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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------

For the transition from  to

Commission File No. 0-27222



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CFC INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 36-3434526                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

500 State Street, Chicago Heights, Illinois 60411

(Address of Principal Executive Offices)

Registrants telephone number, including area code: (708) 891-3456



---

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

Check one:

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    YES ̈NO  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes ̈No  x

As of May 15, 2006, the Registrant had issued and outstanding 4,029,049 shares of Common Stock, par value $.01 per share, and 512,989 shares of Class B Common Stock, par value $.01 per share.



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##### Table of Contents

CFC INTERNATIONAL, INC.

INDEX TO FORM 10-Q



|                                                                                                   |  |      
|-------------------------------------------------------------------------------------------------- |  | -----
|                                                                                                   |  | Pages
|Part I - Financial Information:                                                                    |  |      
|                                                                                                   | 
|Item 1.
Financial Statements                                                                       |  |      
|                                                                                                   | 
|Consolidated Balance Sheets  March 31, 2006 and December 31, 2005                                 |  | 5    
|                                                                                                   | 
|Consolidated Statements of Income for the three months ended March 31, 2006 and March 31, 2005     |  | 6    
|                                                                                                   | 
|Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and March 31, 2005 |  | 7    
|                                                                                                   | 
|Notes to Consolidated Financial Statements                                                         |  | 8-12 
|                                                                                                   | 
|Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations      |  | 13-16
|                                                                                                   | 
|Item 3.
Quantitative and Qualitative Disclosures about Market Risk                                 |  | 16   
|                                                                                                   | 
|Item 4.
Controls and Procedures                                                                    |  | 17   
|                                                                                                   | 
|Part II  Other Information                                                                        |  |      
|                                                                                                   | 
|Item 1.
Legal Proceedings                                                                          |  | 17   
|                                                                                                   | 
|Item 1A.
Risk Factors                                                                              |  | 17   
|                                                                                                   | 
|Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds                                |  | 18   
|                                                                                                   | 
|Item 6.
Exhibits                                                                                   |  | 18   
|                                                                                                   | 
|Signatures                                                                                         |  | 19   
|                                                                                                   | 
|Certifications                                                                                     |  | 20-25



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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

The Company believes that certain statements contained in this report and in the future filings by the Company with the Securities and Exchange Commission and in the
Companys written and oral statements made by or with the approval of an authorized executive officer that are not historical facts constitute forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934, and the Company intends that such forward-looking statements be subject to the safe harbors created thereby.

The words and phrases looking ahead, is confident, should be, will, predicted, believe, plan, intend,
estimates, likely, expect and anticipate and similar expressions identify forward-looking statements.

These forward-looking statements reflect the Companys current views with respect to future events and financial performance, but are subject to many uncertainties and factors relating to the Companys operations and business
environment which may affect the accuracy of forward-looking statements and cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. As a result, in some
future quarter the Companys operating results may fall below the expectations of securities analysts and investors. In such an event, the trading price of the Companys common stock would likely be materially and adversely affected. Many
of the factors that will determine results of operations are beyond the Companys ability to control or predict.

Any forward-looking statements
should be considered in light of the risks set forth above, in Part 1. Item 1A. Risk Factors of the Companys Annual Report on Form 10-K for the year ended December 31, 2005 and elsewhere in this report.

Some of the factors that could cause or contribute to such differences include:



| |  |  | The effect of continuing unfavorable economic conditions on market growth trends in general and the impact on the Companys customers, the demand for the Companys
products and services, and the Companys ordinary sources of supply in particular;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Risks inherent in international operations, including possible economic, political or monetary instability and its impact on the level and profitability of foreign sales;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Uncertainties relating to the Companys ability to consummate its business strategy, including the unavailability of suitable acquisition candidates, or the Companys
inability to finance future acquisitions or successfully realize synergies and cost savings from the integration of acquired businesses;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in the costs and availability of raw materials and the Companys ability to adjust selling prices to reflect those changes;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The Companys reliance on existing senior management and the impact of the loss of any of those persons or its inability to continue to identify, hire and retain qualified
management personnel;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Uncertainties relating to the Companys ability to develop and distribute new proprietary products to respond to market needs in a timely manner and the Companys ability
to continue to protect its proprietary product information and technology;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys ability to continue to successfully identify and implement productivity improvements and cost reduction initiatives;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Companys reliance on a small number of significant customers;
| | - |  | ------------------------------------------------------------------



| |  |  | Uncertainties relating to the Companys ability to continue to compete effectively with other producers of specialty transferable coatings and producers of alternative products
with greater financial and management resources;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Control of the Company by a principal stockholder; and
| | - |  | ------------------------------------------------------



| |  |  | The effects of acts of terrorism and armed conflicts on the Companys operations, demands for products and sources of supply.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------

The risks included here are not exhaustive. The Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it
is not possible for the Company to predict all such risk factors, nor can the Company assess the impacts of all such risk factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company has no obligation to
revise or update these forward-looking statements to reflect events or circumstances that arise after May 15, 2006 or to reflect the occurrence of anticipated events.

Investors should also be aware that while the Company does, from time to time, communicate with securities analysts, it is against the Companys policy to disclose to them any material non-public information or
other confidential commercial information. Accordingly, investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Thus, to the extent that reports
issued by securities analysts contain any projections, forecasts or opinions, such reports are not the Companys responsibility.



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Part I  Financial Information

Item 1. Financial Statements

CFC INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS AT

MARCH 31, 2006 AND DECEMBER 31, 2005



|                                                                                                                          |  |                |            |   |                   |   |            |  
|------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                                                                                          |  | March 31, 2006 |            |   | December 31, 2005 |  
|                                                                                                                          |  | (Unaudited)    |           
|ASSETS                                                                                                                    |  |                |            |   |                   |   |            |  
|CURRENT ASSETS:                                                                                                           |  |                |            |   |                   |   |            |  
|Cash and cash equivalents                                                                                                 |  | $              | 4,379,782  |   |                   | $ | 5,013,772  |  
|Restricted cash                                                                                                           |  |                | 417,859    |   |                   |   | 365,683    |  
|Accounts receivable, less allowance for doubtful accounts and customer credits of $2,026,000 (2006) and $1,803,000 (2005) |  |                | 15,042,399 |   |                   |   | 14,188,067 |  
|Inventories:                                                                                                              |  |                |            |   |                   |   |            |  
|Raw materials                                                                                                             |  |                | 3,631,491  |   |                   |   | 3,471,999  |  
|Work in process                                                                                                           |  |                | 2,642,207  |   |                   |   | 2,111,314  |  
|Finished goods                                                                                                            |  |                | 10,590,277 |   |                   |   | 11,736,034 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|                                                                                                                          |  |                | 16,863,975 |   |                   |   | 17,319,347 |  
|Prepaid expenses and other current assets                                                                                 |  |                | 590,832    |   |                   |   | 528,073    |  
|Deferred income tax assets                                                                                                |  |                | 1,466,643  |   |                   |   | 1,486,717  |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Total current assets                                                                                                      |  |                | 38,761,490 |   |                   |   | 38,901,659 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Property, plant and equipment, net                                                                                        |  |                | 25,781,382 |   |                   |   | 26,300,422 |  
|Deferred income tax assets                                                                                                |  |                | 2,135,029  |   |                   |   | 2,129,417  |  
|Goodwill                                                                                                                  |  |                | 1,029,462  |   |                   |   | 1,029,462  |  
|Intangible assets, net                                                                                                    |  |                | 2,097,924  |   |                   |   | 2,157,032  |  
|Other assets                                                                                                              |  |                | 214,194    |   |                   |   | 214,194    |  
|Fair value of interest rate swap                                                                                          |  |                | 119,593    |   |                   |   | 110,950    |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Total assets                                                                                                              |  | $              | 70,139,074 |   |                   | $ | 70,843,136 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      |  |                |            |   |                   |   |            |  
|CURRENT LIABILITIES:                                                                                                      |  |                |            |   |                   |   |            |  
|Current portion of long-term debt                                                                                         |  | $              | 6,412,224  |   |                   | $ | 6,412,224  |  
|Accounts payable                                                                                                          |  |                | 5,275,470  |   |                   |   | 6,540,465  |  
|Accrued compensation and benefits                                                                                         |  |                | 1,382,035  |   |                   |   | 1,254,142  |  
|Accrued bonuses                                                                                                           |  |                | 106,169    |   |                   |   | 327,000    |  
|Income taxes payable  current and deferred                                                                               |  |                | 1,107,906  |   |                   |   | 1,006,931  |  
|Accrued expenses and other current liabilities                                                                            |  |                | 3,364,794  |   |                   |   | 4,566,955  |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Total current liabilities                                                                                                 |  |                | 17,648,598 |   |                   |   | 20,107,717 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Deferred income tax liabilities                                                                                           |  |                | 2,532,675  |   |                   |   | 2,558,294  |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Long-term debt, net of current portion                                                                                    |  |                | 12,739,576 |   |                   |   | 12,824,896 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Total liabilities                                                                                                         |  |                | 32,920,849 |   |                   |   | 35,490,907 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|COMMITMENTS AND CONTINGENCIES (Note 5)                                                                                    |  |                |            |   |                   |   |            |  
|                                                                                                                          |  |               
|STOCKHOLDERS EQUITY:                                                                                                     |  |                |            |   |                   |   |            |  
|Voting Preferred Stock, par value $.01 per share, 750 shares authorized, no shares issued and outstanding                 |  |                |           |   |                   |   |           |  
|Common stock, $.01 par value, 10,000,000 shares authorized; shares issued of 4,611,776 (2006) and 4,581,776 (2005)        |  |                | 46,118     |   |                   |   | 45,818     |  
|Class B common stock, $.01 par value, 750,000 shares authorized; 512,989 shares issued and outstanding                    |  |                | 5,130      |   |                   |   | 5,130      |  
|Additional paid-in capital                                                                                                |  |                | 14,309,382 |   |                   |   | 13,892,398 |  
|Retained earnings                                                                                                         |  |                | 25,375,795 |   |                   |   | 24,224,322 |  
|Accumulated other comprehensive income                                                                                    |  |                | 423,297    |   |                   |   | 126,057    |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|                                                                                                                          |  |                | 40,159,721 |   |                   |   | 38,293,725 |  
|Less  582,727 (2006 and 2005) treasury shares of common stock, at cost                                                   |  |                | (2,941,496 | ) |                   |   | (2,941,496 | )
|                                                                                                                          |  |                |            |   |                   |   |            |  
|                                                                                                                          |  |                | 37,218,225 |   |                   |   | 35,352,229 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  
|Total liabilities and stockholders equity                                                                                |  | $              | 70,139,074 |   |                   | $ | 70,843,136 |  
|                                                                                                                          |  |                |            |   |                   |   |            |  

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



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CFC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED

MARCH 31,
2006 AND 2005



|                                                                         |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                         |  | Three Months Ended March 31, |           
|                                                                         |  | 2006                         |            |   | 2005 |  
|                                                                         |  | (Unaudited)                  |           
|Net sales                                                                |  | $                            | 22,419,362 |   |      | $ | 22,988,838 |  
|Cost of goods sold (excluding depreciation and amortization shown below) |  |                              | 14,652,232 |   |      |   | 14,403,381 |  
|Selling, general and administrative expenses                             |  |                              | 3,578,099  |   |      |   | 3,922,303  |  
|Research and development expenses                                        |  |                              | 677,186    |   |      |   | 704,030    |  
|Depreciation and amortization expenses                                   |  |                              | 1,192,991  |   |      |   | 1,174,432  |  
|Transaction fees                                                         |  |                              | 453,078    |   |      |   |           |  
|                                                                         |  |                              |            |   |      |   |            |  
|Total operating expenses                                                 |  |                              | 20,553,586 |   |      |   | 20,204,146 |  
|                                                                         |  |                              |            |   |      |   |            |  
|Operating income                                                         |  |                              | 1,865,776  |   |      |   | 2,784,692  |  
|                                                                         |  |                             
|Other (income) expense:                                                  |  |                              |            |   |      |   |            |  
|Interest expense                                                         |  |                              | 271,568    |   |      |   | 278,983    |  
|Interest income                                                          |  |                              | (38,941    | ) |      |   | (5,266     | )
|Gain on interest rate swap                                               |  |                              | (8,643     | ) |      |   | (65,321    | )
|Other income (rental income)                                             |  |                              | (5,400     | ) |      |   | (33,306    | )
|Foreign currency exchange (gain) loss                                    |  |                              | (138,172   | ) |      |   | 277,456    |  
|                                                                         |  |                              |            |   |      |   |            |  
|Total other expense, net                                                 |  |                              | 80,412     |   |      |   | 452,546    |  
|                                                                         |  |                              |            |   |      |   |            |  
|Income before income taxes                                               |  |                              | 1,785,364  |   |      |   | 2,332,146  |  
|Provision for income taxes                                               |  |                              | 633,892    |   |      |   | 831,986    |  
|                                                                         |  |                              |            |   |      |   |            |  
|Net income                                                               |  | $                            | 1,151,472  |   |      | $ | 1,500,160  |  
|                                                                         |  |                              |            |   |      |   |            |  
|Basic earnings per share                                                 |  | $                            | 0.25       |   |      | $ | 0.33       |  
|                                                                         |  |                             
|Diluted earnings per share                                               |  | $                            | 0.25       |   |      | $ | 0.33       |  

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



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CFC INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED

MARCH 31,
2006 AND 2005



|                                                                                  |  |                              |            |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                  |  | Three Months Ended March 31, |           
|                                                                                  |  | 2006                         |            |   | 2005 |  
|                                                                                  |  | (Unaudited)                  |           
|Cash flows from operating activities:                                             |  |                              |            |   |      |   |            |  
|Net income                                                                        |  | $                            | 1,151,472  |   |      | $ | 1,500,160  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |            |   |      |   |            |  
|Depreciation and amortization                                                     |  |                              | 1,239,392  |   |      |   | 1,220,835  |  
|Interest rate swap valuation                                                      |  |                              | (8,643     | ) |      |   | (65,321    | )
|Stock based compensation expense                                                  |  |                              | 7,903      |   |      |   |           |  
|Loss on disposition of assets                                                     |  |                              |           |   |      |   | 32,704     |  
|Tax benefit of stock option exercises                                             |  |                              |           |   |      |   | 213,895    |  
|Deferred income taxes                                                             |  |                              | 167,539    |   |      |   | (343,863   | )
|Changes in assets and liabilities:                                                |  |                              |            |   |      |   |            |  
|Accounts receivable, net                                                          |  |                              | (736,444   | ) |      |   | (869,088   | )
|Inventories, net                                                                  |  |                              | 416,326    |   |      |   | (456,332   | )
|Prepaid and other current assets                                                  |  |                              | 215,553    |   |      |   | (20,130    | )
|Other assets                                                                      |  |                              |           |   |      |   | (11,522    | )
|Accounts payable                                                                  |  |                              | (1,303,167 | ) |      |   | (1,911,491 | )
|Accrued compensation and benefits                                                 |  |                              | (31,107    | ) |      |   | 241,815    |  
|Accrued bonus                                                                     |  |                              | (74,831    | ) |      |   | (1,875,156 | )
|Income taxes payable                                                              |  |                              | 137,783    |   |      |   | 411,763    |  
|Accrued expenses and other current liabilities                                    |  |                              | (1,115,024 | ) |      |   | 1,375,190  |  
|                                                                                  |  |                              |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                               |  | $                            | 66,752     |   |      | $ | (556,511   | )
|                                                                                  |  |                              |            |   |      |   |            |  
|Cash flows from investing activities:                                             |  |                              |            |   |      |   |            |  
|Purchase of property, plant and equipment                                         |  |                              | (463,260   | ) |      |   | (825,978   | )
|                                                                                  |  |                              |            |   |      |   |            |  
|Cash used in investing activities                                                 |  |                              | (463,260   | ) |      |   | (825,978   | )
|                                                                                  |  |                              |            |   |      |   |            |  
|Cash flows from financing activities:                                             |  |                              |            |   |      |   |            |  
|Proceeds from revolving loan                                                      |  |                              | 245,632    |   |      |   | 766,345    |  
|Repayments of revolving loan                                                      |  |                              | (110,352   | ) |      |   | (500,000   | )
|Repayments of term loans                                                          |  |                              | (453,107   | ) |      |   | (445,430   | )
|Proceeds from exercise of stock option                                            |  |                              | 285,000    |   |      |   | 332,054    |  
|Tax benefit of stock option exercises                                             |  |                              | 101,068    |   |      |   |           |  
|Repurchase of treasury shares                                                     |  |                              |           |   |      |   | (159,348   | )
|                                                                                  |  |                              |            |   |      |   |            |  
|Net (used in) cash provided by financing activities                               |  |                              | 68,241     |   |      |   | (6,379     | )
|                                                                                  |  |                              |            |   |      |   |            |  
|Effect of exchange rate changes on cash and cash equivalents                      |  |                              | (305,723   | ) |      |   | (81,699    | )
|                                                                                  |  |                              |            |   |      |   |            |  
|Decrease in cash and cash equivalents                                             |  |                              | (633,990   | ) |      |   | (1,470,568 | )
|                                                                                  |  |                             
|Cash and cash equivalents:                                                        |  |                              |            |   |      |   |            |  
|Beginning of period                                                               |  |                              | 5,013,772  |   |      |   | 4,554,699  |  
|                                                                                  |  |                              |            |   |      |   |            |  
|End of Period                                                                     |  | $                            | 4,379,782  |   |      | $ | 3,084,131  |  
|                                                                                  |  |                              |            |   |      |   |            |  

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



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CFC INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006 AND 2005

(Unaudited)

Note 1. Basis of Presentation

In the opinion of
management, the accompanying interim unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2006
and December 31, 2005 (audited), the results of operations for the three months ended March 31, 2006 and 2005, and statements of cash flows for the three months ended March 31, 2006 and 2005.

The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements
and notes thereto included in the Companys latest annual report on Form 10-K.

Results for an interim period are not necessarily indicative of
results for the entire year and such results are subject to year-end adjustments and an independent audit.

Note 2. Earnings Per Share

The table below provides the reconciliation of the numerator and denominator in computing earnings per share.



|                                        |  |                    |           |                |           |           |   |        |  |        |           |           |           |  |   |     
|--------------------------------------- |  | ------------------ | --------- | -------------- | --------- | --------- | - | ------ |  | ------ | --------- | --------- | --------- |  | - | ----
|                                        |  | Three Months Ended
|                                        |  | March 31, 2006     |           | March 31, 2005
|                                        |  | Income             |           | Shares         |           | Per Share |   | Income |  | Shares |           | Per Share
|Basic earnings per share:               |  |                    |           |                |           |           |   |        |  |        |           |           |           |  |   |     
|Income available to Common Stockholders |  | $                  | 1,151,472 |                | 4,537,705 |           | $ | 0.25   |  | $      | 1,500,160 |           | 4,488,861 |  | $ | 0.33
|Effect of Dilutive Securities:          |  |                    |           |                |           |           |   |        |  |        |           |           |           |  |   |     
|Options exercisable                     |  |                    |           |                | 96,277    |           |   |        |  |        |           |           | 123,000   |  |   |     
|Convertible debt                        |  |                    |          |                |          |           |   |       |  |        | 108       |           | 794       |  |   |    
|                                        |  |                    |           |                |           |           |   |        |  |        |           |           |           |  |   |     
|Diluted earnings per share              |  | $                  | 1,151,472 |                | 4,633,982 |           | $ | 0.25   |  | $      | 1,500,268 |           | 4,612,655 |  | $ | 0.33
|                                        |  |                    |           |                |           |           |   |        |  |        |           |           |           |  |   |     



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Note 3. Business Segments and International Operations

The Company operates a single business segment, which is the formulating and manufacturing of chemically complex, multi-layered functional coatings. The Company produces
five primary types of coating products. Net sales for each of these products (in thousands) for the three months ended March 31, 2006 and 2005 were as follows:



|                                             |  |                              |        |      |       |           |   |        |  |      
|-------------------------------------------- |  | ---------------------------- | ------ | ---- | ----- | --------- | - | ------ |  | -----
|                                             |  | Three Months Ended March 31,
|                                             |  | 2006                         |        | 2005
|Net Sales (In Thousands)                     |  | Net Sales                    |        | %    |       | Net Sales |   | %     
|Holographic Products                         |  | $                            | 5,876  |      | 26.2  |           | $ | 4,450  |  | 19.4 
|Printed Products                             |  |                              | 7,806  |      | 34.8  |           |   | 8,936  |  | 38.9 
|Pharmaceutical Products                      |  |                              | 4,366  |      | 19.5  |           |   | 3,848  |  | 16.7 
|Security Products                            |  |                              | 1,650  |      | 7.4   |           |   | 2,680  |  | 11.7 
|Simulated Metal and Other Pigmented Products |  |                              | 2,721  |      | 12.1  |           |   | 3,075  |  | 13.3 
|                                             |  |                              |        |      |       |           |   |        |  |      
|Total                                        |  | $                            | 22,419 |      | 100.0 |           | $ | 22,989 |  | 100.0
|                                             |  |                              |        |      |       |           |   |        |  |      

The following is sales information by geographic area for the three months ended March 31, 2006 and 2005, and
long lived asset information as of March 31, 2006 and December 31, 2005:



|                         |  |                              |        |      |   |       
|------------------------ |  | ---------------------------- | ------ | ---- | - | ------
|                         |  | Three months ended March 31,
|Net Sales (In Thousands) |  | 2006                         |        | 2005
|United States            |  | $                            | 12,314 |      | $ | 12,360
|Europe                   |  |                              | 6,350  |      |   | 7,187 
|Other Foreign            |  |                              | 3,755  |      |   | 3,442 
|                         |  |                              |        |      |   |       
|Total                    |  | $                            | 22,419 |      | $ | 22,989
|                         |  |                              |        |      |   |       



|                                 |  |                |        |                   |   |       
|-------------------------------- |  | -------------- | ------ | ----------------- | - | ------
|Long-Lived Assets (In Thousands) |  | March 31, 2006 |        | December 31, 2005
|United States                    |  | $              | 18,188 |                   | $ | 18,683
|Europe                           |  |                | 10,935 |                   |   | 11,018
|                                 |  |                |        |                   |   |       
|Total                            |  | $              | 29,123 |                   | $ | 29,701
|                                 |  |                |        |                   |   |       

Europe and other foreign revenue are based on the country in which the customer
is domiciled.

Note 4. Comprehensive Income

The Companys total comprehensive income was as follows:



|                                        |  |                              |           |      |   |           |  
|--------------------------------------- |  | ---------------------------- | --------- | ---- | - | --------- | -
|                                        |  | Three Months Ended March 31, |          
|                                        |  | 2006                         |           | 2005 |  
|Net income                              |  | $                            | 1,151,472 |      | $ | 1,500,160 |  
|Foreign currency translation adjustment |  |                              | 297,240   |      |   | (283,677  | )
|                                        |  |                              |           |      |   |           |  
|Total comprehensive income              |  | $                            | 1,448,712 |      | $ | 1,261,483 |  
|                                        |  |                              |           |      |   |           |  



9



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##### Table of Contents

Note 5. Contingencies and Commitments

From time to time, the Company is subject to legal proceedings and claims that arise in the normal course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will
not have a material adverse effect on the Companys consolidated financial condition, results of operations or cash flows.

Note 6. Derivative
Instruments

On April 4, 2003, the Company executed two interest rate swap agreements to fix the interest rates on the Companys U.S. term
loans. The Company entered into these agreements to reduce the risk of adverse changes in variable interest rates. The notional amounts were $4,606,324 (with a fixed rate of 4.43%), and $2,303,840 (with a fixed rate of 4.82%) on April 4, 2003.
The swap agreements terminate on January 31, 2008. These derivatives do not qualify for hedge accounting and, accordingly, the Company has recorded these derivative instruments and the associated assets or liabilities at their fair values with
the related gains or losses recorded as other income or expense in the consolidated statements of operations.

Note 7. Supplemental Pro Forma
Information and Disclosures of Stock Based Compensation

The Company has a non-qualified stock option plan for its employees and directors (the
Stock Option Plan) and a directors stock option plan for its non-employee directors (the Directors Stock Option Plan).

Stock Option Plan. The Stock Option Plan consists of two arrangements  the 1995 Plan and the 2000 Plan. A total of 400,000 shares of common stock are reserved for issuance under the Plans, subject
to anti-dilution and adjustment provisions. No options may be granted after August 15, 2005 (1995 Plan), or after November 6, 2009 (2000 Plan). If an option expires or is terminated or cancelled unexercised, the shares related to such
options are returned to total shares reserved for issuance. Options granted under the Plan have a term of ten years and generally vest over a four year period.

Director Stock Option Plan. The Companys Director Stock Option Plan consists of two arrangements  the 1995 Plan and the 2000 Plan. A total of 100,000 shares of common stock are reserved for
issuance under these Plans, subject to anti-dilution and other adjustment provisions. Options granted have a term of ten years subject to earlier termination if the optionees service as a director terminates and vest over a four year period.

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS 123R). This Statement requires companies to expense the estimated fair value of stock options and similar equity instruments issued to employees over the requisite service period. FAS 123R eliminates
the alternative to use the intrinsic method of accounting provided for in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), which generally resulted in no compensation expense recorded in
the financial statements related to the grant of stock options to employees if certain conditions were met.



10



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##### Table of Contents

On January 1, 2006, the Company adopted SFAS 123R using the modified prospective method, which requires the Company
to record compensation expense for all awards granted after the date of adoption, and for the unvested portion of previously granted awards that remain outstanding at the date of adoption. Accordingly, prior period amounts presented herein have not
been restated to reflect the adoption of SFAS 123R.

Prior to the adoption of SFAS 123R, the Company included all tax benefits resulting from the exercise
of stock options in operating cash flows in its consolidated statements of cash flows. In accordance with SFAS 123R, for the period beginning with first quarter of fiscal 2006, the Company includes the tax benefits from the exercise of stock options
in financing cash flows in its consolidated statement of cash flows.

The Company determines fair value of such awards using the Black-Scholes
option-pricing model. There were no grants during the first quarter of 2006.

The expected term of the awards was determined using the simplified
method as stated in SEC Staff Accounting Bulletin No. 107 that utilizes the following formula: ((vesting term + original contract term)/2). Expected stock volatility was determined based on historical volatility for the
6.25 year-period preceding the measurement date. The risk-free rate was based on the yield curve in effect at the time options were granted, using U.S. treasury constant maturities over the expected life of the option. Expected forfeitures were
determined based on the Companys expectations and past experiences. Expected dividend yield was based on the Companys dividend policy at the time the options were granted.

Under the fair value recognition provisions of SFAS 123R, stock-based compensation is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Stock-based
compensation expense was $7,903 ($5,097 net of income taxes) and the related tax benefit for non-qualified stock options was $2,806 for the first quarter of 2006.

Prior to the adoption of SFAS 123R, the Company accounted for stock-based awards to employees using the intrinsic method in accordance with APB 25. The following table illustrates the effect on net income for the quarter ended
March 31, 2005 and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123R.



|                                                                                                 |  |                    |           |   |          |   |           |  
|------------------------------------------------------------------------------------------------ |  | ------------------ | --------- | - | -------- | - | --------- | -
|                                                                                                 |  | Three Months Ended |          
|                                                                                                 |  | 03/31/06           |           |   | 03/31/05 |  
|Net income as reported                                                                           |  | $                  | 1,151,472 |   |          | $ | 1,500,160 |  
|Add: compensation expense net recorded                                                           |  |                    | 5,097     |   |          |   |          |  
|Less  additional compensation expense had SFAS No. 123 been adopted, net of tax, as of 01/01/05 |  |                    | (5,097    | ) |          |   | (60,411   | )
|                                                                                                 |  |                    |           |   |          |   |           |  
|Pro forma net income                                                                             |  | $                  | 1,151,472 |   |          | $ | 1,439,749 |  
|                                                                                                 |  |                    |           |   |          |   |           |  
|Basic earnings per share as reported                                                             |  | $                  | 0.25      |   |          | $ | 0.33      |  
|Pro forma effect of compensation expense                                                         |  |                    |          |   |          |   | (0.01     | )
|                                                                                                 |  |                    |           |   |          |   |           |  
|Pro forma basic earnings per share                                                               |  | $                  | 0.25      |   |          | $ | 0.32      |  
|                                                                                                 |  |                    |           |   |          |   |           |  
|Diluted earnings per share as reported                                                           |  | $                  | 0.25      |   |          | $ | 0.33      |  
|Pro forma effect of compensation expense                                                         |  |                    |          |   |          |   | (0.01     | )
|                                                                                                 |  |                    |           |   |          |   |           |  
|Pro forma diluted earnings per share                                                             |  | $                  | 0.25      |   |          | $ | 0.32      |  
|                                                                                                 |  |                    |           |   |          |   |           |  



11



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##### Table of Contents

Activity in the Companys stock option plans for the first quarter of 2006 was as
follows:



|                               |  |         |  |                                 |      |                                             |     |                           |   |          
|------------------------------ |  | ------- |  | ------------------------------- | ---- | ------------------------------------------- | --- | ------------------------- | - | ---------
|Options                        |  | Shares  |  | Weighted Average Exercise Price |      | Weighted Average Remaining Contractual
Term |     | Aggregate Intrinsic Value
|Outstanding, beginning of year |  | 246,241 |  | $                               | 7.11 |                                             | 4.6 |                           | $ | 1,709,000
|Activity:                      |  |         |  |                                 |      |                                             |     |                           |   |          
|Granted                        |  |        |  |                                 |     |                                             |    |                           |   |         
|Exercised                      |  | 30,000  |  | $                               | 9.50 |                                             | 0.1 |                           | $ | 209,000  
|                               |  |         |  |                                 |      |                                             |     |                           |   |          
|Outstanding, end of period     |  | 216,241 |  | $                               | 6.78 |                                             | 4.3 |                           | $ | 2,119,000
|                               |  |         |  |                                 |      |                                             |     |                           |   |          
|Exerciseable, end of period    |  | 162,303 |  | $                               | 4.17 |                                             | 3.4 |                           | $ | 2,015,000
|                               |  |         |  |                                 |      |                                             |     |                           |   |          

There were no options granted and there were 30,000 options exercised in the first quarter of 2006. As of
March 31, 2006, there was $144,516 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Companys stock option plans. The Company expects to recognize that cost over a
weighted average period of 2.2 years. The total fair value of shares vested during the period was $7,903.

Note 8. Net Operating Loss Tax Asset

Our German business has generated cumulative tax net operating loss carry forwards (NOLs) totaling 6.2 million Euros at March 31, 2006. These
NOLs are being carried forward to offset future taxable income in Germany. The Company has recorded cumulative deferred tax assets of $2.7 million as of March 31, 2006 relating to the benefit of these NOLs. At present time the unused NOLs have
no expiration date. Although realization of the deferred tax asset is not assured, the Company has concluded that it is more likely than not that the tax asset will be realized based upon the current operating results in Germany over its results
over the last few years, and accordingly no valuation allowance has been provided. This is principally based upon the current operating results in Germany over its results over the last few years, and accordingly no valuation allowance has been
provided. If changes in Germanys operating results occur, or if there are changes to the German tax law, the Company may need to adjust the value of the Companys deferred tax assets resulting in a reduction to income in the period in
which such determination is made.



12



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##### Table of Contents

Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company formulates, manufactures and sells chemically-complex, transferable, multi-layer coatings for use in many diversified markets, such as
holographic packaging and authentication seals, furniture and building products, pharmaceutical products and transaction cards (including credit cards, debit cards, ATM cards and access cards), and intaglio printing.

The Companys cost of goods sold reflects all direct product costs and direct labor, quality control, shipping and receiving, maintenance, process engineering and
plant management, but excludes depreciation and amortization. Selling, general and administrative expenses are primarily composed of sales representatives salaries and related expenses, commissions to sales representatives, advertising costs,
management compensation, and corporate audit and legal expense. Research and development expenses include salaries of technical personnel and experimental materials.

Results of Operations

The
following table sets forth, certain items from the Companys consolidated financial statements as a percentage of net sales for the periods presented:



|                                                                         |  |                              |   |  |       |  
|------------------------------------------------------------------------ |  | ---------------------------- | - |  | ----- | -
|                                                                         |  | Three Months Ended March 31, |  
|                                                                         |  | 2006                         |   |  | 2005  |  
|Net sales                                                                |  | 100.0                        | % |  | 100.0 | %
|                                                                         |  |                              |   |  |       |  
|Cost of goods sold (excluding depreciation and amortization shown below) |  | 65.4                         |   |  | 62.7  |  
|Selling, general and administrative                                      |  | 16.0                         |   |  | 17.1  |  
|Research and development                                                 |  | 3.0                          |   |  | 3.1   |  
|Depreciation and amortization                                            |  | 5.3                          |   |  | 5.0   |  
|Transaction fees                                                         |  | 2.0                          |   |  |      |  
|                                                                         |  |                              |   |  |       |  
|Total operating expenses                                                 |  | 91.7                         |   |  | 87.9  |  
|                                                                         |  |                              |   |  |       |  
|Operating income                                                         |  | 8.3                          |   |  | 12.1  |  
|Interest expense and other                                               |  | 0.9                          |   |  | 0.8   |  
|Foreign currency exchange (gain) loss                                    |  | (0.6                         | ) |  | 1.2   |  
|                                                                         |  |                              |   |  |       |  
|Income before taxes                                                      |  | 8.0                          |   |  | 10.1  |  
|Provision for income taxes                                               |  | 2.9                          |   |  | 3.6   |  
|                                                                         |  |                              |   |  |       |  
|Net income                                                               |  | 5.1                          | % |  | 6.5   | %
|                                                                         |  |                              |   |  |       |  



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##### Table of Contents

Quarter Ended March 31, 2006 Compared to Quarter Ended March 31,
2005

Net sales for the quarter ended March 31, 2006 decreased 2.5% to $22.4 million, from $23.0 million for the quarter ended March 31,
2005. The Euro weakened 8.9% compared to the U.S. dollar, and as a result sales decreased approximately $0.6 million in the first quarter of 2006. Holographic product sales increased 32.6% to $5.9 million for the quarter ended March 31, 2006,
compared to $4.4 million for the quarter ended March 31, 2005. This increase is primarily due to strong European demand in packaging. Printed product sales decreased 10.6% to $7.8 million, from $8.7 million primarily due to an increase in the
Companys customers ordering higher volumes in the fourth quarter of 2005 in order to secure product before the Company instituted a price increase. Pharmaceutical product sales increased 11.4% to $4.4 million for the quarter ended
March 31, 2006, from $3.9 million for the quarter ended March 31, 2005. Pharmaceutical product sales increased domestically as the Companys customers expanded their penetration. Security product (mag stripe, signature panels, and
tipping products for credit cards, intaglio-printed products and gift cards) sales decreased 38.3% to $1.7 million, from $2.7 million. This decrease is primarily due to weaker gift card volumes. Sales of specialty pigmented and other simulated metal
products decreased 15.9% to $2.7 million, from $3.2 million, primarily due to the Company exiting low margin business.

Cost of goods sold for the quarter
ended March 31, 2006 increased 1.7% to $14.7 million, from $14.4 million for the quarter ended March 31, 2005. This increase was primarily due to increased costs for scrap. The cost of goods sold as a percentage of net sales for the
quarter ended March 31, 2006 increased to 65.4% from 62.7% for the quarter ended March 31, 2005 primarily due to lower sales and increased costs for scrap.

Selling, general, and administrative expenses for the quarter ended March 31, 2006 decreased 8.8% to $3.6 million, from $3.9 million for the quarter ended March 31, 2005. This decrease is due primarily to a
reduction in resources in the first quarter of 2006 that were not replaced, and a decline in gainshare. As a percent of net sales these costs were 16.0% for the quarter ended March 31, 2006, and 17.1% for the quarter ended March 31, 2005.
The decrease in percentage is primarily due to the reasons noted above.

Research and development expenses for the quarter ended March 31, 2006
decreased 3.8% to $677,000, from $704,000 for the quarter ended March 31, 2005. This decrease is primarily due to a decrease of incentive benefits based upon operating results. Research and development expenses for the quarter ended
March 31, 2006 decreased as a percentage of net sales to 3.0% from 3.1% for the quarter ended March 31, 2005. This decrease in percentage was primarily due to the reasons noted above.

Depreciation and amortization expenses for the quarter ended March 31, 2006 increased 1.6% to $1,193,000, from $1,174,000 for the quarter ended March 31, 2005.
This increase was primarily due to capital expenditures. Depreciation and amortization expense as a percentage of net sales for the quarter ended March 31, 2006, increased to 5.3%, from 5.1% for the quarter ended March 31, 2005 primarily
due to the reasons noted above.

Transaction expenses related to the abandoned transaction with Quad-C Management, Inc. amounted to $453,000 for the
quarter ended March 31, 2006. There were no such expenses in 2005.



14



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##### Table of Contents

Operating income for the quarter ended March 31, 2006 decreased 33.0% to $1.9 million, from $2.8 million for the
quarter ended March 31, 2005. The decrease in operating income is due primarily due to the reasons noted above. Operating income for the quarter ended March 31, 2006 decreased as a percentage of net sales to 8.3% from 12.1% for the quarter
ended March 31, 2005. This decrease is due primarily to the reasons noted above.

Interest expense for the quarter ended March 31, 2005 decreased
2.7% to $272,000, from $279,000 for the quarter ended March 31, 2005. This decrease was due primarily to the decrease in debt resulting from principal payments on our revolving loans.

Other income for the quarter ended March 31, 2006 decreased to $5,400 from $33,000 for the quarter ended March 31, 2005. This decrease is primarily due to less
rental income received in 2006 compared to 2005, as the former owner vacated the Chicago Heights property we acquired in February 2004.

The gain on
foreign currency exchange for the quarter ended March 31, 2006 increased to $138,000 from a loss of $277,000 for the quarter ended March 31, 2005. This was a result of the weakening of the Euro against the U.S. dollar.

The effective income tax rate remained relatively unchanged at 35.5% for the quarter ended March 31, 2006 and 2005.

Net income for the quarter ended March 31, 2006 decreased 23.2% to $1.2 million, from $1.5 million for the quarter ended March 31, 2005. This decrease in net
income was due primarily to the factors affecting sales, income and expenses, as discussed above.

Liquidity and Capital Resources

Our cash flow from operations increased by $0.6 million to cash provided of $45,556 in 2006 compared to a use of cash of $557,000 in 2005 primarily
due to the payment of accrued bonuses offset by an increase in net income of $345,000. Working capital increased by $2.3 million during the first three months of 2006 as compared to $2.1 million during the first three months of 2005. The primary
reasons for this increase are an increase of $1.8 million in customer receivables, plus a decrease in accounts payable, accrued compensation and benefits and other accrued expenses of $1.5 million, offset by a decrease in inventories of $1.0
million, and a decrease of $1.4 million in cash.

Our German business has generated cumulative tax net operating loss carry forwards (NOLs) totaling
6.2 million Euros at March 31, 2006. These NOLs are being carried forward to offset future taxable income in Germany. The Company has recorded cumulative deferred tax assets of $2.7 million as of March 31, 2006 relating to the benefit
of these NOLs. At present time the unused NOLs have no expiration date. Although realization of the deferred tax asset is not assured, the Company has concluded that it is more likely than not that the tax asset will be realized based upon the
current operating results in Germany over its results over the last few years, and accordingly no valuation allowance has been provided. This is principally based upon the current operating results in Germany over its results over the last few
years, and accordingly no valuation allowance has been provided. If changes in Germanys operating results occur, or if there are changes to the German tax law, the Company may need to adjust the value of the Companys deferred tax assets
resulting in a reduction to income in the period in which such determination is made.



15



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##### Table of Contents

At March 31, 2006, we had available $10.2 million under the revolving credit agreement maintained with our primary
bank. This agreement, which matures April 1, 2007, is collateralized by our trade accounts receivables and inventories. We expect to renew our loan revolving credit agreements in the normal course prior to the maturity date. We believe that the
net cash provided by operating activities and amounts available under the revolving credit agreement are sufficient to finance the Companys growth and future capital requirements. We had no material commitments to purchase capital assets as of
March 31, 2006.

Euro Conversion

Member countries of the European Union have established fixed conversion rates between their existing currencies (legacy currencies) and one common currency, the Euro. Since January 1, 2002, the new
Euro-denominated notes and coins are in circulation and legacy currencies have been withdrawn from circulation. We have a manufacturing facility located in a member country (Germany), and the conversion to the Euro has eliminated currency exchange
rate risk for transactions among the member countries, which for us primarily consists of payments to suppliers. In addition, because we use foreign-denominated debt to meet our financial requirements and to reduce our foreign currency risks,
certain of these financial instruments are denominated in Euro to finance European activities. We addressed all issues involved with converting to the new currency, and the conversion did not have a significant impact on our financial position,
results of operations or cash flows. At March 31, 2006, we had total assets of $23.6 million and net assets of $6.9 million invested in Europe.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The following methods and assumptions were used to
estimate the fair value of each class of financial instruments held by the Company for which it is practicable to estimate that value. The carrying amount of cash equivalents approximates their fair value because of the short maturity of those
instruments. The estimated fair value of accounts receivable approximated its carrying value at March 31, 2006 and December 31, 2005 based upon analysis of their collectability and net realizable value. The estimated fair value of the
Companys long-term debt approximated its carrying value at March 31, 2006 and December 31, 2005, based upon market prices for the same or similar type of financial instrument. The Company minimizes its exposure to the impact of
fluctuation in foreign exchange rates in situations for certain sales for products sold in Europe but manufactured in the U.S. through the movement of production of those products to Europe. There are no other activities of the Company where
management believes exchange rates have a material impact with respect to the underlying transactions. In January 2003, the Company renewed its main loan agreements. The two main domestic loans, Term Loan A and Term Loan B were renewed at a floating
prime rate of interest with a one-time option to lock the interest rate at LIBOR plus 1.5%. The Company executed two interest rate swap agreements to fix the interest rate on Term Loan A at 4.82% on the principal balance of $2,303,840, and Term Loan
B at 4.43% on the principal balance of $4,606,324 on April 4, 2003. The swap agreements terminate on January 31, 2008. These derivatives do not qualify for hedge accounting and accordingly, the Company records these derivative instruments
and the associated assets or liabilities at their fair values with the related gains or losses recorded as other income or expense in the consolidated statements of income. The Company does not use derivative financial instruments to address
currency or commodity pricing risks.



16



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##### Table of Contents

Item 4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to provide
reasonable assurances that information required to be disclosed in reports filed with the SEC pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of
the Commission and that such information is accumulated and communicated to the Companys Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures. Under the
supervision and with the participation of the Companys management, including the CEO and CFO, the Company conducted an evaluation of the overall effectiveness of the Companys disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on that evaluation, management including the CEO and CFO, concluded that the Companys disclosure
controls and procedures were effective as of March 31, 2006.

The evaluation of the Companys disclosure controls and procedures by the CEO and
the CFO included a review of the controls objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Quarterly Report. The Companys management, including the CEO and CFO,
does not expect that disclosure controls and procedures can or will prevent or detect all errors and all fraud, if any, because there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls and procedures. As a result, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. There has not been any change in the Companys internal control over financial reporting identified in connection with the evaluation described above that occurred
during the quarter ended March 31, 2006 that has materially affected, or is reasonably like to materially affect, the Companys internal control over financial reporting.

Part II  Other Information

Item 1. LEGAL PROCEEDINGS

On January 12, 2006, the Pennsylvania Event Driven Fund, a holder of 500 Shares, filed a
punitive class action complaint in the Circuit Court of Cook County, Illinois (Case No. 06 CH 780), against us and each of our directors. The complaint disclaims any request for damages and seeks only declaratory and injunctive relief.
Specifically, the complaint seeks a declaration that non-solicitation, expense reimbursement and termination fee provisions in the merger agreement ostensibly were entered into in breach of the boards fiduciary duty. The complaint also seeks a
multi-faceted injunction requiring the defendants to comply with certain conditions (including a condition that the merger be approved by a majority of the minority of our stockholders) before the merger, or any acquisition, can be
consummated. This law suit was dismissed on May 10, 2006.

Item 1A. RISK FACTORS

There were no material changes in the first quarter of 2006 from
the previously reported 2005 Form 10-K risk factors.



17



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##### Table of Contents

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following chart
summarizes Common Stock repurchases for the three months ended March 31, 2006:



|                                          |  |                                        |  |                                  |  |                                                                         |  |                                                                               
|----------------------------------------- |  | -------------------------------------- |  | -------------------------------- |  | ----------------------------------------------------------------------- |  | ------------------------------------------------------------------------------
|For the three months ended March 31, 2006 |  | (a) Total number of shares repurchased |  | (b) Average price paid per share |  | (c) Total number of shares purchased as part of publicly announced plan |  | (d) Maximum number of shares that may yet be purchased
under plans or programs
|January 1, 2006 to January 31, 2006       |  |                                       |  |                                 |  |                                                                        |  |                                                                              
|February 1, 2006 to February 28, 2006     |  |                                       |  |                                 |  |                                                                        |  |                                                                              
|March 1, 2006 to March 31, 2006           |  |                                       |  |                                 |  |                                                                        |  |                                                                              
|                                          |  |                                        |  |                                  |  |                                                                         |  |                                                                               
|Total                                     |  |                                       |  |                                 |  |                                                                        |  |                                                                              
|                                          |  |                                        |  |                                  |  |                                                                         |  |                                                                               

Item 6. EXHIBITS



| | a. | Exhibits
| | -- | --------



| | 31.1 | Certification of CEO pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
| | ---- | ------------------------------------------------------------------------------------------



| | 31.2 | Certification of CFO pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
| | ---- | ------------------------------------------------------------------------------------------



| | 32.1 | Certification of CEO pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
| | ---- | ---------------------------------------------------------------------------------------------------------------------



| | 32.2 | Certification of CFO pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
| | ---- | ---------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on May 15, 2006.



CFC INTERNATIONAL, INC.Dennis W. LakomyExecutive Vice President,Chief Financial Officer,Secretary, and Treasurer(Principal Financial Officer and DulyAuthorized Officer)




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