OUTLOOK GROUP CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

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, 2004

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 OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)

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

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

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

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

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. [ ]

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, 2004, 3,385,477 SHARES OF COMMON STOCK WERE OUTSTANDING; ON
NOVEMBER 30, 2003, 3,353,319 SHARES WERE OUTSTANDING. ON NOVEMBER 30, 2003, THE
END OF THE REGISTRANTS SECOND QUARTER OF FISCAL 2003, THE AGGREGATE MARKET VALUE
OF THE COMMON STOCK (BASED UPON THE $5.00 LAST SALE PRICE ON THE NASDAQ STOCK
MARKET, PRIOR TO THAT DATE) HELD BY NON-AFFILIATES (EXCLUDES A TOTAL OF 822,786
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 $12.7 MILLION.

DOCUMENTS INCORPORATED BY REFERENCE

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. Products and 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, 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 cars, 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
vinyl's

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

- ASI certified food-grade clean room meeting FDA standards

DIRECT MAIL

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

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- 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 and provide appropriate resources (which
vary from customer-to-customer) over a multi-year period. 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. For example, in early fiscal 2005,
the Company sold certain assets of its Paragon Direct operations, while
simultaneously entering into an agreement with the purchaser to provide the
Company and its customers continuing access to the types of direct mail
customizing services (including list processing, database development,
mail/purge and sorting) which Paragon Direct has provided. 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 seven
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 that creates a dynamic
printed effect.

Outlook Graphics provides finishing services for printed items, whether or
not printed by the Company. Finishing operations include die cutting, 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 also combines several of these services in printing
postcards for bulk mailings. These services include a web-based system for
ordering postcards to help maximize efficiency and cost effectiveness.

Outlook Graphics contract packaging services provide high speed film
overwrapping 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 overwrapping
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.

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Outlooks Graphics direct mail services include labeling, personalizing,
tabbing, poly bagging, intelligent collating, insertion, shrink wrapping,
metering and postage. Outlook Graphics offers computerized inventory systems
with kit assembly/order filling capability along with complete production
services for overwrapping and sampling programs as well as direct mail
brochures, letters, self-mailers, cd-mailers, labels and vinyl cards. Outlook
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 allows 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 operation ("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, not otherwise available from the
Company, 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 overwraps, and provides them to clients in
convenient rolls of film.

RECENT TRANSACTIONS

During June 2002, the Company purchased selected assets of Paragon Direct,
Inc., which 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.

In July 2004, the Company sold selected assets of its Paragon Direct
operations, and simultaneously entered into an agreement with the buyer to
provide the Company and its customers with additional services and also
continuing access to similar services which Paragon Direct had provided. In
connection with the sale of those assets, the Company retained certain
relationships with customers who used multiple Outlook Group services and
continued to make these types of services available to other customers directly
or through ongoing arrangements with other providers.

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. In particular, sales depend upon the timing of marketing initiatives
that can change frequently and vary significantly from period to period. In
fiscal 2004, International Masters Publishers Inc. ("IMP") was the
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Company's largest customer, accounting for 19.4% of the Company's net sales.
There is no assurance that these sales will continue in the future. During
fiscal 2003, no client accounted for more than 10% of the Company's net sales.

As part of its emphasis on longer term, multi-service agreements, 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. In fiscal 2004, the Company estimates
that approximately 70% of its sales were made under customer contracts with a
one-year or more duration.

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.
In particular, the Company expects that a significant portion of its sales will
relate to the IMP relationship. The loss of business of IMP, or one or more
other 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 many clients, many other clients
still purchase the Company's services under cancelable purchase orders rather
than long-term contracts. 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, 2004
included 14 sales and marketing employees and 7 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 48% of the Company's cost of
goods sold during fiscal 2004 as compared to 47% of the Company's cost of goods
sold during fiscal 2003. 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.

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ENVIRONMENTAL MATTERS

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

EMPLOYEES

At July 31, 2004, the Company had 434 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 27% of the Company's cost of goods sold
during fiscal 2004 and approximately 29% of cost of goods sold during fiscal
2003.

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. The website also includes the Company's
updated Code of Ethics, and the charters of each of the Board committees. (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 "Investor 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 three 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 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. A month-to-month lessee recently vacated this
facility. The Company is seeking to sell the Troy facility.

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 those operations. With the recent sale of assets
relating to Paragon Direct, the Company is now using the facility as a regional
sales office.

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

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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 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 subsidiaries.

ITEM 3. LEGAL PROCEEDINGS.

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

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

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 2004.

EXECUTIVE OFFICERS OF THE REGISTRANT.

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

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

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

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

Paul M. Drewek became the Company's Chief Financial Officer in 1998, and
its Secretary in 1999. Mr. Drewek also is deemed the Company's principal
accounting officer.

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* * * * *

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 2004 Compared to Fiscal 2003"), and "Liquidity and Capital
Resources -- Risk and Other Cautionary Factors."

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER REPURCHASES OF EQUITY SECURITIES.

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. In
addition, the Company's lending agreements currently limit the aggregate amount,
which the Company may annually use to pay dividends and/ or to repurchase shares
to $1.5 million.

As of July 31, 2004, the Company had approximately 387 registered
shareholders of record.

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ITEM 6. SELECTED FINANCIAL DATA.

The following selected financial data of the Company have been derived from
the Company's audited consolidated financial statements and should be read in
conjunction with the consolidated financial statements, 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.

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

The following section presents a discussion and analysis of the Company's
results and operations during the past three fiscal years, and its financial
condition at fiscal year end. Statements that are not historical facts, 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
under "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 2004 COMPARED TO FISCAL 2003

Comparisons between the fiscal 2004 and fiscal 2003 periods are
substantially affected by the long-term production and supply chain management
agreement between the Company and International Masters Publishing Inc. ("IMP"),
which was entered into in March 2003. Under this five-year agreement, the
Company began providing substantial services on behalf of IMP in April 2003.

The Company's net sales for fiscal 2004 were $72.8 million, up $11.8
million or 19.3% from fiscal 2003 sales of $61.0 million.

The Graphics business segment had sales of $44.3 million, up $12.1 million
or 37.8% from fiscal 2003 sales of $32.2 million. This is due largely to net
sales of $13.1 million under the IMP contract. In addition, the

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Company had sales to IMP beyond the terms of the IMP contract of $1.0 million in
fiscal 2004. Net sales to IMP are net of any rebates and performance bonuses due
under the arrangement. Fiscal 2004 sales benefitted by customers' decisions to
accelerate several projects into May; these projects otherwise would have
resulted in sales in the first quarter of fiscal 2005.

The Web business segment had sales of $28.5 million, a decrease of $0.3
million or 1.3% from fiscal 2003 sales of $28.8 million. The Company's net sales
performance for fiscal 2004 is summarized in the following chart:

The Company's net sales are comprised as follows:

The Company's gross profit as a percentage of net sales increased to 18.6%
in fiscal 2004 from 16.8% in fiscal 2003. The gross profit margin increased $3.3
million to $13.5 million from $10.2 million in fiscal 2003. In significant part,
the increase in gross profit results from the significant increase in sales, as
the Company recovers more overhead with a higher amount of sales. The Company
continues its efforts related to continuous process improvement and is committed
to providing its customers defect-free products and services. These on-going
efforts have increased employee productivity and contributed to the overall
reduction of costs. Inventory write-offs were $113,000 in fiscal 2004 compared
to $154,000 in fiscal 2003. Inventory at May 31, 2004 was $10.4 million,
compared to $8.0 million at May 31, 2003. The $2.4 million increase includes
approximately $1.0 million for raw materials and approximately $1.4 million for
finished goods. The increase in finished goods is largely due to the IMP
contract as well as purchases of finished goods acquired from IMP during the
first quarter of fiscal 2004. The inventory acquired is being credited back to
IMP at cost after the Company provides additional production, overwrapping, and
fulfillment services. This resulted in sales of approximately $1.8 million
during fiscal 2004.

The Company's selling, general and administrative expenses increased
approximately $600,000 in fiscal 2004 as compared to fiscal 2003, and
represented 15.9% of the Company's net sales during fiscal 2004 as compared to
18.0% of net sales in fiscal 2003. The decrease in percentage is primarily a
result of the significant increase in net sales, while the increase in dollar
amount results primarily from increases in bad debt expense, professional
services, and subcontract wages. Fiscal 2004 results include a $150,000 charge
paid as part of a settlement agreement with Silly Production, Inc. The results
for fiscal 2003 included 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 is deploying additional
resources into marketing strategies in an attempt to increase the Company's
sales and marketing concentrations. The Company believes that relatively large
orders and customers tend to be more advantageous to it than smaller ones.
However, this strategy also increases the Company's dependence on these larger
customers.

Interest expense increased approximately $300,000 from the prior year to
$310,000. The increase is due primarily to the Company's borrowings on its
revolving credit line. The Company uses its line of credit to finance its
working capital needs, which have increased in conjunction with the start-up of
the IMP contract and various other supply chain agreements. At May 31, 2004, the
Company had $1.85 million outstanding on

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its revolving credit facility and pays an unused credit facility charge of .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 $1.8 million in pre-tax earnings during fiscal 2004 or 2.5%
of net sales. The Company incurred a fiscal 2003 pre-tax loss of 557,000. The
results for fiscal 2003 include a $196,000 (122,000 net of tax) impairment
charge 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 2003 and direct start-up costs
of approximately $650,000 relating to the IMP contract.

The Company's effective tax rate for fiscal 2004 was 40.9% as compared to
40.6% during fiscal 2003.

In fiscal 2004, the Company had net earnings per diluted common share of
$0.32. 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 in fiscal 2003, including the cumulative effect of
change in accounting principle, was $(0.17) per diluted common share.

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 $32.2 million, down $3.6 million or 10.1% from fiscal 2002
sales of $35.8 million. The Web business segment had sales of $28.8 million,
down $2.6 million or 8.2% from fiscal 2002 sales of $31.4 million.

The continuing and sustained decline in general economic conditions during
fiscal 2003 continued 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 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, 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 current
needs in anticipation of the execution of the IMP contract. That decision
increased employee-related costs because the Company did not take certain steps
to lower labor costs than it otherwise would have taken. In addition to these
factors, the Company incurred approximately $650,000 in direct charges in the
fourth quarter for start-up costs related to the IMP contract. 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'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 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
non-recurring charges generated in the first six months for the
12

relocation of the Company's former Oak Creek production facility to its Neenah
facility and the settlement of a lawsuit related to the Oak Creek 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 offsetting $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 was 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 and pays an unused credit facility
charge of .25% to maintain its line of credit.

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
($122,000 net of tax) impairment charge 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 and direct start-up costs 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 rate for fiscal 2003 was 40.6% as compared to 34.0%
during fiscal 2002.

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.
13

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

LIQUIDITY AND CAPITAL RESOURCES

As shown on the Consolidated Statements of Cash Flows, fiscal 2004 cash
provided from operating activities was $2.5 million as compared to $0.5 million
in fiscal 2003. The Company's fiscal 2004 operating cash flow was negatively
affected by a $1.7 million increase in account and notes receivable and a $2.4
million increase in inventory. The Company continues to monitor its inventory
requirements and the creditworthiness of its clients. In fiscal 2004, the
Company used $3.2 million to acquire and upgrade existing machinery and
equipment.

Outlook Group's board of directors has authorized the payment of quarterly
cash dividends. The cash dividend of $0.05 per share will result in a total
payment of approximately $169,000 during the first quarter of fiscal 2005. The
Company has declared approximately $674,000 or $0.20 per common share in cash
dividends in fiscal 2004. A continuation of dividends at that level or any level
is dependent on resources available in future periods.

In fiscal 2004, the Company repurchased 67,842 shares. Of this, 17,072
shares of common stock were tendered in the settlement of Mr. Baksha's note. The
additional 50,770 shares were tendered by the holders for a deemed value of
approximately $342,000 in connection with the exercise of previously granted
stock options. No treasury stock was purchased during fiscal 2003.

The Company converted three customers with account receivable balances to
note receivables during fiscal 2004. The notes are for approximately $408,000
and have terms of twenty-four months. At May 31, 2004, the Company established a
reserve of approximately $121,000 related to these notes. As of August 16, 2004,
the three customers have made payments of approximately $60,000 against these
notes.

The Company maintains a credit facility with a bank that provides for a
maximum revolving credit commitment of $16.0 million, which was increased in
August 2004 from $15.0 million. Of that amount, $4.0 million is now in the form
of a term loan. The remainder is a revolving credit facility. Interest on the
balance of any 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
is subject to an unused line fee of .25% to maintain its credit facility. The
facility now extends to June 12, 2007. As of May 31, 2004, the Company had $1.85
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 August 16, 2004, the Company
has $0.2 million outstanding on its revolving credit line and $4.0 million
outstanding under the term loan.

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 2005 and beyond. On July 7, 2004, the Company sold
selected assets of its Paragon Direct division to A.B. Data Ltd. effective June
30, 2004. Through the transaction, A.B Data acquired certain

14

customer relationships with customers who do business with Paragon Direct.
Outlook Group retained relationships with customers who use multiple Outlook
Group services and can continue to make these types of services available to
customers directly or through ongoing arrangements with A.B. Data.

The Company continues to pursue the sale of its Troy, Ohio facility. This
property is vacant and is not currently being sub-leased. The Company previously
had tenants and monthly rental income of approximately $6,000 for the sub-lease
of a portion of the building. The Company cannot assure that it will be able to
sell or lease this property in a timely manner, or that it will receive and
accept an offer that is profitable to the Company.

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 ability of the Company to recover increases in raw material prices

- 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

- Management's effectiveness in managing the manufacturing process

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

- Continued availability of bank financing

Additionally, liquidity will be affected by cash needs including:

- The ability to acquire and maintain appropriate machinery and equipment

- Start-up costs for significant new client relationships, including
working capital needs

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

- Acquisitions or divestiture activities

- Capital asset additions or disposals

- Environmental compliance matters

RISK AND OTHER CAUTIONARY FACTORS

In addition to the matters discussed earlier in this Management's
Discussion and Analysis, the Company is subject to many factors, which can
affect its operations, results and financial condition. In addition to the
factors which are discussed above, some other factors that could negatively
affect the Company's results and financial condition are set forth below.

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 competitors. 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.

15

The Company is subject to price increases in many of its raw materials. The
Company's failure to recover raw material price increases in pricing its
products could have a negative affect on the future profitability of the
Company. 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. The raw materials consumed by the
Company include paper stocks, inks, and plastic films, all of which are readily
available from numerous suppliers.

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
supply-chain agreement with IMP, which is now the Company's largest customer,
and the Company's only customer with sales in excess of 10% during fiscal 2004,
results in an increased dependence upon sales to IMP. Sales to IMP were 19.4% of
the Company's net sales in fiscal 2004. Although significant long-term contracts
provide more stability to the Company, they can increase the Company's
dependence on specific customers. In particular, substantial portions of the
Company's sales are now represented by the IMP contract. The loss of IMP sales
would have a material adverse effect on the Company's sales volume and
profitability.

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.

Many clients purchase the Company's services under cancelable purchase
orders rather than long-term contracts. While the Company believes that
operating without long-term contracts is consistent with industry practices, it
is committed to developing multi-year projects that can add stability to its
business. The Company continues to concentrate its efforts on increasing the
number of 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. Many factors including
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 could cause actual results to
differ.

The September 11, 2001 terrorist attacks, the U.S. and international
response, the fear of additional attacks, the war with Iraq and its aftermath,
and other factors have substantially affected the United States economy as a
whole. Some of these matters, such as the anthrax mailings, have specifically
affected the industry in which the Company operates because of their effect on
promotional mailings. These events could adversely affect business and operating
results for an undeterminable period of time in ways that presently cannot be
predicted. Technologies such as the Internet will continue to affect the demand
for printing services

16

in general, and the continuing increases in postal rates and legislation changes
such as the national "do not call" list and "can spam" limitations will likely
impact the direct mail business in varying ways.

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 and liquidity and the Company's
reserves for these items may not be sufficient. Declining general economic
conditions also increase the risk for the Company, as many of its clients could
negatively be impacted by the depressed economy. As sales to contractual
customers such as IMP become a larger percentage of the Company's sales and
receivables, disputes or collection problems would likely affect a larger
portion of the Company's sales and/or receivables. Additionally, several
customers with contractual arrangements have extended payment terms although
payments have generally been received according to the terms of the contract.

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 other customers or types of projects. In
certain cases, the cost of this machinery is factored into costs or prices
charged to related customers; however, the costs may not be fully recovered,
such as in the event sales to customers do not reach anticipated levels. 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:

- 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

17

- 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.

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.

DISCLOSURES ABOUT OFF-BALANCE SHEET OBLIGATIONS, CONTRACTUAL OBLIGATIONS AND
COMMERCIAL COMMITMENTS

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.

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.

In addition, at May 31, 2004 the Company had borrowed $1.85 million against
its $15.0 million bank revolver agreement. The Company is in compliance with its
covenants under the related agreement. In August 2004, the credit agreement was
renewed and expanded to $16.0 million. Of that amount, $4.0 million is a term
facility and the balance remains under a revolver.

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.

18

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, 2004, 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.

In his original employment agreement, the Company agreed to make a loan to
Mr. Baksha of up to $100,000 to purchase the Company's common stock. The term of
the loan would be five years at the same rate of interest charged Company
pursuant to its line-of-credit at the time of such loan. Such a loan was made to
Mr. Baksha in July 1998, at an interest rate of 8% per annum. This was adjusted
to 4.94% in fiscal 2002 to match the rate on the loans discussed below. The loan
principal was due in July 2003; interest was due annually. Mr. Baksha has repaid
this loan in fiscal 2004 in accordance with its terms.

Because of the changes in law, the Company could not modify or extend Mr.
Baksha's loan or take other related action consistent with the Company's desire
to encourage Mr. Baksha's continued ownership. To assist in providing liquidity
to Mr. Baksha for the repayment of the loan, on July 22, 2003, the Company
repurchased from him 17,072 shares of common stock at $6.1466 per share, the
average of the high and low trading prices for that day and the preceding two
trading days. Mr. Baksha used the proceeds to repay his note as provided above.

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 has a variety of accounting policies that affect the way it
applies generally accepted accounting principles to its financial statements.
Some of these policies require that the Company exercise judgment. The most
significant of these policies are discussed below. 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 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 customers current
credit worthiness, as determined by the review of the customers 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

19

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 was used to compute this
allowance at May 31, 2004 and 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 continues to use the same techniques to value inventory as have
been used in the past. The Company values its inventory at the lower of cost or
market. Cost is determined using the first-in, first-out method. Raw materials
and work-in-process are based on actual costs. Finished goods are valued based
upon average selling prices and gross margins applicable to the related customer
and product. Valuing inventories at either method 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. Any
actions taken by the Company's customers that could impact the value of
inventory are considered when determining inventory 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 of Long-Lived Assets to be Disposed of"
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 value of the 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.

On June 1, 2002, the Company adopted the provision of SFAS No. 142
"Goodwill and Other Intangible Assets" for evaluating and establishing any
reserves for intangible assets determined to be impaired. Going forward the
Company will need to review goodwill and other indefinite-lived 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.

RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS

On January 17, 2003, the Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46 (FIN 46 or the "Interpretation"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
The primary objective of the Interpretation is to provide guidance on the
identification of, and financial reporting for, entities over which control is
achieved through means other than voting rights; such entities are known as
variable-interest entities (VIEs). This statement as subsequently

20

amended is effective for the Company at the end of the fourth quarter of fiscal
2004. The adoption of this rule did not have a material effect on the Company's
financial statement.

In May 2003, the Financial Accounting Standards Board (FASB or the "Board")
issued FASB Statement No. 150 (FAS 150 or the "Standard"), Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The Standard specifies that instruments within its scope embody
obligations of the issuer and that, therefore, the issuer must classify them as
liabilities. This rule did not have a material effect on the Company's financial
statement.

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 is exposed to changing interest rates, principally under its
revolving credit facility and outstanding notes receivable. 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 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 15
herein.

21

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.

ITEM 9B. OTHER INFORMATION.

None.

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 20,
2004 ("2004 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 2004 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 2004
Annual Meeting Proxy Statement, in addition to the table below.

22

In addition to the information, which is incorporated in this item by
reference to the 2004 Annual Meeting Proxy Statement, the following chart gives
aggregate information regarding grants under all equity compensation plans of
the Company through May 31, 2005:

- -------------------------
(1) Represents options granted under the Company's 1999 Stock Option Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information in response to this item is incorporated by reference to
"Certain Transactions" in the 2004 Annual Meeting Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Information in response to this item is incorporated by reference to
"Auditors" in the 2004 Annual Meeting Proxy Statement.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Documents Filed:

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

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

(b) Reports on Form 8-K:

The Company did not file any reports on Form 8-K during the fourth
quarter of fiscal 2004. However, the Company furnished a report dated March
29, 2004 in which it furnished the Company's third quarter, and
year-to-date, results for the period ended February 28, 2004.

23

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 pages 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 REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and shareholders
of Outlook Group Corp. and Subsidiaries:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Outlook Group Corp. and its subsidiaries at May 31, 2004
and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended May 31, 2004 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 15(a)(2), present fairly, in all material respects, the information
set forth 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 these statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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 our opinion.

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

PricewaterhouseCoopers LLP

Milwaukee, Wisconsin
August 17, 2004

F-2

OUTLOOK GROUP CORP.

CONSOLIDATED BALANCE SHEETS

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

F-3

OUTLOOK GROUP CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

F-4

OUTLOOK GROUP CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

F-5

OUTLOOK GROUP CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF ACCOUNTING POLICIES

The following is a summary of Outlook Group Corp. and its wholly owned
subsidiaries ("Company") significant accounting policies 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"), Showcase Postcards, Inc., and Outlook Foods, Inc. ("Outlook
Foods"). Outlook Foods is inactive.

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. 104, "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

The Company has 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, shipping and handling fees and
costs are reflected in costs of goods sold.

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 customers current credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon the
Company's historical experience and any specific customer collections issues
that have been identified. The Company values account and note receivables net
of an allowance for uncollectible accounts.
F-7

The allowance is calculated based upon the Company's evaluation of specific
customer accounts where the Company has information that the customer may have
an inability to meet its financial obligations (bankruptcy, etc.). In these
cases, the Company uses its judgment, based on the best available facts and
circumstances, and records a specific reserve for that customer against amounts
due to reduce the receivable to the amounts that is expected to be collected.
These specific reserves are reevaluated and adjusted as additional information
is received that impacts the amount reserved. The ultimate collectibility of a
receivable is dependent upon the financial condition of an individual customer
which could change rapidly and without advance warning.

As of May 31, 2004, 58% of the accounts receivable balance relates to five
clients and at May 31, 2003, 33% of the accounts receivable balance relates to
five clients.

Notes receivable at May 31, 2004 and 2003 were $237,000 and $13,000,
respectively. The amounts recorded are net of reserves for potential
uncollectibility of $121,000 and $652,000, 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. Raw materials and
work-in-process are based on actual costs. Finished goods are valued based on
average selling prices and gross margins applicable to the related customer and
product category. 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 $3,286,000, $3,210,000, and $3,206,000 for the
years ended May 31, 2004, 2003 and 2002, 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 provisions of SFAS 144, the Company reviews
property, plant and equipment for impairment whenever events or changes in
circumstances indicate that the carrying value of the 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.

Intangible Assets

On June 1, 2002 the Company adopted the provision of FAS No. 142 "Goodwill
and Other Intangible Assets" for evaluating and establishing any reserves for
intangible assets determined to be impaired. Intangible assets are included
within other assets and include goodwill, which represents costs in excess of
net assets of businesses acquired, loan costs and capital lease placement fees.
The Company reviews goodwill to assess

F-8

recoverability based upon estimated future results of operations and cash flows
at the aggregate business unit level. As of May 31, 2004 and May 31, 2003, the
Company had $801,000 recorded as the value of goodwill in both years. These
values are net of accumulated goodwill amortization of $709,000. As discussed in
note B, at May 31, 2003, the Company charged $196,000 against its results of
operations, related to the impairment of technology and $200,000 related to the
amortization of a customer list, both of which related to its June 2002
acquisition of Paragon Direct.

Stock Based Compensation

Statement of Financial Accounting Standards No. 148 ("SFAS 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, 2004 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, 2004, 141,000 options are exercisable at a weighted average exercise
price of $4.96. There were no options granted during 2004. The weighted average
fair value at date of grant for options granted during 2003 was $0.975. 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 SFAS
No. 148, "Accounting for Stock-Based Compensation," the pro forma effect on the
2004, 2003 and 2002 net earnings would have been $(11,400), $(23,800) and
$(54,800), respectively. The pro forma effect on the 2004, 2003 and 2002
earnings per share for both basic and diluted would have been $(.00), $(.01),
and $(.02) 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.

The Company reviews its deferred tax assets for recovery. The valuation
allowance is established when the Company believes that it is more likely than
not that some portion of its deferred tax assets will not be realized. Changes
in the valuation allowance for period to period charges are included in the
Company's tax provision in the period of change.

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.

F-9

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
including such options would have been anti-dilutive to the net loss.

Recently Issued Accounting Standards

On January 17, 2003, the Financial Accounting Standards Board (FASB or the
"Board") issued FASB Interpretation No. 46 (FIN 46 or the "Interpretation"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
The primary objective of the Interpretation is to provide guidance on the
identification of, and financial reporting for, entities over which control is
achieved through means other than voting rights; such entities are known as
variable-interest entities (VIEs). This statement as subsequently amended is
effective for the Company at the end of the fourth quarter of fiscal 2004. The
adoption of this rule did not have a material effect on the Company's financial
statements.

In May 2003, the Financial Accounting Standards Board (FASB or the "Board")
issued FASB Statement No. 150 (SFAS 150 or the "Standard"), Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity. The Standard specifies that instruments within its scope embody
obligations of the issuer and that, therefore, the issuer must classify them as
liabilities. The adoption of SFAS No. 150 did not have a material effect on the
Company's financial statements.

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.

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 a multiple of estimated 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

F-10

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:

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,
2004, the Company had $1.85 million outstanding under the Revolver at a rate of
4.25%. The Company's credit agreement, as extended, expired on August 11, 2004.
In August 2004, the credit agreement was renewed and expanded to $16.0 million.
Of that amount, $4.0 million is a term facility and the balance remains a
revolver. Interest on any 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 determined against a pre-determined performance
chart. The Company is subject to an unused line fee of 0.25% to maintain its
credit facility.

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

F-11

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.

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, 2004, 2003, and 2002 were $269,000,
$257,000, and $273,000, respectively.

NOTE F -- INCOME TAXES

The provision for income taxes consist of the following:

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

F-12

The components of the net deferred income tax liability as of May 31, 2004
and 2003 were as follows:

The valuation allowance primarily reflects operating loss carryforwards in
certain states for which utilization is uncertain. At May 31, 2004, the Company
had available net operating loss (NOL) carryforwards of approximately $6,893,000
for income tax purposes. The Company also has general business credits and other
tax credit carryforwards of approximately $213,000 to offset future tax
liability in Wisconsin through 2020.

NOTE G -- STOCK OPTIONS

In 1999, the shareholders approved the 1999 Stock Option Plan ("the 1999
Plan") that 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, 2004, there
were 141,000 options outstanding under the 1999 Plan.

Transactions under the option plans and the directors options during the
years ended May 31, 2004, 2003, and 2002 are summarized as follows:

F-13

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, 2004:

Rent expense for the year ended May 31, 2004, 2003, and 2002 was
$2,470,000, $2,321,000, and $2,587,000 respectively.

The Company has previously reported litigation against it by Health Jet,
Inc. d/b/a Chung's Gourmet Foods ("Chung's"), which sought 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 been paid in full $470,000, and will be paid the balance from
the third party. The Company subsequently also 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

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, 2004, 2003 and
2002 are as follows:

In fiscal 2004, International Masters Publishers Inc. represented 19.4% of
the Company's net sales. During fiscal 2003 and fiscal 2002 no clients accounted
for more than 10% of the Company's net sales.

NOTE J -- SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid during the year:

NOTE K -- RELATED PARTY TRANSACTIONS

As previously reported, the Company has agreed to make loans to certain
officers and key employees to purchase the common stock of the Company. At May
31, 2004, the Company had related party loans outstanding 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 basis,

F-15

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.

In his original employment agreement, the Company agreed to make a loan to
Mr. Baksha of up to $100,000 to purchase the Company's common stock. The term of
the loan would be five years at the same rate of interest charged Company
pursuant to its line-of-credit at the time of such loan. Such a loan was made to
Mr. Baksha in July 1998, at an interest rate of 8% per annum. This was adjusted
to 4.94% in fiscal 2002 to match the rate on the loans discussed above. The loan
principal was due in July 2003; interest was due annually. To assist in
providing liquidity to Mr. Baksha for the repayment of the loan, on July 22,
2003, the Company repurchased from him 17,072 shares of common stock at $6.1466
per share, the average of the high and low trading prices for that day and the
preceding two trading days. Mr. Baksha used the proceeds to repay his note as
provided above.

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 L -- SALE OF PARAGON DIRECT

On July 7, 2004, the Company sold certain assets of its Paragon Direct
division ("Paragon Direct") to A.B. Data, Ltd. While A.B. Data acquired certain
customer relationships which were with Paragon Direct, Outlook Group retained
relationships with other customers who use multiple Outlook Group services and
can continue to make these types of services available to other customers
directly or through ongoing arrangements with A.B. Data or other providers.

The transaction provided for a total purchase price equaling the book value
of the assets which were sold, estimated at approximately $390,000 (subject to
post-closing confirmations), plus the value of the assumed liabilities. Of that
amount, approximately $40,000 was paid at closing, and the balance will be paid
periodically over four years. Outlook Group retained, among other assets,
account receivables, the facility lease, and certain customer agreements and
software licenses. Outlook Group and A.B. Data have also entered into agreements
under which they may sell each others services for specified commissions, and
Outlook Group will make limited payments to A.B. Data if Paragon Direct
continuing sales are below specified amounts in the future. A.B. Data has also
committed to making Paragon Direct services available to Outlook Group to
support Outlook Group customers.

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 27, 2004
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 27, 2004.

OUTLOOK GROUP CORP.
(THE "COMPANY")

EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K FOR FISCAL 2004

- -------------------------
* 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 officer.