1 Sarbanes-Oxley Section 302 Certification by the CEO

31.2 Sarbanes-Oxley Section 302 Certification by the CFO

32.1 Sarbanes-Oxley Section 906 Certification by the CEO

32.2 Sarbanes-Oxley Section 906 Certification by the CFO

(b) Reports on Form 8-K.

None incorporated by reference into other documents. However,
the Company submitted a Form 8-K dated July 21, 2003 to report
the Company's 2003 fiscal year results for the period ended
May 31, 2003.

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

OUTLOOK GROUP CORP.
------------------
(Registrant)

Dated: October 10, 2003

/s/ Richard C. Fischer
--------------------------------
Richard C. Fischer, Chairman and
Chief Executive Officer

/s/ Paul M. Drewek
--------------------------------
Paul M. Drewek, Chief Financial
Officer

EXHIBIT INDEX