UNITED STATES
                       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 December 31, 1998


                                       OR


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



                         Commission File Number 0-27222
                              --------------------

                             CFC INTERNATIONAL, INC.

             (Exact name of Registrant as specified in its charter)



           Delaware                               36-3434526
(State or other jurisdiction of                  (I.R.S. Employer Identification
 incorporation or organization)                   Number)

         500 STATE STREET, CHICAGO HEIGHTS, ILLINOIS 60411
        (Address of Principal Executive Offices)     (Zip Code)

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

        Securities registered pursuant to Section 12(b) of the Act: None
           Securities registered pursuant to Section 12(g) of the Act:

                               Title of Each Class

                     Common Stock, par value $.01 per share
                              --------------------

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required  to be filed by  Section  13 of 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 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.

The  aggregate  market  value  of the  voting  stock of the  registrant  held by
stockholders  who  were  not  affiliates  (as  defined  by  regulations  of  the
Securities  and  Exchange   Commission)  of  the  registrant  was  approximately
$39,096,769 at March 29,  1999 (based on the  closing  sale price on the Nasdaq
National  Market on March 29, 1999. At March 19, 1999, the registrant had issued
and  outstanding  an aggregate  of 4,009,925  shares of common stock and 518,169
shares of Class B common stock.

                       Documents Incorporated by Reference
Those sections or portions of the  registrant's  proxy  statement for the Annual
Meeting of  Stockholders to be held in 1999,  described in Part III hereof,  are
incorporated by reference in this report.



<PAGE>


                                     PART I

ITEM 1.  BUSINESS

General
-------

CFC International,  Inc. ("CFC" or the "Company") formulates,  manufactures, and
sells  chemically-complex,  multi-layered  functional  coatings,  which  provide
superior  performance  under a wide range of operating  conditions.  The Company
applies  its  proprietary  coatings  to rolls of  plastic  film  from  which its
customers transfer the coatings to their products for protective and informative
purposes.  The Company produces five primary types of coating products:  printed
coatings  such as simulated  wood grains for  furniture  and  manufactured  home
interiors;  pharmaceutical  pigmented  coatings used as heat  transfer  printing
approved by the FDA for  pharmaceutical  products such as  intravenous  solution
bags; security products such as magnetic stripes and signature panels for credit
cards and  intaglio  printing  for stocks,  bonds,  and gift  certificates;  and
holographic products such as authentication seals and holographic packaging. The
Company  utilizes its patented  computer-generated  dot matrix process to create
unique and  cost-effective  holographic art origination and to produce holograms
used principally to certify and protect the authenticity of proprietary products
and  documents  susceptible  to  counterfeiting  or tampering  and  eye-catching
holographic  packaging.  The fifth product line is other pigmented and simulated
metal coatings used on products such as beverage  cases and cosmetics.  CFC is a
leading supplier in many of the worldwide markets it serves.

The Company's  coatings are produced by milling pigments,  solvents,  and resins
into  proprietary  formulations  which  combine  multiple  layers of custom inks
designed to react with each other to create a composite  solid  coating  that is
applied to a plastic film and transferred off on to the customers' products. The
coatings are produced with a wide range of physical and chemical characteristics
and in a broad  array of  colors,  patterns,  and  surface  finishes  which  are
designed  to meet  specific  customer  functional  requirements.  The  Company's
research and development  capabilities enable it to create products specifically
tailored  to meet  customers'  requirements,  such  as  resistance  to  specific
chemicals  or  abrasion,  and to  satisfy  exacting  design  criteria,  such  as
sophisticated  overt and covert (conspicuous and hidden) holograms and simulated
woodgrain and other patterns.  By using the Company's  products,  customers also
are able to address  many of the  problems  manufacturers  confront in complying
with increasingly  restrictive  environmental laws and regulations  because they
avoid  the use of  liquid  solvents  and  adhesives  otherwise  needed  to apply
coatings to their products.

A principal  market which the Company serves is printed  coatings for engineered
wood products  ("Engineered  Board") used to produce  ready-to-assemble  ("RTA")
furniture,   kitchen  cabinets,   manufactured   home  interiors,   value-priced
furniture,  and picture frames.  The Company's coatings are designed to match or
improve on the appearance, texture, durability, and scratch, moisture, and stain
resistance  of  natural  or  painted  wood.  The  Company  is  one of  only  two
significant  suppliers of printed coatings for the Engineered Board market. This
market is growing  rapidly  throughout the world as the  environmental  problems
associated with paints and stains and the cost and environmental consequences of
using solid wood are becoming more significant. Sales of products in this market
represented  approximately  35.8% of the  Company's  net sales in 1998.  See "--
Chemical Coatings -- Printed Products."

Another  significant market for the Company's products is heat transfer printing
for intravenous solution bags and other medical supplies. The Company's products
provide the pharmaceutical industry with a reliable, environmentally-safe method
of  conveying  crucial  medical  information  on surfaces  on which  printing is
difficult.  The  Company's  coatings  for this  market are used on  FDA-approved
products and are able to survive the sterilization  process without degradation.
The Company is one of the most significant  suppliers to this stable and growing
market  and is the sole  supplier  to Baxter  Healthcare  Corporation  for these
products.  Sales of products in this market represented  approximately  17.5% of
the Company's  net sales in 1998.  See "-- Chemical  Coatings --  Pharmaceutical
Products."

The Company is also focusing its efforts on the market for security products for
transaction  cards,  which  include  credit cards,  debit cards,  identification
cards, and ATM cards. The Company  manufactures  chemically  reactive  signature
panels and  multi-coercivity  magnetic  stripes for transaction  cards and other
documents  and abrasion  resistant  tipping foils used to highlight the embossed
lettering of  transaction  cards.  The  Company's  coating  products are used by
customers such as MasterCard, VISA and Diners Club International, to enhance the
security and processing speed of transaction cards. The Company also has ability
to manufacture  intaglio printed  documents such as stock  certificates,  bonds,
gift  certificates and  certificates of authenticity.  Sales of products in this
market represented  approximately  19.7% of the Company's net sales in 1998. See
"-- Chemical Coatings -- Security Products."

The Company is one of the leading  designers and  producers of holograms,  which
are used to protect  and  authenticate  brand  name  software  and  merchandise,
transportation  and event  tickets,  and other  similar  applications  requiring
protection  against  unauthorized  copying or  counterfeiting.  The Company also
provides   eye-catching   holographic   packaging  to  major  consumer   product
manufacturers.  CFC, together with its previous joint venture partner, is one of
only a few  companies  worldwide  with the  ability  to serve all  stages of the
holographic production process, from design to manufacturing,  and is a supplier
to Intel Corporation ("Intel") of holograms used to authenticate Intel products.
Sales  of  products  in  this  market  represented  approximately  17.4%  of the
Company's net sales in 1998. See "-- Holographic Products."

The Company  also serves a variety of other  consumer  and  industrial  markets,
which take  advantage of the special  functional  capabilities  of the Company's
coatings.  These markets include the automobile  battery and cosmetics  markets,
which require acid and solvent resistant markings,  and the consumer electronics
and appliances markets,  which require special surface durability and resistance
to ultra-violet light degradation.  Sales of products in this market represented
approximately  9.6% of the Company's net sales in 1998. See "-- Other  Pigmented
and Simulated Products."

CFC's  products  are sold to more than 5,000  customers  worldwide.  The Company
generated  approximately  29.6% of its 1998  revenues  from sales outside of the
United States and has sales, warehousing, and finishing operations in the United
Kingdom and Japan.  The Company's  margins and operating  income result from the
Company's  proprietary  technologies  and from the  Company's  focus on quality,
which is exemplified by the Company's  investment during the past three years of
more than $9.2 million in new equipment.  The Company received the International
Standards  Organization  ("ISO") 9001  registration in June 1995, which provides
assurance to the  Company's  customers  that the Company's  quality  systems are
consistently   capable  of   providing   products   that  meet  the   customers'
requirements.  The  Company  has  demonstrated  its  commitment  to  quality  by
providing zero-defect products to its largest single customer, Baxter Healthcare
Corporation  ("Baxter"),  since successful institution by the Company in 1989 of
the  Phillip  Crosby  Total  Quality   Management   ("TQM")  Program.   See  "--
Manufacturing and Production."

The  Company's  executive  offices  are  located  at 500 State  Street,  Chicago
Heights,  Illinois 60411 and its telephone number is (708) 891-3456.  References
in  this  report  to  the  Company   mean  the  Company  and  its   consolidated
subsidiaries, unless the context requires otherwise.

Business Strategy
-----------------

The Company plans to continue its "Growth  Performance  Program." The objectives
of this program are to obtain a leading  worldwide  share in its markets,  to be
the lowest cost producer,  to continually improve  efficiencies and quality, and
to deliver  products  that meet  customers'  requirements.  The Company seeks to
attain these goals and to increase its worldwide sales and profitability through
a strategy based on the following key elements:

Globalization.  Because the  Company's  existing and  potential  customers  have
expanded  the  geographic  markets  in which  they  manufacture  and sell  their
products, management of the Company is increasing its focus on the international
demand for the Company's products.  Accordingly, the Company intends to increase
its worldwide  sales  distribution  and  manufacturing  capabilities,  including
through alliances with foreign manufacturing organizations,  in order to benefit
from the increasing  globalization of the markets for the Company's products. In
December 1998, the Company signed a Letter of Intent to purchase Oeserwerk KG, a
specialty chemical coatings manufacturer based in Goppingen, Germany.

Low-Cost  Producer.  The Company plans to maintain and enhance its position as a
low-cost  producer  of  transferable  coatings  by  reducing  and  limiting  its
manufacturing   costs  and  by  increasing   the  efficiency  of  the  Company's
operations.  In this regard,  the Company has an Employee  Gain-Sharing  Program
whereby employees are paid a portion of the annual cost savings that the Company
realizes. The Company also continually modifies its manufacturing  processes and
equipment to utilize more  efficiently the Company's  production  facilities and
limit waste. In 1998, the Company  installed a second 60" wide  state-of-the-art
embossing machine, which doubles its holographic capability.

Quality Products.  One of the Company's goals is to become a preferred  supplier
for  all  of  its  customers,  and  management  of  the  Company  believes  that
maintaining  the highest  levels in product and service  quality are integral to
the  achievement of that goal. The Company strives to provide its customers with
zero-defect   products.   In  addition,   the  Company  has  obtained  ISO  9001
registration  from an approved  ISO 9001  accreditation  firm which  permits the
Company to offer  certification  programs to its customers,  thereby eliminating
the  need  for the  customers  to make  incoming  inspections  of the  Company's
products.  The Company  launched a revised  quality  management  program in 1998
utilizing  the  services of Mr. Tim DeBord  affiliated  with  Northern  Illinois
University.

Development of New Technology.  Management of the Company  believes that a major
factor  contributing  to the Company's  growth has been continued  investment in
research and  development.  Continued  development of new products and processes
will be critical to keep abreast of the  technology-driven  changes in the needs
of the  Company's  customers and to maintain a  competitive  advantage  over the
Company's  competitors.  The Company's  Research and Development  department has
contributed to the development of formulae, proprietary know-how,  modifications
to existing  equipment,  and  specifications  for both new equipment and new raw
materials.  Tangible results have included improved ease of coating application,
abrasion  resistance,  functionality  and the  expansion  of the  market for the
Company's  holographic  products.  The recent  development of  FLEXRITE(TM)  for
printed  products  allows our customers using  engineered  board to produce more
ornate products that are more competitive to real wood products.


Overview of Products
--------------------

The Company's principal product types include the following:

o    Printed Products include specialized  functional coatings used primarily as
     an  alternative to painting or using liquid  laminates on wood  substitutes
     and  plastics.  The most  important  markets  for  these  products  include
     engineered  board  products used in the RTA furniture  market,  kitchen and
     bath  cabinets,   factory-constructed   housing   interiors,   value-priced
     furniture,  window trim and  moldings,  picture  frames,  and the  consumer
     electronics,  automotive,  and  appliance  markets.  FLEXRITE(TM),  our new
     value-added   coating,   wraps  around  profiled  edges  of  medium-density
     fiberboard  applications  such as panel  doors,  and  helps  round  out our
     offering to the furniture market.  Its finish is comparable to wood, and it
     is less expensive and easier to apply than vinyl products,  which saves our
     customers significant labor costs.

o    Pharmaceutical Products consist of specialized functional coatings for heat
     transfer printing on pharmaceutical  products, such as intravenous solution
     bags, syringes,  and other uses requiring non-toxic  ingredients,  adhesion
     during the sterilization process, and FDA approval.

o    Security  Products  include  tamper-evident  signature  panels and abrasion
     resistant  tipping  foils for  transaction  cards,  as well as  specialized
     multi-coercivity   magnetic  stripe   products   applied  to  both  plastic
     transaction  cards and  disposable  fibrous  substrates,  such as  driver's
     licenses,  student  identification  cards,  airline  tickets,  mass-transit
     tickets,  and  telephone  debit  cards.  This  product  line also  includes
     intaglio printing used on documents such as stock certificates, bonds, gift
     certificates and certificates of authenticity.

o    Holographic Products include the Company's  high-technology  holograms used
     as security markings on products such as software packages and merchandise,
     transportation  and  event  tickets,  and  other  products  susceptible  to
     counterfeiting  or tampering,  as well as holographic  images for packaging
     and   other   visual   markets.   The   Company   also   has  a   patented,
     computer-generated  dot-matrix  process which  produces  minute  juxtaposed
     holographic  gratings  resulting  in a  composite  image  with up to 60,000
     individual holograms per square inch and which can include overt and covert
     data.

o    Other  Pigmented and Simulated Metal  Products.  Other  Pigmented  Products
     include automobile batteries, cosmetics containers, industrial signage, and
     other  markets  requiring a  particularly  durable  specialized  functional
     coating.  Simulated  Metal  Products  include  bright-simulated  metal  and
     reflective  coatings  used  in  the  appliance,  automotive,  and  cosmetic
     markets.  Most of  these  coatings  are  produced  with a  state-of-the-art
     ultra-violet curing process,  which results in higher abrasion and chemical
     resistance.


Markets
-------

The following table summarizes the Company's principal markets and product
applications:

------------- --------------------- ----------------- -------- ----------------
                                                       % of          Key
                                        Selected        CFC        Product
   Market         Application          Customers       Sales      Features
                                                       1998
------------- --------------------- ----------------- -------- ----------------
Printed       RTA furniture         Sauder             35.8     - Large
Products      (bedroom,             Woodworking,                  library of
(Engineered   office,               Hart Furniture,               patterns
Board,        entertainment         LEA Industries,             - Superior
building      centers),             Charleswood,                  lead
products,     promotional           Cana, Inc.,                   times
consumer      furniture (hotel      National                    - Scratch/mar
electronics,  and office),          Picture                       resistant
home          cabinets,             and Frame,                    finishes
decorating,   manufactured          Dallas                        (Armorite
trophies/     home interiors,       Woodcrafters,                  Plus(TM))
awards)       picture frames,       Ditta Manetti               - Match to any
              award plaques,        Italy), Ashley                pattern or
              trophy bases          Furniture,                    color
                                    Progressive                 - FLEXRITE(TM)
                                    Furniture

------------- --------------------- ----------------- -------- ----------------
PharmaceuticalIntravenous           Baxter             17.5     - Used on FDA
Products      solution              Healthcare,                   approved
              bags, drainage        Abbott Labs,                  products
              bags,                 Sherwood Davise             - Passes
              renal bags,           & Geck, B.                    stringent
              syringes,             Braun                         sterilization
              pipettes, tubing      Medical, C.R.                 process
                                    Bard,                       - Does not  
                                    Fresenius,                    offset
                                    Bieffe Medital             


------------- --------------------- ----------------- -------- ----------------
Security      Magnetic stripes,     Visa,              19.7     - High
Products      signature panels,     MasterCard,                   coercivity
(transaction  and tipping foils     Diners Club,                  magnetic
cards,        for credit cards,     Discover Card,                stripe
identificationdebit cards,          Eurocard,                     is durable
cards)        ATM cards,            American                      (exceeds
              access cards,         Express, Sears,               life of
              driver's licenses,    Novice, Wendys                card)
              passports, intaglio                               - Reliable,
              printed security                                    few
              documents                                           errors
                                                                - Signature
                                                                  panels
                                                                  are tamper
                                                                  evident
                                                                - Intaglio
                                                                  printed
                                                                  stocks,
                                                                  bonds
                                                                  and gift
                                                                  certificates

------------- --------------------- ----------------- -------- ----------------
Holographic   Authentication        Intel, 3M, JBL,    17.4    - Fully
Products      seals, trophies,      Coors Brewing                integrated
(product      point-of-purchase     Co.,                         manufacturing
authenticationpackaging,            AquaFresh,                   process
high-end      security labels       Colgate, Crest,            - Authenticates 
eye-catching                        Arm & Hammer                 products
packaging)                                                     - Patented dot
                                                                 matrix

------------- --------------------- ----------------- -------- ----------------
Other         Beverage cases,       Rubbermaid,         9.6   - Scratch/mar
Pigmented     industrial safety     Delco,                      resistant
and           signs, battery        Johnson                   - Chemical
Simulated     cases, vent caps,     Controls,                   resistant
Metal         spark plugs,          Mattel,                   - Low-cost
Products      dashboard inserts,    Revlon,                     alternative
(injection    tail lenses,          AC Rochester,             - Variety of
molded        toys, cosmetic        Gillette, Bic               colors
and           containers                                      - Non-toxic
extruded
plastics)

------------- --------------------- ----------------- -------- ----------------


Chemical Coatings
-----------------

The manufacture of the Company's  chemical  functional  coatings is a multi-step
process that involves pigments,  solvents, and resins which are blended into one
of more than 2,500 proprietary formulations. The first step in production is the
application  of a release agent to a roll of plastic film  carrier.  The release
agent allows the coating to separate  from the plastic  film carrier  during the
application  of the  coating by the  customer  to the  customer's  product.  The
plastic film carrier is then deposited  with either  pigments or dyes to achieve
the desired color, pattern, and physical characteristics.  These characteristics
include  resistance to general abrasion,  ultra-violet  light exposure,  contact
with alcohol,  exposure to solvents and reactive  household  chemicals,  contact
with  acids,  size of area to which the  coating is  applied,  overstamping  and
adhesion  characteristics,  and the  surface to which the  specialty  coating is
applied.  The  number  and  type of  coatings  required  are  determined  by the
functional and visual requirements of the product.  Woodgrain products undergo a
more extensive  manufacturing  process  because of the  intricacies  involved in
aligning the patterns to create a design during the coating process.  Plated and
simulated metal coatings  require  additional  treatment in a vacuum  deposition
chamber, in which a microscopically thin coating of aluminum is deposited on the
coating to give it its reflective and bright metallic appearance.

Printed Products
----------------

The  Company's  printed  coatings  are  featured on numerous  consumer  products
manufactured by companies such as Ashley, Cana, Ditta Manetti (Italy), Hart, and
Sauder. These products  represented  approximately 39.3%, 38.0% and 35.8% of the
Company's net sales in the three years ended  December 31, 1996,  1997, and 1998
respectively.  Printed  Products  include  Engineered Board coatings for RTA and
promotional  furniture,   picture  frames,   manufactured  housing,  and  window
treatments.

Engineered  Board  Coatings.   Engineered  Board  coatings  are  functional  and
simulated patterned coatings including woodgrains, marbles, and granites used to
coat  particleboard  and  medium  density  fiberboard.  A broad  range of global
consumer  markets  utilize  engineered wood for RTA furniture and other products
like  trophies,  awards,  and plaques.  RTA  furniture is designed to provide an
inexpensive  alternative  to  traditional  furniture  and is a market  which has
experienced  especially strong growth in recent years. It is shipped unassembled
from the  factory  to the  store  and is either  assembled  at the store  before
purchase  or  later  by  the  consumer.  RTA  furniture  products  include  home
entertainment centers, home theater systems, TV and VCR stands,  bookcases,  and
furniture designed to hold home-office  equipment.  The Company is introducing a
new product,  FLEXRITE for paneled  cabinet  doors and products  with  profiled,
rounded edges.

The Company's  proprietary  product Armorite  Plus(TM) is an innovative  coating
technology  used in certain of the  Company's  printed  products  that  provides
exceptional  scratch and mar  resistance  while  allowing the  customer  greater
manufacturing efficiency by increasing application speeds. In addition, Armorite
Plus(TM) has provided customers with cost savings due to a reduction in handling
and shipping damage to their products.

Plastic  Substrate  Coatings.  Plastic  substrate  coatings  manufactured by the
Company are used for similar  visual and  functional  purposes as its Engineered
Board  coatings  and are used on  appliances,  windows,  doors,  vinyl  sidings,
specialty window coatings and picture frames.

The  fastest  growing  market for  plastic  substrate  coatings  is the  plastic
building  products  market,  which uses plastics for windows,  doors,  and vinyl
siding.  Plastics can be more cost effective  than wood,  especially in Asia and
Europe,  and  plastic  exterior  building  products do not shrink or warp to the
degree that wood does and they are not  susceptible  to insect  damage.  The two
principle  challenges facing coatings for the plastic building products industry
are fade  resistance and adequate  adhesion.  CFC utilizes an erosion  resistant
polyvinylidene  fluoride polymer ("PVFP") system to produce one of the most fade
resistant coatings used in the industry.  The PVFP system also produces flexible
coatings,  which allows for vacuum forming on plastics or  post-forming on metal
treated surfaces without visible cracking of the coating. CFC has also developed
unique adhesion characteristics,  which have improved acceptance of this coating
in the marketplace.

Argents are a  substitute  for paint that is most  recognizable  as the metallic
black coating on many  consumer  electronics  and the grillwork on  automobiles.
Although this market is expanding  worldwide,  many of the  Company's  customers
have moved  their  manufacturing  operations  of these  products  offshore.  The
Company intends to take advantage of this trend by  distributing  these products
globally.

Specialty  window  treatment  coatings  simulate the appearance of fabric rather
than wood or plastic.  CFC offers a wide variety of solid pigmented coatings and
printed  patterns  used  by  manufacturers  of  window  treatments.  Use  of the
Company's products allows the application of the specialty coating to be made at
the site of the plastic extrusion  process,  thereby reducing the manufacture of
specialty blinds from a multi-location process to a one-step process. Use of the
Company's  coatings also allows the  manufacturers  of window  treatments to run
their production equipment at higher speeds and without the use of solvent-based
paints.


Pharmaceutical Products
-----------------------

A significant  portion of the Company's  pigmented coatings are designed for use
on  pharmaceutical  products.  Pigmented  coatings  used  in the  pharmaceutical
industry  must meet rigid  quality  specifications,  including  use of non-toxic
ingredients,  adhesion during the sterilization  process, and FDA approval.  The
Company's  attention  to exacting  standards,  technology,  industry  expertise,
dedication to research and  development,  and quality  assurance  commitment has
ensured  its  position  as the  market  leader  of  transferable  pharmaceutical
coatings.

Typical  applications for pharmaceutical  coatings include intravenous  solution
bags, blood bags, renal bags, drainage bags, tubing and disposable syringes. CFC
currently  has  highly  detailed  certification  programs  in place  with  large
pharmaceutical  companies,   which  provide  the  Company  with  their  specific
substrates and their exact usage  requirements.  CFC establishes quality control
testing  procedures to meet or exceed the customers'  incoming  quality  control
requirements,  and, therefore,  saves its pharmaceutical  customers considerable
time and labor costs on incoming inspections.

CFC is a "preferred supplier" to Baxter Healthcare Corporation  worldwide.  This
means that CFC is one of only fifteen of Baxter's suppliers (out of 750 approved
suppliers)  that meets  Baxter's  standards  for such  designation.  In order to
attain  "preferred  supplier"  status with  Baxter,  the Company was required to
deliver  products to Baxter for a  three-year  period free of defects in product
quality,  delivery  procedures,  and  paperwork.  The Company  has an  exclusive
supplier's  contract with Baxter,  and Baxter has a majority market share of the
intravenous  solution  bags  sold  worldwide.  It is one of the  goals of CFC to
achieve a similar supplier relationship with other pharmaceutical companies that
require  transferable  coatings.  In  this  regard,  the  Company  was  named  a
"preferred  supplier"  to  Abbott   Laboratories'   Hospital  Products  Division
("Abbott") in 1994, and has maintained  that  distinction.  The Company was also
named a  "certified  supplier"  to Abbott's  Montreal  location  in 1998.  Other
manufacturers of  pharmaceutical  products that the Company  currently  supplies
include C.R. Bard, Inc.,  Kendall,  B. Braun Medical,  Sherwood - Davise & Geck,
and Bieffe Medital.

Pigmented  coatings used on pharmaceutical  products  represented  approximately
21.2%,  19.1%,  and 17.5% of the  Company's  net sales in the three  years ended
December 31, 1996, 1997, and 1998 respectively.


Security Products
-----------------

Security  Products are divided into four  categories  within CFC's core coatings
product  line.  These  are  tamper-evident  signature  panels,  multi-coercivity
magnetic stripe, high-abrasion tipping foils, and intaglio printed documents.

Signature  panels  are  formulated  for  credit  and  transaction  cards and are
designed  to accept  ballpoint  pen ink  directly  on the  signature  panel.  If
tampering  with  the  signature  occurs,  either  through  erasure  or  chemical
treatment,  the coating on the signature panel will discolor. This is a security
feature requested by companies such as American Express,  Diners Club, Eurocard,
MasterCard, VISA, and Discover Card.

The  market  for these  products  is  strong  and is  expected  to  continue  to
experience  growth.  The  increasing  use  of  promotional  cards  by  VISA  and
MasterCard,  including  airline mileage cards,  automobile  discount cards,  and
other branded cards, is contributing  to continued  growth in the industry.  The
Company has been a major producer of tamper-evident  signature panels since this
market first  emerged and has  developed  and maintains its own library of print
cylinders for the  signature  panels for several  companies.  CFC is a specified
supplier for VISA,  MasterCard,  Discover  Card,  Diners Club, and other leading
sponsors of transaction cards.

Multi-coercivity  magnetic  stripe  products  are  coatings  applied  to plastic
transaction  cards,  either by a  conventional  heat transfer  process,  or by a
laminating  process.  The Company's magnetic stripe product offers improved ease
of  application  and  multi-coercivity  (the  amount of energy  needed to encode
information onto the stripe). The coercivity of a magnetic stripe determines the
resistance of the stripe to extraneous  energy  sources.  While 300 oersteds are
the current market standard, as of June 1, 1999 a 2,750 oersteds magnetic stripe
will be the  standard.  The  Company's  magnetic  stripe  product  already has a
capacity of 2,750 oersteds; thereby greatly enhancing security and durability of
the stripe and also meeting the future requirements of the marketplace. Magnetic
stripes may also be used in  combination  with "smart chips" to further  enhance
card  security,  and not  require  a costly  changeover  in all  reading  device
technology by retailers.

Magnetic  stripes are increasingly  being used in new applications  that require
both the  conveyance of  information  and speed of  processing,  such as airline
tickets,  mass-transit  tickets,  building  access  cards,  passports,  driver's
licenses,  and telephone debit cards.  Because  magnetic  stripes are relatively
inexpensive,  they can be  applied  to paper  products  and do not  present  the
environmental  issues associated with  solvent-based  printing inks. They are an
attractive alternative for disposable product applications.

High-abrasion  tipping foils are coatings used to provide  contrast  between the
embossed  letters  and the  surface on plastic  cards.  They are offered in both
pigmented  and  metallized  colors  and  enhance  the  readability  and  general
aesthetics of the card.

The Company acquired  substantially all the assets and assumed substantially all
the  liabilities  of Northern  Bank Note Company  ("NBNC") on September 3, 1997.
NBNC is now called  CFC-Northern  Bank Note and is an  intaglio  printer of high
security documents such as stock  certificates,  bonds, gift  certificates,  and
certificates of authenticity.  In the intaglio  printing  process,  ink is built
onto the surface upon which the  printing is applied,  and the ink is evident to
the touch.

Security  products  represented  approximately  10.3%,  16.0%,  and 19.7% of the
Company's net sales in the three years ended  December 31, 1996,  1997, and 1998
respectively.


Holographic Products
--------------------

In early 1992, the Company entered into a joint venture partnership with Applied
Holographics  PLC called "CFC  Applied  Holographics,"  of which the Company now
owns 100.0%, to manufacture and market  holographic  products to customers based
in North  America  and such other  regions as Applied  Holographics  PLC and the
Company shall agree.  Pursuant to the CFC Applied Holographics joint venture and
partnership agreements, Applied Holographics PLC contributed to this venture all
of its  U.S.  holographic  operations  and  licensed  to this  venture  its U.S.
holographic  proprietary  rights and CFC contributed cash and agreed to fund and
manage the  operations of the venture.  On October 1, 1994,  the Company  bought
another 25% and,  effective  October 1, 1998, CFC bought the remaining 25% owned
by the joint venture partner of CFC Applied Holographics.  CFC agreed to pay the
joint venture  partner it's  minority  interest in the amount of $1,548,103 on a
quarterly basis over 4 years.  Applied  Holographics PLC agreed to reimburse 50%
of the  costs  of the  Ventura,  California  optical  research  and  development
laboratory with the Company.  Prior to October 1, 1998 and effective  October 1,
1994,  CFC  held  a 75%  ownership  interest  in  CFC  Applied  Holographics,  a
partnership formed to manufacture and market holograms.

CFC Applied  Holographics  has given the  Company the unique  ability to produce
holographic art  origination  that involves a patented,  computer-generated  dot
matrix  technology.  In  addition,  CFC Applied  Holographics  has  provided the
Company  with the  capability  to develop  and  compete in a growing  market for
holographic  coatings,  which  is a  specialized  type of  transferable  coating
embossed with a holographic image. These holographic products are used primarily
for   security-sensitive   products  for   authentication,   anti-counterfeiting
purposes,   and  for  eye-catching   point-of-purchase   displays  and  consumer
packaging.

The  Company   originates  its  holograms  at  its  holographic   laboratory  in
Countryside,  Illinois,  by creating a master image through a process  utilizing
laser beams,  mirrors,  and lenses.  To produce a holographic  master image, the
subject of the hologram,  which can be either a live image, a  three-dimensional
model, or flat artwork,  is  photographed  using light from a laser beam that is
split and refracted at differing angles and reunited in an interference  pattern
on a photographic plate. The Company then uses this photographic plate to create
a metal  plate or "shim"  that is  electro-magnetically  grown  from the  master
image.  These metal plates are used to replicate  the hologram by embossing  the
holographic image on specially formulated  transferable coatings manufactured by
the Company.

When a hologram is viewed from different angles, features of the depicted object
can be seen that would not be visible in a  photograph.  Depending  on the model
and technique used to make the master image,  the holographic  image can be made
to appear three-dimensional and to move as the viewing angle changes.

Holographic  products  represented  approximately 11.6%, 13.4%, and 17.4% of the
Company's net sales in the three years ended  December 31, 1996,  1997, and 1998
respectively.


Holograms and Security or "Product Authentication"
--------------------------------------------------

Holograms,  which  cannot be  color-copied  and are not readily made except by a
properly equipped  holographic  house, have established  themselves as a premier
technology  for defending  against  unauthorized  copying or  counterfeiting  of
products.  Identification  of an  authentic  hologram,  when used as a  security
device,  is convenient and inexpensive and can also be done by sight without any
special machinery.  The Company is able to produce holograms that contain covert
images that are visible only with the aid of special  devices and which are more
difficult  to  reproduce.  The  high  degree  of  technical  skill  and  capital
investment  required to replicate  holograms acts as an obstacle to unauthorized
duplication, thereby making holograms useful as anti-counterfeiting and security
devices. Holograms are widely used as a security device by computer software and
hardware  companies,  and  entertainment  event marketers,  in addition to other
industries.  The Company supplies  holograms used to authenticate  Intel Corp.'s
Pentium(R) microprocessor.

CFC Applied  Holographics'  patented  computer-generated  dot matrix holographic
origination  process is capable of producing tiny "dot"  holograms at a coverage
rate of up to 60,000 dots per square inch.  Each  individual dot hologram can be
oriented  at  any  one  of  256  different  angles,   thus  creating  juxtaposed
holographic  cells that change when the viewing angle  changes.  The Company has
discovered how to produce  computer-developed  overlapping  images so that these
images appear as the viewer's  angle-of-view changes. The flexibility created by
the dot matrix process  provides the Company with  state-of-the-art  holographic
products that are both  cost-effective and extremely intricate and, as a result,
difficult  for  competitors  to  generate  products  of  comparable  quality and
security orientation.


Holographic Packaging Products
------------------------------

The visual appeal and uniqueness of holograms  make them ideal for  applications
on consumer products and point-of-purchase  displays.  These include ribbons and
paper for gift packaging,  and paper and plastic  wrapping for packaging of food
and other  products.  The Company's dot matrix  technology  results in holograms
with a brighter  appearance  and an enhanced  depth of image.  In addition,  the
Company's 60" wide coating and embossing  capabilities  give the Company a lower
cost structure, making holograms economically practical for these and additional
applications, and give the Company a broader market for holographic products. An
example of this type of product  application  is the  Company's  development  of
holographic  promotional  packaging  for Coors  Brewing Co. and, on a continuing
basis, Aquafresh Whitening Toothpaste, Colgate Total, and Crest toothpaste.


Holographic Autostereoscopic Process
------------------------------------

CFC Applied Holographics has granted a license to American Propylaea Corporation
to use CFC Applied Holographics' real-time holographic autostereoscopic displays
patent.  American  Propylaea is currently  developing a process which will allow
automobile   manufacturers   to  design   vehicles  using  a   three-dimensional
holographic  suspended image. This may eliminate the need for costly clay models
and revolutionize the design process, resulting in reduced design time and cost.
Management of the Company  believes that this technology may also provide market
opportunities  in other  industries  where  costly  physical  models are used to
create and design heavily manufactured  commercial and industrial products.  The
Company has not received any income from this license and cannot  predict  when,
if ever, it will receive any such income.

CFC Applied  Holographics  also licensed certain of its proprietary  holographic
designs to Van Leer Metalized  Products (U.S.A.) Ltd. in January,  1994, for use
by Van Leer in the holographic paper market. CFC Applied Holographics receives a
5.0% royalty on gross sales by Van Leer of products  incorporating such licensed
materials.


Other Pigmented and Simulated Metal Products
--------------------------------------------

A significant  factor  distinguishing  the Company from other  manufacturers  of
pigmented  coatings and  contributing  to the Company's  position as a leader in
this market is that the  Company  makes most of its own ink  dispersions,  which
allows the Company to adjust a particular coating to suit a specific  customer's
needs with greater accuracy and reduced expense. In addition,  CFC has developed
a proprietary technology in acid resistance,  which allows an automobile battery
container to be submerged at the time the  container is filled with acid without
deteriorating the appearance of the coating.

The Company manufactures  simulated metal coatings,  which are used primarily on
plastic  substrates.  They are  produced in a wide array of bright  metallic and
reflective colors such as gold, silver,  chrome, bronze, copper, green and other
colors.  The production of simulated  metal coatings for plastics is a specialty
niche business  because these coatings  require  enhanced  abrasion and chemical
resistance characteristics. CFC has developed an ultra-violet curing process for
simulated metal coatings that have  demonstrably  improved abrasion and chemical
resistance. The Company has developed this process to meet the increasing demand
for higher abrasion and chemical resistant simulated metal applications.

Key markets for the  Company's  simulated  metal  coatings  include  appliances,
automotive,   cosmetics,   specialty  advertising,  and  for  use  in  improving
point-of-purchase  sales.  These  coatings  are highly  specialized  and must be
specifically  developed  for the  product or  container  on which they are to be
used. For example, a coating used on a lipstick container may not be usable on a
perfume  bottle.  Product  applications  that  utilize the  Company's  pigmented
coatings  include  credit  cards,  blow molded  bottles,  automobile  batteries,
automotive gauges,  copier panels,  garbage cans,  industrial  signage,  golfing
accessories,   housewares,  lipstick  tubes,  mud  flaps,  pens,  personal  care
products, recycle bins, squeeze tube, and toys.

Other pigmented and simulated products  represented  approximately 17.6%, 13.5%,
and 9.6% of the Company's net sales in the three years ended  December 31, 1996,
1997,  and  1998   respectively.   The  market  for  simulated  metal  coatings,
particularly  for  use  in  graphics,   is  highly   competitive  and  has  been
experiencing  generally declining gross margins.  Accordingly,  the Company does
not actively pursue low margin graphics business in this market.


International Sales
-------------------

The Company maintains offices,  warehouse space, and finishing operations in the
United  Kingdom and Japan.  In addition to sales made directly to  international
customers by the Company's  Regional  Managers  covering  Europe,  Japan,  Latin
America, and Asia, the Company makes sales to customers around the world through
a network of  thirty-one  distributors.  The  Company's  markets have seen a new
globalization,  and the Company  plans to continue its emphasis on the worldwide
requirements of its customers and expanding overseas demand.

During the three years ended  December 31, 1996,  1997,  and 1998,  net sales to
Europe,  the Pacific Rim, and other customers  outside of the United States were
$12,014,000,  $13,327,000, and $15,128,000, and represented approximately 32.3%,
31.5%,  and 29.6%  respectively,  of the Company's net sales.  See Note 6 of the
Notes to the Consolidated Financial Statements.


Research And Development
------------------------

Management believes that a major factor contributing to the Company's growth has
been continued  investment in research and development.  The Company's  Research
and  Development  department  has  contributed  to the  development of formulae,
proprietary  know-how,  modifications to existing equipment,  and specifications
for both new equipment  and new raw  materials.  Tangible  results have included
improved ease of coating application, abrasion resistance, and functionality and
the expansion of the market for the Company's holographic  products.  The recent
development of  FLEXRITE(TM)  for printed  products  allows our customers  using
engineered  board to produce more ornate  products that are more  competitive to
real wood products. The Company also develops original patterns, woodgrains, and
finishes that are engineered to meet customer-specific requirements.

The Company  maintains a group of personnel that is dedicated to the creation of
new patterns,  designs,  colors,  shades,  and textures,  including  holographic
designs.  This  includes an  engineering  and  chemistry  laboratory  in Chicago
Heights  that employs nine  people.  In addition,  the Company  maintains an art
origination studio in Countryside,  Illinois,  that is dedicated to holographics
and  which  employs  three   persons  who  perform   holographic   research  and
development,  and the  holographic  research  laboratory in Ventura,  California
which employs two people. In the years-ended  December 31, 1996, 1997, and 1998,
the  Company  spent  approximately  $1,304,000,   $1,344,000,   and  $1,585,000,
respectively,  on Research and  Development,  of which $502,000,  $462,000,  and
$795,000 respectively, were for holographic research.

All of the customers in the markets  served by CFC are in the midst of their own
search  for  technological  breakthroughs  that  will  contribute  to  low  cost
production and expanded  markets  through new products and at the same time meet
environmental  standards. The Company is making substantial on-going investments
in research and  development  in an effort to be a partner with its customers in
the development of new technology and products.  Examples of these  partnerships
include a joint  research  project for the  development  of thermal  transfer by
photocopy  for  magnetic  ink  character  recognition  on toner for  transaction
documents,  such as checks and security documents,  and the joint development of
new  woodgrain  design  printing  cylinders  for  many  of the  major  furniture
companies.  In  the  end  of  1998,  the  Company  placed  an  order  for  a new
state-of-the-art  computerized  pattern design system, the total investment will
be in excess of $300,000, and is expected to be operational by April, 1999.


Marketing And Sales
-------------------

As of December  31,  1998,  the Company had 40 full time sales  people who serve
over 5,000 existing customers. Sales personnel include the Senior Vice President
of Sales and  Marketing,  three Product  Managers,  four  Regional  Managers and
twelve Field Sales  Engineers who are  compensated  on a salary plus  commission
basis.  The Company's four Regional  Managers are  responsible for the following
geographic territories:  United States; European Union, Middle East, and Africa;
Japan;  Pacific  Rim (except  Japan) and Latin  America.  The  majority of CFC's
products are sold directly to original  equipment  manufacturers who incorporate
the Company's products into their own products. In addition, limited use is made
of a network of three  distributors  who  service  small  accounts in the United
States and thirty-one distributors who service international markets.

The Company markets a combination of standard  products and specialty items on a
minimum  order  basis,  and most of the  Company's  sales  are not  pursuant  to
long-term sales contracts. Because most customers require prompt turnaround from
order to delivery,  the Company  does not have a material  amount of backlog and
backlog comparisons are not indicative of sales trends at any given time.

The Company's three largest  customers in 1998 were Baxter  Healthcare,  Graphic
Packaging,  and  Sauder.  Sales made to Baxter  are  pursuant  to a  three-year,
exclusive provider  contract,  which was renewed in February 1998. The agreement
requires the Company to supply all of Baxter's needs for  transferable  coatings
at specified prices,  which may be adjusted to reflect changes in certain of the
Company's  costs.  Sales  to  Baxter  for  each of 1996,  1997,  and  1998  were
$4,628,000,  $5,460,000, and $5,829,000 respectively.  Sales are made to Graphic
Packaging are on an individual  purchase order basis. Sales to Graphic Packaging
for each of 1996,  1997,  and  1998  were  $999,000,  $134,000,  and  $3,620,000
respectively.  Sales to Sauder are also on an individual  purchase  order basis,
which is consistent  with Sauder's  policies.  Sales to Sauder for each of 1996,
1997 and 1998 were $1,106,000, $1,487,000, and $1,987,000 respectively.


Manufacturing And Production
----------------------------

Much of the Company's  machinery and equipment was  engineered  and developed by
the Company.  Technical manufacturing efficiencies allow the Company to maintain
high quality  standards  while  producing  products  efficiently.  The Company's
introduction  of a 60"  wide  holographic  embosser  has  given  the  Company  a
competitive  advantage  over the industry  norm of 6" to 30" wide  capabilities.
Management of the Company  believes this  significantly  increases the potential
applications for holographic coating. In addition, the Company's installation in
1998 of a second 60" wide  state-of-the-art  embosser  will  enable it to double
capacity and provide enhanced service to security and packaging markets.

In 1989, the Company  implemented  the Phillip  Crosby Total Quality  Management
Process  throughout  its  operations.  Most of the  Company's  top managers have
attended  Quality  College and all employees  attend  intensive,  formal quality
classes taught by professional  instructors and Quality College  graduates.  The
Company  strives  to  incorporate  a focus  on  quality  throughout  the  entire
manufacturing   process   and  not  simply   inspect  the  quality  of  products
"after-the-fact."    Regularly   scheduled   departmental   communications   and
"brainstorming"  meetings are held to identify  improved  methods for production
and quality. Quality is a never-ending process. The Company in 1998 has launched
a revised total quality  management  process in connection  with an affiliate of
Northern Illinois University.

The  Company  obtained  ISO  9001   registration   from  an  approved  ISO  9001
accreditation   firm  in  June  1995,   which   permits  the  Company  to  offer
certification  programs to its customers,  thereby  eliminating the need for the
customers  to make  incoming  inspections  of the  Company's  products  and also
providing just-in-time inventory,  reducing customers' inventory carrying costs.
The Company also successfully reregistered in May 1998.

ISO 9001 registration  requires  continuing  compliance with a series of generic
standards that provide quality management direction as well as quality assurance
requirements and guidelines.  These standards were originally  published in 1987
by the  International  Standards  Organization.  The same standards apply to all
service and  manufacturing  companies.  To  maintain  ISO 9001  registration,  a
company  must not only meet the  registration  standards  at the time of initial
registration,  but  also  must  meet  them on an  ongoing  basis  during  annual
inspections.  Registration to the standards provides assurance to customers that
a company's quality systems are consistently  capable of providing products that
meet the  customers'  requirements.  Management  of the  Company  believes  that
registration  to one of the ISO 9001 standards will be required in the future to
sell products in the European Union. In addition,  many United States customers,
including  the Company's  largest  client,  Baxter  Healthcare  Corporation  and
others, have acknowledged the value of registration.


Product Protection
------------------

The Company's  success is heavily  dependent upon its  proprietary  formulae and
scientific  and  manufacturing  know-how.  Accordingly,  the Company relies upon
trade  secrets  and other  unpatented  proprietary  information  in its  product
development.  All employees are parties to an employment agreement providing for
confidentiality and the assignment of invention rights to innovations  developed
by them while  employed by the  Company.  There can be no  assurance  that these
types  of  agreements  will  effectively  prevent  disclosure  of the  Company's
confidential  information.  In addition,  CFC Applied  Holographics  owns a U.S.
patent on its holographic  computer-generated  dot matrix  origination  process,
which was issued on March 1,  1994,  and a U.S.  patent on its  autostereoscopic
hologram production process, which was issued on January 24, 1989.


Competition
-----------

CFC competes with a number of companies in the  transferable  chemical  coatings
industry. The Company is aware of only one competitor, Leonhard Kurz GmbH & Co.,
which  competes  with the  Company in most of the  Company's  markets.  Customer
criteria  for  purchase of products  include  product  quality,  innovation  and
engineering capability,  price, availability,  and service. The Company believes
that it competes favorably on these factors.

Competitors  range from small  enterprises to divisions or subsidiaries of large
multi-national  conglomerates  with greater  financial and management  resources
than the Company.  CFC uses a  partnership  approach in its  relations  with its
major customers. This gives partner customers preferential scheduling,  priority
research and development,  and personalized customer service.  Partner customers
agree to  purchase  not less  than  80% of  their  requirements  from CFC and to
furnish CFC with continuing long-term procurement projections.

The  transferable  chemical  coatings  industry  not only  requires  specialized
knowledge and technology,  but also is capital  intensive,  requiring  expensive
difficult-to-construct and difficult-to-operate machinery and equipment to apply
the specialty  chemicals on to the film carrier. A production facility must also
comply  with  stringent  federal,   state  and  local   environmental  laws  and
regulations.

The Company competes with three significant producers of holographic products in
the United States, two of which have greater financial and management  resources
than the Company.  The Company  believes  that the principal  factors  affecting
competition  are the basic  design of the  holograms,  quick  turnaround  on art
origination,  consistency of embossing, low-cost manufacturing,  the quality and
brightness of the image, and competitive  pricing.  The Company believes that it
competes favorably on these factors.


Raw Materials And Supplies
--------------------------

The Company is not  dependent on any one  supplier for any single raw  material.
The Company's  suppliers  fall into three general  groups:  suppliers of plastic
film that serve as the carrier for the Company's specialty  coatings;  suppliers
of chemicals; and suppliers of packaging materials.

The  Company   purchases   from   suppliers  on  a  purchase  order  basis  and,
consequently,  has no long  term  supply  contracts.  The  Company  has not been
materially  affected by increases in raw material  prices.  Management  believes
that there are sufficient suppliers of plastic films,  chemicals,  and packaging
materials in the market to meet its requirements.


Governmental Regulation
-----------------------

The Company's operations are subject to federal,  state, and local environmental
laws and regulations that impose limitations on the discharge of pollutants into
the air and  water and  establish  standards  for the  treatment,  storage,  and
disposal of solid and hazardous wastes. The Company has installed  equipment and
procedures,  which the  Company  believes  result in controls  substantially  in
excess of those required for full compliance  with applicable  state and federal
environmental requirements.  To better control airborne environmental emissions,
the Company  installed a stack and afterburner in 1992, at a cost of $1,014,000,
which is currently  designated  by EPA standards as Maximum  Achievable  Control
Technology  and which,  in tests  observed as  recently as December  1997 by the
Illinois  EPA,  resulted  in a 100%  capture and 99.6%  destruction  rate of the
airborne pollutants generated by the Company's manufacturing processes,  greatly
exceeding the 81.0% EPA standard.  Because both  technology and applicable  laws
and  regulations  are  evolutionary  and subject to change,  the Company  cannot
predict with any certainty the  investments  and  expenditures  which it will be
required to make to comply with these changing laws and regulations.


Employees
---------

As of December 31, 1998, the Company had approximately 266 full-time  employees.
These included 133 in manufacturing, 59 in support services, 52 in marketing and
sales, 20 in research and development,  and 2 in administration  and management.
None of the Company's employees is covered by collective bargaining  agreements.
The Company has never  experienced a significant work stoppage and considers its
employee relations to be good.


Recent Developments
-------------------

On March 23, 1999,  the Company  completed  the  acquisition  of Oeserwerk KG as
discussed  under  Item 7. The  purchase  price  was  approximately  $17,000,000,
including the assumption of $12,200,000 of debt, $3,300,000 of cash, $400,000 of
associated fees and the issuance of 100,000 shares of common stock.

ITEM 2.  PROPERTIES

The Company owns a 150,000  square foot  building at 500 State Street in Chicago
Heights,  Illinois  which  houses its  corporate  headquarters  and its  primary
manufacturing operations,  and which currently utilizes approximately 75% of the
building's  capacity.  The Company's other  principal  properties are leased and
include the  following:  a 28,000  square  foot  intaglio  printing  facility in
Countryside,  Illinois;  a 10,000 square foot warehouse in Chicago Heights;  the
Company's  7,400  square  foot  optical  laboratory,  finishing,  and  warehouse
facility in Ventura, California; a 10,000 square foot warehouse,  finishing, and
office  facility  in a  suburb  of  London,  England;  and a 2,500  square  foot
warehouse, finishing, and office facility in Tokyo, Japan. The Company considers
its properties to be adequate to conduct its business for the foreseeable future
and believes that it will be able to acquire or lease additional property,  when
needed, on terms acceptable to the Company.


ITEM 3.  LEGAL PROCEEDINGS

The Company's former parent corporation, Morton International,  Inc. ("Morton"),
has  been  named  by  government   environmental   agencies  as  a  "potentially
responsible party" with respect to environmental  liabilities at the Fisher-Calo
Superfund Site in Kingsbury,  Indiana (the "Fisher-Calo Site"). Morton and other
potentially  responsible  parties entered into a consent  agreement in 1991 with
such agencies that provides for the remediation of the site, currently estimated
to cost approximately $40 million, and which allocates approximately 0.7% of the
remediation  costs to Morton.  While the  Company  has been named a  potentially
responsible party and a third-party  defendant in the litigation relating to the
clean-up of the  Fisher-Calo  Site,  U.S. v. David B.  Fisher,  et al,  which is
pending in the U.S. District Court for the Northern District of Indiana,  Morton
and the Company have reached an  agreement  whereby  Morton and the Company will
share  equally  in the  remediation  cost that is  ultimately  determined  to be
attributable  to waste  produced by the Company's  predecessor.  Based upon such
agreement,  the Company estimates that its portion of the remediation costs will
be approximately 0.35% of the total cost of remediation at the Fisher-Calo Site.
The Company has an accrued  liability  of $246,000  related to these  matters at
December  31, 1998 and,  although the actual cost of  remediation  for the total
Fisher-Calo  Site  may  prove  to be  more  or  less  than  $40  million,  it is
management's  opinion,  based upon  investigation of the quantities and types of
waste and the other parties involved,  that the Company's share of any liability
will not  substantially  exceed the amount  accrued at December  31,  1998.  The
adequacy of this reserve is reviewed periodically as more definitive information
becomes available.


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

None.


                                     PART II


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


The Company's common stock, par value $.01 per share ("Common Stock"), is traded
in the Nasdaq National Market tier of The Nasdaq Stock Market ("Nasdaq"),  under
the symbol "CFCI." The Common Stock began trading on Nasdaq on November 17, 1995
in connection with the Company's  initial public offering  ("IPO") of the Common
Stock. On December 31, 1998, the last reported sale price of the Common Stock on
the Nasdaq National  Market was $8.00 per share.  At March 19, 1999,  there were
approximately  136 record  holders of the Common  Stock.  The table below sets
forth the high and low sales  prices  of  shares of Common  Stock on the  Nasdaq
National Market as reported by Nasdaq for the periods indicated.


                               Market Information
                               ------------------
                                                     Price per Share of
                                                         Common Stock        
                                                      --------------------
                                              High                       Low
                                              ----                       ---
Year Ended December 31, 1997
       1st Quarter ...........................16.00                      11.25
       2nd Quarter ...........................14.25                       9.75
       3rd Quarter ...........................12.50                       8.25
       4th Quarter ...........................13.87                      11.00
Year Ended December 31, 1998
       1st Quarter ...........................12.75                       9.75
       2nd Quarter ...........................11.75                      10.25
       3rd Quarter ...........................12.87                       9.50
          4th Quarter ........................10.25                       7.37


The Company intends to retain its earnings to finance its growth and for general
corporate  purposes and therefore does not anticipate  paying any cash dividends
in the foreseeable  future.  The declaration and payment of any future dividends
will be subject to the  discretion of the Board of Directors of the Company.  In
addition,  the  Company's  bank credit  facility  prohibits  the payment of cash
dividends.  See "Item 7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations  -- Liquidity  and Capital  Resources."  Any
determination  as to the  payment of  dividends  in the future  will depend upon
results of operations, capital requirements, restrictions in loan agreements, if
any, and such other  factors as the Board of Directors  may deem relevant at the
time.


ITEM 6.  SELECTED FINANCIAL DATA

The selected  financial data set forth below has been derived from the financial
statements of the Company. The financial statements for each of the years in the
five-year   period   ended   December   31,   1998,   have   been   audited   by
PricewaterhouseCoopers LLP, independent accountants,  whose report for the years
ended December 31, 1996,  1997, and 1998 appears  elsewhere in this report.  The
selected  financial  data at and for the fiscal year ended December 31, 1994 are
derived from unaudited financial statements which, in the opinion of management,
include all  adjustments  necessary to present fairly the data for such periods.
The unaudited pro forma data have been derived from the financial  statements of
the Company  and  adjusted  to reflect a  provision  for income  taxes as if the
Company had been a C-Corporation since inception and further adjusted to reflect
the sale by the Company of Common Stock in the IPO. This selected financial data
should be read in  conjunction  with  "Management's  Discussion  and Analysis of
Financial Condition and Results of Operations" and the financial  statements and
related notes thereto appearing elsewhere in this report.


                                            Year Ended December 31,             
                               -------------------------------------------------
                                   1994      1995      1996     1997     1998
                                   ----      ----      ----     ----     ----
                                      (In thousands, except per share data)
Income Statement Data:
Net sales .......................$ 27,808  $ 34,177  $ 37,227 $ 42,319  $ 51,047
Cost of sales ...................  16,469    20,103    22,985   26,063    31,914
                                 --------  --------  -------- --------  --------
Gross profit ....................  11,339    14,074    14,242   16,256    19,133
Selling, general
  and administrative ............   7,152     7,243     7,863    8,846    10,415
Research and 
  development ...................   1,062     1,109     1,304    1,344     1,585
                                 --------  --------  -------- --------  --------
Operating income ................   3,125     5,722     5,075    6,066     7,133
Interest expense ................     669       705       229      413       570
Other (income) 
  expense .......................      (5)      (12)       17      (65)      312
                                 --------  --------  -------- --------  --------
Income before taxes
  and minority 
  interest ......................   2,461     5,029     4,829    5,718     6,251
Provision for income 
  taxes (1) .....................     162     1,669     1,831    2,207     2,260
Minority interest 
  in net income 
  (loss) of
  CFC Applied 
  Holographics ..................    (214)      210        15      290       343
                                 --------  --------  -------- --------  --------
Income from 
  continuing 
  operations ...................    2,513     3,150     2,983    3,221     3,648
                                 --------  --------  -------- --------  --------
Net income ..................... $  2,513  $  3,150  $  2,983 $  3,221  $  3,648
                                 ========  ========  ======== ========  ========

Pro forma 
  net income
  from continuing 
  operations
  (1996, 1997 
  and 1998 
  actual) (2) .................. $  1,463  $  3,252  $  2,983 $  3,221  $  3,648
Pro forma average
  number of shares of
  common stock 
  outstanding (2) ..............    3,302     3,429     4,504    4,530     4,454
Pro forma net income
  from continuing 
  operations
  per basic 
  share (2) .................... $   0.44  $   0.95  $   0.66 $   0.71  $   0.82
Pro forma net income
  from continuing 
  operations, as 
  adjusted  (2) (3) (7) ........ $  1,694  $  3,522  $  2,983 $  3,221  $  3,752
Pro forma average
  number of shares of
  common stock and
  equivalents 
  outstanding ..................    3,302     3,432     4,517    4,612     4,662
Pro forma net 
  income from 
  continuing 
  operations per 
  diluted share(2)(3) .......... $   0.38  $   0.78  $   0.66 $   0.71  $   0.80
Pro forma average
  number of shares 
  of common
  stock outstanding, 
  as adjusted(3)(4).............    4,502     4,499     4,504    4,612     4,662
Pro forma average
  number of shares 
  of common stock 
  and equivalents
  outstanding, as 
  adjusted(3)(4)................    4,502     4,501     4,517    4,612     4,662

Other Data:
Capital expenditures ........... $  1,591  $  1,092  $  3,862 $  3,319  $  2,050
Depreciation and
  amortization .................    1,249     1,423     1,535    2,093     1,976
EBITDA (5) .....................    4,379     7,157     6,578    7,934     8,454

Balance Sheet Data
(at period end):
Working capital ................ $  5,973  $  7,950  $ 10,635 $ 12,993  $ 15,306
Total assets ...................   19,937    23,269    28,206   35,498    39,280
Total debt (6) .................    9,252     2,110     5,932    8,585    10,624
Stockholders' equity ...........    5,785    11,953    15,078   18,567    20,971

----------------

(1)  The  Company  became an  S-Corporation  for federal  and certain  state
     income tax purposes as of June 1, 1992, and effective upon the consummation
     of the IPO in 1995, became a C-Corporation.

(2)  Pro forma net income from  continuing  operations  for the periods 1994 and
     1995 reflects an adjustment to show assumed  federal and state income taxes
     based on  statutory  (federal  and state)  tax rates for the period  during
     which the  Company  was  treated  as an  S-Corporation.  No tax  benefit is
     reflected for losses of the Company's  holographics  joint  venture,  which
     resulted in a net operating loss carry-forward which the Company started to
     use as profits were  generated  beginning in 1995. The pro forma net income
     from  continuing  operations in 1994 would have been  $1,625,000 if the tax
     benefits of these losses were reflected at the assumed tax rates.

(3)  Adjusted to give effect to the sale by the Company of Common Stock in the 
     IPO in 1995 as of the  beginning  of the period and the use of the 
     proceeds therefrom.

(4)  Adjusted to give effect to the issuance of 34,736 shares of Common Stock in
     exchange  for  the  minority   interest  in  the   Company's   subsidiaries
     concurrently with the IPO in 1995.

(5)  EBITDA as used herein means  earnings  before  interest  expense,  interest
     income,  taxes,  depreciation,   and  amortization  and  excludes  minority
     interests.

(6) Includes current and long-term portions of debt.

(7) Adjusted  on a proforma  basis in 1998 to reflect a reduction  in interest  
    expense  based on the  assumed  conversion  of the convertible debt issued 
    in conjunction with the Company's purchase of Northern Bank Note Company.



ITEM 7.   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 furniture and
building products,  pharmaceutical products, transaction cards (including credit
cards,  debit cards,  ATM cards,  and access  cards),  intaglio  printing and on
holographic   packaging  and  authentication  seals.  The  Company's  net  sales
increased  from $27.8  million in 1994 to $51.0  million  in 1998.  During  that
period,  the Company  realized  sales dollar  growth in all of its major product
lines.  The  Company's  operating  income more than doubled over this  five-year
period,  increasing  from  $3.1  million,  or 11.2% of net sales in 1994 to $7.1
million, or 14.0% of net sales in 1998. The Company has experienced, and expects
to continue experiencing, shifts in the relative sales and growth of its various
products  over time.  The Company  believes that such shifts are in the ordinary
course of business and are  indicative of its focus on specific  niche  markets.
During the period from 1994 to 1998,  printed  products sales rose from 28.1% to
35.8% of net sales. Pharmaceutical products sales declined from 23.0% in 1994 to
17.5% of net sales in 1998 due to the  growth  of other  product  lines.  Actual
pharmaceutical product sales increased from $6.4 million in 1994 to $8.9 million
in 1998, or an increase of 39.1% over that five-year  period.  Security products
sales increased from 8.6% in 1994 to 19.7% of net sales in 1998. The acquisition
of the Northern Bank Note Company in 1997 represented $5.7 million.  Holographic
products grew from 8.3% in 1994 to 17.4% of net sales in 1998,  primarily due to
authentication  sales and  consumer  products  packaging.  Other  pigmented  and
simulated  metal products  decreased from 20.4% in 1994 to 9.6% of net sales due
to the Company's focus in other more profitable segments of it's product lines.

The Company's  gross profit reflects the application of all direct product costs
and direct labor, quality control, shipping and receiving,  maintenance, process
engineering,  plant  management,  and a  substantial  portion  of the  Company's
depreciation expense. 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, related depreciation, and experimental materials.


Results of Operations
---------------------

The following table sets forth,  for the periods  indicated,  certain items from
the  Company's  financial  statements  as a  percentage  of net  sales  for such
periods:

                                                  December 31,                  
                                                  ------------                  
                                              1996     1997     1998
                                              ----     ----     ----
Net sales ...............................     100.0%   100.0%   100.0%
Cost of sales ...........................      61.7     61.6     62.5
                                              -----    -----    -----
Gross profit ............................      38.3     38.4     37.5
Selling, general and administrative .....      21.2     20.9     20.4
Research and development ................       3.5      3.2      3.1
                                              -----    -----    -----
Operating income ........................      13.6     14.3     14.0
Interest expense and other ..............       0.6      0.8      1.7
                                              -----    -----    -----
Income before taxes and minority 
  interest...............................      13.0     13.5     12.2
                                              -----    -----    -----
Provision for income taxes ..............       4.9      5.2      4.4
Minority interest .......................       0.1      0.7      0.7
                                              -----    -----    -----
Net income ..............................       8.0%     7.6%     7.1%
                                              =====    =====    =====


1998 Compared to 1997
---------------------

Net sales for the year ended December 31, 1998 increased  20.6% to $51.0 million
from $42.3 million for the year ended December 31, 1997.  Printed products sales
increased 13.7% to $18.2 million from $16.1 million primarily due to an increase
in growth on the part of the Company's customers.  Pharmaceutical  product sales
increased  10.2% to $8.9  million  from  $8.1  million  primarily  due to Baxter
Healthcare's growth in Europe.  Security products (magstripe,  signature panels,
and tipping products for credit cards and intaglio  printed security  documents)
sales  increased  48.3% to $10.1  million from $6.8  million.  This  increase is
primarily due to a full year of sales from Northern Bank Note Company  ("NBNC").
NBNC  contributed  $5.7  million  in net sales in 1998 and $2.1  million in 1997
after its acquisition in September 1997.  Sales of other pigmented and simulated
metal products decreased 14.2% to $4.9 million from $5.7 million,  primarily due
to the Company choosing not to produce low margin products.  Holographic product
sales  increased  57.1% to $8.9  million  for the year ended  December  31, 1998
compared to $5.7 million for the year ended December 31, 1997,  primarily due to
the increase in eye-catching packaging coatings applied to consumer products.

Gross  profit for the year ended  December  31,  1998  increased  17.7% to $19.1
million from $16.3 million for the year ended December 31, 1997. The increase in
gross  profit was  attributable  to the growth in sales,  partially  offset by a
capacity  constraint which required the Company to purchase a significant amount
of  holographic  packaging  material from its former  holographic  joint venture
partner at a low margin to the Company.  This capacity  constraint was addressed
with the acquisition of a new embosser in November 1998. The gross profit margin
for the year ended  December 31, 1998 decreased to 37.5% from 38.4% for the year
ended  December 31, 1997.  This  decrease in margin is primarily  due to a large
one-time  packaging job.  Although the Company does not fully allocate all costs
on a product  line basis,  the Company  believes  that its gross  profit  margin
typically  is  not  substantially   different  for  any  of  its  major  product
categories.

Selling,  general and  administrative  expenses for the year ended  December 31,
1998  increased  17.7% to $10.4  million  from $8.8  million  for the year ended
December 31, 1997.  This  increase is primarily  due to the increase in selling,
general and  administrative  expenses in connection  with the NBNC  acquisition.
Selling,  general and  administrative  expenses for the year ended  December 31,
1998  decreased  as a  percentage  of net sales to 20.4% from 20.9% for the year
ended December 31, 1997.

Research and development expenses for the year ended December 31, 1998 increased
18.0% to $1.6 million  from $1.3  million for the year ended  December 31, 1997.
The increase in research and  development  expense was primarily in  holographic
optics.  Research and development  expenses for the year ended December 31, 1998
decreased  as a  percentage  of net sales to 3.1%  from 3.2% for the year  ended
December 31, 1997. This percentage decrease was primarily due to the increase in
sales volume.

Operating  income for the year ended December 31, 1998  increased  17.6% to $7.1
million from $6.1 million for the year ended December 31, 1997. Operating income
for the year ended  December 31, 1998  decreased as a percentage of net sales to
14.0% from 14.3% for the year ended December 31, 1997.  This decrease was due to
an increase in sales volume, partially offset by the decrease in gross profit as
a percent to net sales discussed above.

Interest  expenses  for the year ended  December  31,  1998  increased  37.9% to
$570,000  from  $413,000 for the year ended  December 31, 1997.  The increase in
interest  expense  resulted from an additional eight months of interest on loans
outstanding to fund the NBNC acquisition.

Income taxes for the year ended December 31, 1998 increased 2.4% to $2.3 million
from $2.2 million for the year ended  December 31, 1997.  This was primarily the
result of an increase in the Company's operating income.

Net income for the year ended December 31, 1998 increased  13.3% to $3.6 million
from $3.2  million for the year ended  December  31,  1997.  This  increase  was
primarily  due to an increase in sales  volume,  offset by the decrease in gross
profit as a percent to net sales.


1997 Compared to 1996
---------------------

Net sales for the year ended December 31, 1997 increased  13.7% to $42.3 million
from $37.2 million for the year ended December 31, 1996.  Printed products sales
increased 10.3% to $16.1 million from $14.6 million primarily due to an increase
in the growth of the Company's customers. Pharmaceutical product sales increased
2.5% to $8.1 million from $7.9 million. Security products (magstripe,  signature
panels,  and tipping  products for credit cards and  intaglio  printed  security
documents)  sales  increased  78.9% to $6.8  million  from  $3.8  million.  This
increase is primarily due to the Company's  enhanced magstripe products and $2.1
million of intaglio  printed  document sales as a result of the NBNC acquisition
in September of 1997.  Sales of other  pigmented  and simulated  metal  products
decreased 12.3% to $5.7 million from $6.5 million,  primarily due to the Company
choosing not to produce low margin products. Holographic product sales increased
32.6% to $5.7  million for the year ended  December  31,  1997  compared to $4.3
million for the year ended  December 31, 1996,  primarily due to the increase in
eye-catching packaging jobs for consumer products.

Gross  profit for the year ended  December  31,  1997  increased  14.8% to $16.3
million from $14.2 million for the year ended December 31, 1996. The increase in
gross  profit  was  attributable  to the  growth in sales,  partially  offset by
increased  printed  products  start-up  costs due to debugging  the new printing
press. The gross profit margin for the year ended December 31, 1997 increased to
38.4% from 38.3% for the year ended  December 31, 1996.  This increase in margin
is primarily  due to growth in sales,  offset by increased  manufacturing  costs
discussed  above.  Although the Company  does not fully  allocate all costs on a
product line basis,  the Company believes that its gross profit margin typically
is not substantially different for any of its major product categories.

Selling,  general and  administrative  expenses for the year ended  December 31,
1997  increased  11.4% to $8.8  million  from $7.9  million  for the year  ended
December 31, 1996.  This  increase is primarily  due to the increase in selling,
general and  administrative  expenses in connection  with the NBNC  acquisition.
Selling,  general and  administrative  expenses for the year ended  December 31,
1997  decreased  as a  percentage  of net sales to 20.9% from 21.1% for the year
ended December 31, 1996.

Research and development expenses for the year ended December 31, 1997 increased
3.1% to  $1,344,000  from  $1,304,000  for the year  ended  December  31,  1996.
Research and development expenses for the year ended December 31, 1997 decreased
as a percentage  of net sales to 3.2% from 3.5% for the year ended  December 31,
1996.  This  percentage  decrease  was  primarily  due to the  increase in sales
volume.

Operating  income for the year ended December 31, 1997  increased  19.6% to $6.1
million from $5.1 million for the year ended December 31, 1996. Operating income
for the year ended  December 31, 1997  increased as a percentage of net sales to
14.3% from 13.6% for the year ended  December 31, 1996.  The increase was due to
an increase in sales volume,  partially offset by increased  manufacturing costs
discussed above.

Interest  expenses  for the year ended  December  31,  1997  increased  80.3% to
$413,000  from  $229,000 for the year ended  December 31, 1996.  The increase in
interest  expense  resulted from an  additional  six months of interest on funds
outstanding  under a revenue  bond issued in June 1996 to fund the purchase of a
roto gravure  press for the Company's  Printed  Products line and the funding of
the Northern Bank Note acquisition.

Income  taxes for the year  ended  December  31,  1997  increased  22.2% to $2.2
million  from $1.8  million  for the year  ended  December  31,  1996.  This was
primarily the result of an increase in the Company's operating income.

Net income for the year ended  December 31, 1997  increased 6.7% to $3.2 million
from $3.0  million for the year ended  December  31,  1996.  This  increase  was
primarily due to an increase in sales volume, offset by increased  manufacturing
costs discussed above.


Quarterly Results of Operations
-------------------------------

The following table presents  unaudited  financial results for each of the eight
quarters in the period ended December 31, 1998. This data has been prepared on a
basis consistent with the audited financial  statements  appearing  elsewhere in
this  report,  and  in  the  opinion  of  management,   includes  all  necessary
adjustments  (consisting  only of  normal  recurring  adjustments)  required  to
present  fairly  the  unaudited  consolidated  quarterly  results  when  read in
conjunction with the audited  consolidated  financial  statements of the Company
and notes thereto appearing  elsewhere in this report. The results of operations
for any quarter are not necessarily indicative of results to be expected for any
future period.


                                        Quarter Ended
                                        -------------
                 03/31  06/30    09/30   12/31    03/31   06/30   09/30  12/31  
                 1997    1997    1997    1997     1998     1998   1998    1998
                 ----    ----    ----    ----     ----     ----   ----    ----
Net sales ......$9,810  $9,999  $10,927 $11,583 $12,661 $13,111 $12,464 $12,811
Cost of sales .. 5,781   6,237    6,767   7,278   7,796   8,413   7,825   7,880
                ------  ------  ------- ------- ------- ------- ------- -------
 Gross profit .. 4,029   3,762    4,160   4,305   4,865   4,698   4,639   4,931
Selling, 
 general and 
 administrative
 expense ....... 2,229   2,568    2,492   2,901   2,838   2,931   2,959   3,272
Operating
 income ........ 1,800   1,194    1,668   1,404   2,027   1,767   1,680   1,659
Interest 
 expense .......    76      88      125     124     165     173     144      87
Other expense
 (income) ......   (73)     36        9     (37)     20     (95)    115     273
                ------  ------  ------- ------- ------- ------- ------- -------

Income before 
 taxes and 
 minority
 interest ...... 1,797   1,070    1,534   1,317   1,842   1,689   1,421   1,299
Provision for
 income taxes ..   688     393      601     524     664     578     501     516
Minority interest
 in income 
 (loss) .........   78      10      102     101     140     131      89     (17)
                ------  ------  ------- ------- ------- ------- ------- -------

Net income .....$1,031  $  667  $   831 $   692 $ 1,038 $   980 $   831 $   800
                ======  ======  ======= ======= ======= ======= ======= ========

Percentage of 
  Net Sales
Net sales ...... 100.0%  100.0%   100.0%  100.0%  100.0%   100.0%  100.0% 100.0%
Cost of sales ..  58.9    62.4     61.9    62.8    61.6    64.2     62.8   61.5
                 -----   -----    ------  ------  ------   ------  ------ ------
Gross profit ...  41.1    37.6     38.1    37.2    38.4    35.8    37.2    38.5
Selling, general
 and 
 administrative
 expense ........ 22.7    25.7     22.8    25.1    22.4    22.3    23.7    25.5
                 -----   -----    ------  ------  ------   ------  ------ ------
Operating 
 income ......... 18.4    11.9     15.3    12.1    16.0    13.5    13.5    13.0
Interest 
 expense ........  0.8     1.2      1.3     1.1     1.3     1.3     1.2      .6
Other expense 
 (income) ....... (0.7)     --       --    (0.3)    0.2    (0.7)    0.9     2.1
Income before
 taxes and 
 minority
 interest ....... 18.3    10.7     14.0    11.3    14.5    12.9    11.4    10.3
Provision for 
 income taxes ...  7.0     3.9      5.5     4.5     5.2     4.4     4.0     4.0
Minority interest
 in income 
 (loss) .........  0.8     0.1      0.9     0.8     1.1     1.0     0.7      .1
                 -----   -----    ------  ------  ------   ------  ------ ------
Net income ...... 10.5     6.7      7.6     6.0     8.2     7.5     6.7     6.2
                 =====   =====    ======  ======  ======   ======  ====== ======


The fourth  quarter  sales for 1997 and 1998 have been  stronger  than the third
quarter  sales,  primarily  due to the growth in  printed  coating  products  as
consumers make holiday purchases of ready-to-assemble furniture. Offsetting this
increase,  however,  is a seasonal decrease in pharmaceutical  product sales, as
people typically defer elective  surgeries between  Thanksgiving and New Year's.
In addition, many of the Company's customers attempt to reduce their inventories
prior to the calendar year end. Consequently,  first quarter sales are typically
stronger  than the  preceding  fourth  quarter.  The gross  profit in the second
quarter of 1998 was lower due to the Company's  holographic capacity constraint,
which caused the Company to purchase material from its former  holographic joint
venture  partner at a low margin to the Company.  This capacity  constraint  was
addressed with the Company's purchase of a second 60" wide holographic embossing
machine.


Liquidity and Capital Resources
-------------------------------

The Company's  primary sources of working capital have been net cash provided by
operating activities and net borrowings under various loan agreements.  Net cash
provided by operating  activities was $2,451,000,  $4,690,000 and $6,169,000 for
the years ended December 31, 1996, 1997 and 1998 respectively.  Cash at year-end
increased  from $1.8 million in 1997 to $5.4 million in 1998.  The cash increase
was  primarily  the result of two  factors:  (1) the  reduction  of  inventories
through better  management of stocking levels and cost  reductions;  and (2) the
Company's renegotiated mortgage,  which resulted in an additional $.8 million of
cash. Offsetting these increases to cash, the Company invested $2,050,000 in new
equipment.  Additionally,  net trade receivables were up by $1,205,000 primarily
as a result of the increased sales levels in 1998.

The Company's capital expenditures totaled approximately $3,862,000,  $3,319,000
and  $2,050,000   for  the  years  ended  December  31,  1996,   1997  and  1998
respectively,  and included the payments for the new 50" wide printing  press in
1996 and 1997.  The  Company  previously  made  S-Corporation  dividends  to its
previous  S-Corporation  stockholders of $800,000 in the year ended December 31,
1996, to fund their income tax  liabilities  on the Company's net income and the
repayment of stockholder  loans incurred prior to the initial public offering of
the common stock.

In June 1996, the Company received loan availability of approximately $4,005,000
pursuant to an Illinois Revenue Bond financing,  which matures in 2008. The loan
proceeds were used to finance the  acquisition  of a new 50" wide printing press
and related plant additions to ensure  capacity for the continued  growth of the
Company's  printed  products  line. At December 31, 1997,  the entire amount had
been  borrowed.  The  Company  incurred  $172,391 of costs  associated  with the
issuance of the bonds, which are being amortized over twelve years.

On September 3, 1997, the Company also issued to the seller of NBNC, a ten-year,
6%  subordinated  note  in the  principal  amount  of  $3.0  million,  which  is
convertible in whole or in part, at the option of the holder beginning after the
first  anniversary of that note, into the Company's Common Stock at a conversion
price of $14.00 per share.

On November  19,  1998,  the Company  renegotiated  the mortgage on its land and
building by repaying it's existing  outstanding mortgage and replacing it with a
five year 7.05% fixed interest rate loan, in the principle amount of $2,625,000.

The Company and its subsidiaries have various revolving credit arrangements that
provide  for  maximum  borrowings  of  approximately  $6,096,000.   Under  these
revolving  credit  arrangements,  interest  is payable at either the  respective
bank's prime rate (7.75% and 8.50% at December 31, 1998 and 1997,  respectively)
or 2% over the Bank of England's sterling base rate (6.25% and 7.25% at December
31, 1998 and 1997,  respectively).  The revolving credit  arrangements expire at
various dates in 1999.  No amounts were  outstanding  under the  Company's  main
credit  line of $4.5  million at  December  31,  1998 and 1997.  The  Company is
required to pay a quarterly fee for the unused  portion on one of its facilities
at an amount equal to .25% times the daily average of the unused  portion.  Such
payments in 1998, 1997 and 1996 were not significant.

On January 13, 1998, the Company repurchased 79,509 shares from a former officer
for the total  consideration  of  $755,336,  less  $110,552  for  repayment of a
promissory  note the officer owed to the Company.  Additional on the open market
in  December   1998,  the  Company   repurchased   58,000  shares  for  a  total
consideration of $445,120.

The Company  believes  that the net cash  provided by operating  activities  and
amounts  available  under the Credit  Facility  are  sufficient  to finance  the
Company's growth.


Seasonality and Impact of Inflation
-----------------------------------

Historically,  the Company has  experienced  lower net sales  levels  during the
fourth  quarter  and  increased  net sales  levels  during the  following  first
quarter.  This  is due to  typical  year-end  depletion  of  inventories  by the
Company's customers.  It is also due in large part to the holidays at the end of
the year, as the Company's  customers have an increased  number of holiday plant
closings. In addition, fourth quarter pharmaceutical product sales generally are
lower as a result of the  postponement  of  elective  surgeries  during  holiday
periods.  However,  due to the strong growth of printed  products for use in the
ready-to-assemble  furniture market,  the fourth quarter sales have been greater
than the third quarter sales in each of the last two years.

Inflation has not had a material  impact on the Company's net sales or income to
date. However, there can be no assurance that the Company's business will not be
affected by inflation in the future.


Recent Accounting Pronouncements
--------------------------------

In 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities"  which requires
recognition of all derivative instruments in the statement of financial position
as either assets or  liabilities,  measured at fair value,  and is effective for
fiscal year beginning after June 15, 1998. This statement  additionally requires
changes in the fair value of  derivatives  to be recorded each period in current
earnings  or  comprehensive   income  depending  on  the  intended  use  of  the
derivatives.  The Company is currently assessing the impact of this statement on
its results of operations, financial position and cash flows.


Special Note on Forward-Looking Statements
------------------------------------------

The  statements  contained  in this  report  that are not  historical  facts are
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation  Reform Act of 1995.  A number of important  factors  could cause the
Company's  actual  results for future  periods to differ  materially  from those
expressed  in any  forward-looking  statements  made by,  or on behalf  of,  the
Company.  These  factors  include,  among other things:  continuation  of market
growth trends; reliance on a main single manufacturing facility; reliance on key
personnel;  control by the  principal  shareholder;  the  Company's  reliance on
significant customers; the Company's ability to develop new products and protect
the proprietary  formulae and technology related to its products;  the Company's
ability  to be  competitive  with  other  producers  of  specialty  transferable
coatings and alternative  products;  fluctuations in foreign  currency  exchange
rates and their  impact on the level and  profitability  of foreign  sales;  and
general economic conditions as they may impact the Company's customers.


Year 2000 Issue
---------------

The Year 2000 Issue is the result of computer  programs  being written using two
digits rather than four to define the applicable  year. Based on its assessment,
management of the Company does not anticipate  that any  additional  significant
modification  or  replacement  of the  Company's  hardware or  software  will be
necessary for its computer systems to properly utilize dates beyond December 31,
1999 or that the Company will incur significant  operating  expenses to make any
such computer system  improvements.  The Company is undertaking an assessment as
to whether any of its  significant  customers,  suppliers,  lenders,  or service
providers  will need to make any such  hardware  or  software  modifications  or
replacements.  The Company has been  informed by such  persons  that they do not
expect to have any  significant  problems  from the Year 2000  Issue  that would
impact the Company. There can be no assurance,  however, that the failure of any
of such third parties to adequately  address the Year 2000 Issue will not have a
material  adverse  effect on the Company's  business,  operations,  or financial
condition.


Business Acquisition
--------------------

In December 1998 the Company signed a Letter of Intent to acquire  substantially
all of the assets and assume  substantially  all of the liabilities of Oeserwerk
KG (Oeserwerk), a German specialty chemical coatings manufacturer.  Consummation
of the  acquisition  is expected to occur by April 30,  1999,  and is subject to
various  conditions,  including,  but not limited to,  approval by the Company's
Board of Directors and partners of Oeserwerk.  Oeserwerk, which is headquartered
in Goppingen,  Germany produces  coatings for the pigmented and simulated metals
markets and has the production capabilities for signature panel, magnetic stripe
and printed products.  Oeserwerk had sales in 1998 of approximately $25 million.
In consideration of the  acquisition,  the Company expects to issue shares,  pay
cash and assume debt for a total  purchase price of  approximately  $16 million.
The acquisition will be accounted for under the purchase method of accounting.


Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------

The Company does not use derivative  financial  instruments to address  interest
rate,   currency,   or  commodity  pricing  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  fair value because
of the short  maturity of those  instruments.  The  estimated  fair value of the
Company's  long-term debt  approximated  its carrying value at December 31, 1998
and 1997 based upon  market  prices  for the same or similar  type of  financial
instrument.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                          INDEX TO FINANCIAL STATEMENTS


                                                            Page
                                                            ----

Report of Independent Accountants .......................   22

Consolidated Balance Sheets at
  December 31, 1998 and 1997 ............................   23

Consolidated Statements of Income for the years ended
  December 31, 1998, 1997 and 1996 ......................   24

Consolidated Statements of Cash Flows for the years ended
  December 31, 1998, 1997 and 1996 ......................   25

Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 1998, 1997 and 1996 ..........   26

Notes to Consolidated Financial Statements at
  December 31, 1998 .....................................   27



Financial Statement Schedules
-----------------------------


     Schedule II --- Valuation and Qualifying Accounts

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange  Commission have been omitted because
they are not required under the related instructions, are not applicable, or the
information has been provided in the Financial Statements or the notes thereto.


                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors of
CFC International, Inc.



In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material  respects,  the financial  position of CFC
International, Inc., and its subsidiaries at December 31, 1998 and 1997, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting principles.  These financial statements are the responsibility of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statements  based on our  audits.  We  conducted  our audits of these
statements in accordance  with  generally  accepted  auditing  standards,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP





Chicago, Illinois
February 10, 1999



                             CFC INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                   December 31,         
                                                   ------------         
                                               1998             1997
                                               ----             ----

ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............   $  5,434,595    $  1,841,070
Accounts receivable, less allowance for
  doubtful accounts of $625,000 and
  $612,000 respectively ...............      7,767,135       6,631,516
Employee receivable ...................         35,653         253,928
Inventories (Notes 1):
  Raw materials .......................      1,281,868       1,358,258
  Work in process .....................      1,233,287       1,825,356
  Finished goods ......................      4,919,531       5,447,990
                                          ------------    ------------
                                             7,434,686       8,631,604
Prepaid expenses and other
  current assets ......................        687,506         644,578
Deferred income taxes .................        868,976         641,977
                                          ------------    ------------
  Total current assets ................     22,228,551      18,644,673
                                          ------------    ------------
Property, plant and equipment,
  net (Notes 1 and 3) .................     15,323,705      15,095,897
Other assets ..........................      1,727,440       1,758,269
                                          ------------    ------------
Total assets ..........................   $ 39,279,696    $ 35,498,839
                                          ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
  debt (Note 4) .......................   $  1,347,693    $    716,079
Accounts payable ......................      2,187,784       3,122,580
Accrued environmental
  liability (Note 13) .................        244,937         244,937
Accrued bonus .........................        550,944          76,065
Accrued vacation ......................        559,357         304,730
Other accrued expenses
  and current liabilities .............      2,031,484       1,187,390
                                          ------------    ------------
  Total current liabilities ...........      6,922,199       5,651,781
                                          ------------    ------------
Deferred income taxes .................      2,110,274       1,974,942
Long-term debt (Note 4) ...............      9,276,587       7,869,419
Minority interest .....................           --         1,435,371
                                          ------------    ------------
  Total liabilities ...................     18,309,060      16,931,513
                                          ------------    ------------
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;
  4,226,469 and 4,218,226 shares
  issued at December 31, 1998
  and 1997 respectively ...............         42,281          42,182
Class B common stock,
  $.01 par value, 750,000 shares
  authorized; 518,169 and 518,169
  shares issued and outstanding
  at December 31, 1998 and 1997
  respectively ........................          5,182           5,182
Additional paid-in capital ............     10,551,354      10,464,985
Retained earnings .....................     11,979,842       8,331,850
Accumulated other comprehensive
  income ..............................       (216,852)        (86,160)
                                          ------------    ------------
                                            22,361,807      18,758,039
Less 331,346 and 193,837
  treasury shares of common
  stock, at cost at
  December 31, 1998 and 1997
  respectively ........................     (1,391,171)       (190,713)
                                          ------------    ------------
                                            20,970,636      18,567,326
CONTINGENCIES (Note 13) ...............           --              --
                                          ------------    ------------
Total liabilities and
  stockholders' equity ................   $ 39,279,696    $ 35,498,839
                                          ============    ============


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





                             CFC INTERNATIONAL, INC.
                        CONSOLIDATED STATEMENTS OF INCOME



                                                December 31,                 
                                    1998            1997            1996
                                    ----            ----            ----

Net sales ...................   $ 51,047,399    $ 42,319,147    $ 37,227,333
Cost of goods sold ..........     31,914,511      26,063,431      22,984,895
                                ------------    ------------    ------------
Gross profit ................     19,132,888      16,255,716      14,242,438
                                ------------    ------------    ------------
Marketing and selling
  expenses ..................      5,544,129       4,813,880       4,082,588
General and administrative
  expenses ..................      4,871,277       4,032,066       3,615,341
Research and development
  expenses ..................      1,585,458       1,343,678       1,304,304
Patent litigation expenses ..           --              --           164,590
                                ------------    ------------    ------------
                                  12,000,864      10,189,624       9,166,823
                                ------------    ------------    ------------
Operating income ............      7,132,024       6,066,092       5,075,615
Other expenses (income):
     Interest ...............        569,573         412,920         228,909
     Miscellaneous ..........        311,823         (65,183)         16,962
                                ------------    ------------    ------------
                                     881,396         347,737         245,871
                                ------------    ------------    ------------
Income before income taxes
  and minority interest .....      6,250,628       5,718,355       4,829,744
Provision for income
  taxes (Note 5) ............      2,259,607       2,207,021       1,831,141
                                ------------    ------------    ------------
                                   3,991,021       3,511,334       2,998,603
Minority interest in income
  of CFC Applied Holographics       (343,029)       (290,131)        (15,133)
                                ------------    ------------    ------------
Net income ..................   $  3,647,992    $  3,221,203    $  2,983,470
                                ============    ============    ============

Basic earnings
  per share (Note 11):
  Net Income and pro forma
    net income per share ....   $       0.82    $       0.71    $       0.66
Diluted earnings
  per share (Note 11):
  Net Income and pro forma
    net income per share ....   $       0.80    $       0.71    $       0.66


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




                             CFC INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                      December 31,              
                                                      ------------              
                                          1998            1997          1996
                                          ----            ----          ----
Cash flow from operating activities:
  Net income ......................   $ 3,647,992    $ 3,221,203    $ 2,983,470
   Adjustments to reconcile
    net income to net cash
    provided by operating
    activities:
      Depreciation and amortization     1,976,173      2,092,937      1,535,396
      Deferred income taxes .......       (91,667)       210,745        (26,027)
      Minority interest in
        CFC Applied Holographics ..       343,029        290,131         15,133
      Changes in assets and
        liabilities:
        Accounts receivable .......    (1,204,670)      (277,186)       (81,248)
        Inventories ...............     1,139,256     (1,134,997)      (733,456)
        Employee receivable .......       108,367        (33,095)       (57,740)
        Prepaid expenses and
          other current assets ....      (178,732)        (3,104)       (35,336)
        Accounts payable ..........      (906,094)       259,602        377,384
        Accrued bonus .............       476,446       (124,225)      (523,710)
        Accrued vacation ..........       254,684           --             --
        Accrued environmental
          liability ...............          --             --          (55,063)
        Accrued expenses and other
          current liabilities .....       603,856        187,839       (947,795)
  Net cash provided by operating
    activities ....................     6,168,640      4,689,850      2,451,008
                                      -----------    -----------    -----------

Cash flows from investing
  activities:
  Additions to property, plant and
    equipment .....................    (2,049,902)    (3,318,819)    (3,861,876)
  Restricted cash .................          --        1,510,827     (1,510,827)
  Increase in other assets ........          --             --          (87,900)
  Cash invested in acquired
    business ......................          --       (1,758,327)          --
                                      -----------    -----------    -----------
Net cash used in investing
  activities ......................    (2,049,902)    (3,566,319)    (5,460,603)
                                      -----------    -----------    -----------

Cash flows from financing
  activities:
  Proceeds from revolving credit
    agreements ....................       127,530      1,600,000      3,775,157
  Repayments of revolving credit
    agreements ....................          --       (1,600,000)    (3,775,157)
  Proceeds from term loans ........     2,625,000       (111,504)      (111,504)
  Repayment of term loans .........    (1,991,005)          --             --
  Borrowing under Illinois
    Revenue Bond, net .............          --             --        3,924,900
  Repayment of IRB ................      (200,250)      (200,250)          --
  Repayment of capital lease ......       (70,596)       (49,521)       (71,139)
  Minority interest payments ......            99           --          (62,845)
  Proceeds from issuance of
    common stock ..................        86,369        147,556        111,713
  Distributions to stockholders ...    (1,090,615)          --         (800,000)
                                      -----------    -----------    -----------
Net cash (used in) provided by
  financing activities ............      (513,468)      (213,719)     2,991,125
                                      -----------    -----------    -----------
Effect of exchange rate changes
  on cash and cash equivalents ....       (11,745)         3,555         29,693
                                      -----------    -----------    -----------

Increase in cash and
  cash equivalents ................     3,593,525        913,367         11,223

Cash and cash equivalents:
  Beginning of period .............     1,841,070        927,703        916,480
                                      -----------    -----------    -----------
  End of period ...................   $ 5,434,595    $ 1,841,070    $   927,703
                                      ===========    ===========    ===========


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




                             CFC INTERNATIONAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY




                                             Accumulated
                Class B  Additional            other                   Total
        Common   common  paid-in   Retained comprehensive Treasury stockholders'
         stock   stock   capital   earnings    income      stock       equity 
         -----   -----   -------   --------    ------      -----       ------ 


Balance
 at                                                                             
 December
 31, 
 1995...$41,562 $5,340 $10,027,677 $ 2,127,177 $ (57,584)$  (190,713)$11,953,459

Compre-
hensive
 income:
 Net 
 income.                             2,983,470                         2,983,470
 Foreign
 currency
 trans-
 lation
 adjust-
 ment ...                                         29,693                  29,693
         ------- ----- -----------  ---------- --------- ----------- -----------
Total
 compre-
 hensive
 income..                            2,983,470    29,693               3,013,163
Employee
 stock
 pur-
 chases..   142            111,571                                       111,713
Reclassify
 shares ..   53    (53)                                                       --
         ------- ----- -----------  ---------- --------- ----------- -----------
Balance
 at
 December
 31,
 1996....41,757  5,287  10,139,248   5,110,647   (27,891)   (190,713) 15,078,335

Compre-
 hensive
 income:
 Net 
  income.                            3,221,203                         3,221,203
 Foreign
  currency
  trans-
  lation
  adjust-
  ment ...                                       (58,269)               (58,269)
         ------- ----- -----------  ---------- --------- ----------- -----------
Total
 compre-
 hensive
 income..                            3,221,203   (58,269)              3,162,934
Employee
 stock
 pur-
 chases..   147           144,691                                        144,838
Exercise
 of 
 options.     3             2,716                                          2,719
Reclassify
 shares ..  105   (105)                                                       --
Shares
 issued
 (Note 2).  170           178,330                                        178,500
         ------- ----- -----------  ---------- --------- ----------- -----------
Balance
 at
 December
 31,
 1997....42,182  5,182  10,464,985   8,331,850   (86,160)   (190,713) 18,567,326

Compre-
 hensive
 income:
 Net 
  income.                            3,647,992                         3,647,992
 Foreign
  currency
  trans-
  lation
  adjust-
  ment...                                       (130,692)              (130,692)
         ------- ----- -----------  ---------- --------- ----------- -----------
Total
 compre-
 hensive
 income..                            3,647,992  (130,692)              3,517,300
Employee
 stock 
 pur-
 chases..     82           86,281                                         86,363
Exercise
 of 
 options.     17               88                                            105
Repurchase
 of 
 shares...                                               (1,200,458) (1,200,458)
         ------- ----- -----------  ---------- --------- ----------- -----------
Balance
 at
 December
 31,
 1998..$42,281 $5,182 $10,551,354 $11,979,842 $(216,852) $(1,391,171)$20,970,636
       ======= ====== =========== =========== ========== =========== ===========

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



                             CFC INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Nature of Business and Significant Accounting Policies

Nature of business and principles of consolidation. CFC International, Inc. (the
"Company")  manufactures  and sells  coated film  products  and  holograms.  Its
customers are primarily  companies in the consumer  products and medical  supply
industries.  One pharmaceutical  customer accounted for approximately 11, 13 and
12 percent of net sales during 1998,  1997 and 1996,  respectively.  The Company
has no significant concentrations of credit risk.

All significant inter-company transactions have been eliminated. For purposes of
description, all financial statements are referred to as "consolidated." Certain
prior  year  amounts  have  been   reclassified   to  conform  to  current  year
presentation.

Cash and cash equivalents.  The Company considers all highly liquid  investments
with an original maturity of three months or less which are readily  convertible
into cash to be cash equivalents.

Inventories.  Inventories are stated at the lower of cost or market,  cost being
determined on the first-in,  first-out  (FIFO) basis.  Inventory cost includes 
cost of raw material, labor and overhead.

Property,  plant and  equipment.  Property,  plant and equipment are recorded at
cost. The  straight-line  method is used to compute  depreciation  for financial
reporting  purposes.  Major  improvements and betterments are capitalized  while
maintenance  and repairs  that do not extend the useful  life of the  applicable
assets are expensed as incurred.  If the carrying  value of an asset,  including
associated  intangibles,  exceeds the sum of estimated  undiscounted future cash
flows,  then an impairment  loss is recognized  for the  difference  between the
estimated fair value and carrying value.

Research and development  costs. All research and development costs are expensed
as incurred.

Revenue recognition.  Revenue is recognized when products are shipped.

Foreign currency  translation.  The functional  currencies of CFC International,
Ltd.  (U.K.)  and the  Company's  division  located  in Japan  are  their  local
currencies.  The balance  sheets of these  entities are  translated  at year-end
rates of exchange and their results of  operations at weighted  average rates of
exchange for the year.  Translation  adjustments resulting from this process are
recorded  directly  in  stockholders'   equity  and  will  be  included  in  the
determination of net income only upon sale or liquidation of the entities, which
is not contemplated at this time.

Earnings per share.  See Note 10 for  computation of basic and diluted  earnings
per share.

SFAS No. 123.  Effective  January 1, 1996, the Company  adopted the  "disclosure
method" provisions of Statement of Financial Accounting Standards (SFAS No. 123)
"Accounting  for  Stock-Based  Compensation."  As permitted by SFAS No. 123, the
Company  continues  to  recognize  stock-based   compensation  costs  under  the
intrinsic value base method  prescribed by Accounting  Principles  Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.

Fair value of financial instruments. As of December 31, 1998, 1997 and 1996, the
carrying  amount  of the  Company's  financial  instruments  approximates  their
estimated  fair value based upon market  prices for the same or similar  type of
financial instrument.

Comprehensive  income.  The Company  adopted  Statement of Financial  Accounting
Standards  (SFAS) No. 130,  "Reporting  Comprehensive Income." In accordance  
with SFAS No. 130, the Company  changed its reporting to disclose  comprehensive
income and its  components in the Company's Statement of Stockholders' Equity.

Pervasiveness  of  estimates.   The  preparation  of  financial   statements  in
conformity with generally accepted accounting  principles requires management to
make  estimates and  assumptions  that affect the reported  amount of assets and
liabilities  and disclosure of contingent  assets and liabilities as of the date
of the  financial  statements,  as well as the reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from these
estimates.



Intangibles.  The  excess  of cost  over the fair  value  of the net  assets  of
businesses  acquired was $1,617,421 and $1,758,269 at December 31, 1998 and 1997
respectively.  Accumulated  amortization  amounted to $370,117  and  $210,000 at
December 31, 1998 and 1997,  respectively.  Amortization  expense was  $160,117,
$123,000  and  $57,000 in 1998,  1997 and 1996,  respectively.  Intangibles  are
amortized on a straight-line basis over periods of up to 15 years.

Statement of cash flows.
                            SUPPLEMENTAL DISCLOSURES

                                                For Year Ended December 31,     
                                                ---------------------------     
                                                  1998       1997       1996
                                                  ----       ----       ----
Cash paid during the year for:
     Interest paid .......................... $  471,270 $  358,000 $  209,000
     Income taxes paid ......................  1,511,000  2,270,000  2,026,000
Non-cash investing and financing 
  activities:
  Lease assets and obligations capitalized...      --         --         --


Note 2.  Acquisition

On September 3, 1997, the Company acquired  substantially  all of the assets and
assumed  substantially  all of the  liabilities  of  NBNC.  NBNC is a  financial
security printer of stock certificates and other intaglio printed documents.  In
consideration  of this  acquisition,  the Company  issued  17,000  shares of its
common  stock,  par value  $.01 per share  (the  "Common  Stock");  delivered  a
ten-year,  6%  subordinated  note in the  principal  amount of  $3,000,000  (the
"Note"), convertible, in whole or in part, at the option of the holder beginning
after the first anniversary of the Note, into Common Stock at a conversion price
of $14.00 per share;  delivered a  short-term  note in the  principal  amount of
$1,500,000  which was paid in full on  September 4, 1997;  and paid  $258,300 in
cash.  The Company has agreed to register for resale under the Securities Act of
1933, as amended, all shares of Common Stock to be issued upon conversion of the
Note. The acquisition was accounted for using the purchase method of accounting.
Approximately  $1,500,000 of the cash purchase price was obtained by the Company
through borrowings under the Company's revolving credit facility.

Note 3.  Property, Plant and Equipment

Property, plant and equipment consist of the following:
                                                       Estimated
                                    December 31,       Useful Life
                                    ------------       -----------
                                  1998          1997
                                  ----          ----
Land ...................... $    105,670  $    105,670
Building ..................    4,347,656     3,468,697  25 years
Machinery and manufacturing
  equipment ...............   21,348,256    20,704,707  10 years
Furniture and office
  equipment ...............    2,283,529     1,768,051  10 years
Construction in process ...         --            --
                            ------------  -------------
                              28,085,111    26,047,125
Less - Accumulated
  depreciation ............  (12,761,406)  (10,951,228)
                            ------------  -------------
                            $ 15,323,705  $ 15,095,897
                            ============  =============

Note 4.  Long-Term Debt

Long-term debt consists of the following:
                                    December 31,           
                                    ------------           
                                  1998        1997
                                  ----        ----
Illinois Revenue Bonds ...... $ 3,604,500 $ 3,804,750
Term Loan "A" ...............   2,612,285   1,655,304
Convertible Subordinated Note   2,666,667   3,000,000
Note Payable ................   1,548,103        --
Other .......................     192,725     125,444
                              ----------- -----------
                               10,624,280   8,585,498
Less - Amounts included in
  current liabilities .......   1,347,694     716,079
                              ----------- -----------
                              $ 9,276,586 $ 7,869,419
                              =========== ===========


Illinois  Industrial  Development Revenue Bonds. The Company received $4,005,000
of proceeds  from the issuance of the bonds on June 20, 1996.  The proceeds were
used to fund the Company's 15,000 square foot addition to its primary production
facility  and the  purchase of a new  printing  press for printed  products.  At
December 31, 1996, the Company had $1,510,827 of restricted  cash as a result of
this issuance.  The  restriction  on this cash was released  during 1997 to fund
costs associated with the printing press. Capitalized issuance costs of $172,391
are being  amortized  over the life of the  bonds  utilizing  the  straight-line
method.

The bonds bear  interest at rates,  which are  determined  by the market and are
reset weekly by the Remarketing  Agent for the bonds. The maximum annual rate of
interest  that the bonds will bear is 12%. The annual rate of interest was 3.65%
at  December  31, 1998 and  December  31,  1997.  Annual  principle  payments of
$200,250 began in 1997 and will continue through 2007. The balance of $1,802,250
is due and payable when the bonds mature on June 1, 2008.

Term Loan.  Term Loan "A" is payable in monthly  installments  of $20,431 with a
final  principal  payment of  $2,287,412  due at  maturity.  Interest is payable
monthly at a fixed rate of 7.05%.  This term loan was  renewed on  November  13,
1998 and now matures on November 1, 2003.

Convertible  Subordinated  Debt.  On  September  3, 1997,  the Company  issued a
ten-year, 6% convertible subordinated note in the principal amount of $3,000,000
with annual  principal  payments  commencing  in 1998 of $333,333.  The Note was
issued to the seller in the Company's  acquisition of Northern Bank Note Company
(see Note 2). The Note is convertible, in whole or in part, at the option of the
holder  beginning after the first  anniversary of the Note, into Common Stock of
the Company at a conversion  price of $14.00 per share. The Note is non-callable
for three years from the date of issuance.  Thereafter,  the Note is callable at
premiums  starting at 102% of face value and declining in subsequent  years.  In
addition,  the  Note is  callable  by the  Company  ten  days  after  the  first
anniversary  of the  Note  if the  Company's  stock  price  exceeds  110% of the
conversion price for twenty  consecutive days. The Note bears interest at 6% per
year, which is payable quarterly, and matures September 3, 2006.

The Note agreement  contains  covenants that include  certain  financial  tests,
including restrictions on indebtedness.

Note Payable.  Effective  October 1, 1998, CFC bought the remaining 25% owned by
the joint  venture  partner of CFC Applied  Holographics.  CFC agreed to pay the
joint venture  partner it's  minority  interest in the amount of $1,548,103 on a
quarterly basis over 4 years.  Prior to October 1, 1998 and effective October 1,
1994,  CFC  held  a 75%  ownership  interest  in  CFC  Applied  Holographics,  a
partnership formed to manufacture and market holograms.

Revolving Credit  Arrangements.  The Company and its  subsidiaries  have various
revolving   credit   arrangements   that  provide  for  maximum   borrowings  of
approximately $6,096,000. Under these revolving credit arrangements, interest is
payable at either the respective  bank's prime rate (7.75% and 8.50% at December
31, 1998 and 1997,  respectively) or 2% over the Bank of England's sterling base
rate  (6.25%  and  7.25% at  December  31,  1998 and  1997,  respectively).  The
revolving credit  arrangements  expire at various dates in 1999. No amounts were
outstanding under the Company's main credit line of $4.5 million at December 31,
1998 and 1997.  The Company is  required  to pay a quarterly  fee for the unused
portion  on one of its  facilities  at an amount  equal to .25%  times the daily
average of the unused  portion.  Such  payments in 1998,  1997 and 1996 were not
significant.

The bank agreements  contain covenants which,  among other things,  restrict new
indebtedness and dividend declarations,  and prohibit net losses. The borrowings
are secured by substantially all of the Company's assets.

Aggregate  minimum  principal  payments for all long-term debt,  excluding 
capital lease  obligations,  as of December 31,  1998 are as follows:

1999 ................................................               $1,165,781
2000 ................................................                1,165,781
2001 ................................................                1,165,781
2002 ................................................                1,165,781
2003 ................................................                2,177,876
Thereafter ..........................................                3,603,250
                                                                   -----------
                                                                   $10,444,270
                                                                   ===========
Note 5.  Income Taxes

The income tax provision (benefit) consists of the following:

                            For Year Ended December 31,     
                            ---------------------------     
                       1998           1997           1996
                       ----           ----           ----
Current Payable:
     Federal ...   $ 1,742,970    $ 1,805,870    $ 1,488,424
     State .....       406,356        337,215        340,784
     Foreign ...       201,948       (146,809)        27,960
Deferred .......       (91,667)       210,745        (26,027)
                   -----------    -----------    -----------
                   $ 2,259,607    $ 2,207,021    $ 1,831,141
                   ===========    ===========    ===========


The  provisions for income taxes differ from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to income from
continuing  operations  before income taxes and minority interest as a result of
the following differences:
                                      1998     1997    1996
                                     Actual   Actual  Actual
                                     ------   ------  ------
Statutory U.S. tax rates ........     34.0%    34.0%   34.0%
Decrease in rates resulting from:
     State and local taxes ......      4.3%     4.7%    4.7%
     Decrease in valuation
      allowance .................       --       --      --
     AMT credit .................       --       --    (1.5%)
     Other, net .................     (2.1%)    2.0%    0.7%
                                       ----     ----    ----
Effective tax rate ..............     36.2%    40.7%   37.9%
                                      =====    =====   =====


Deferred tax liabilities (assets) are as follows:

                                           December 31,          
                                           ------------          
                                       1998            1997
                                       ----            ----
Depreciation ..................... $ 2,041,117     $ 2,067,985
Other, net .......................    (799,819)       (735,020)
                                   -----------     -----------
                                   $ 1,241,298     $ 1,332,965
                                   ===========     ===========


Note 6.  Business Segment and International Operations

The  Company  has  adopted  SFAS  No.  131,  "Disclosure  about  Segments  of an
Enterprise and Related Information." The Company and its subsidiaries operate in
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.  Sales  for each of  these  products  (in
millions) for 1998, 1997, and 1996 were as follows:

                                            1998     1997     1996
                                            ----     ----     ----

Printed Products                            $18.2    $16.1    $14.6
Pharmaceutical Products                       8.9      8.1      7.9
Security Products                            10.1      6.8      3.8
Holographic Products                          8.9      5.6      4.3
Simulated Metal and Other
    Pigmented Products                        4.9      5.7      6.6
                                            -----    -----    -----

Total                                       $51.0    $42.3    $37.2
                                            =====    =====    =====


The following is sales and long-lived asset information by geographic area as of
and for the years ended December 31:

                          Sales                         Net Fixed Assets
         -----------------------------------------  --------------------------
             1998          1997          1996           1998         1997
             ----          ----          ----           ----         ----

United
 States.. $35,919,399   $28,991,624   $25,213,333   $15,162,865   $14,915,280
Foreign..  15,128,000    13,327,523    12,014,000       160,840       180,617
          -----------   -----------   -----------   -----------   -----------
          $51,047,399   $42,319,147   $37,227,333   $15,323,705   $15,095,897
          ===========   ===========   ===========   ===========   ===========

Foreign  revenue is based on the  country in which the  customer  is  domiciled.
Revenue from no single foreign country was material to the consolidated revenues
of the Company.


Note 7.  International Operations and Export Sales

CFC  International,  Ltd. (U.K.) is engaged in selling the Company's  products  
throughout the United Kingdom and Europe. The following data in U.S. dollars,  
relative to the subsidiary,  is included in the accompanying  financial  
statements as of and for the year ended December 31:

                       1998         1997         1996
                       ----         ----         ----
Assets ........     $1,997,537   $1,469,032   $1,141,614
Liabilities....        410,087      255,975       70,726
Net Sales .....      7,118,662    6,673,591    4,819,567
Net Income ....        507,238      134,736       73,332

The Company has a division engaged in selling the Company's products  throughout
Japan. The following data in U.S. dollars, relative to the division, is included
in the accompanying  financial  statements as of and for the year ended December
31:

                            1998           1997           1996
                            ----           ----           ----
Assets ............   $   140,323    $   422,353    $   636,896
Liabilities .......        33,661        110,615         37,204
Net Sales .........     1,024,530      1,197,662      1,414,216
Net Income/(Loss)..      (207,228)      (222,254)       (11,526)

Export sales from U.S. operations amounted to $6,984,808, $5,456,000 and 
$5,783,000 in 1998, 1997 and 1996, respectively.


Note 8.  Profit Sharing Plan

The  Company  maintains  a profit  sharing/401(K)  plan for the  benefit  of all
eligible employees,  as defined under the plan agreement.  Annual profit sharing
contributions  are discretionary as determined by the Board of Directors and are
funded as accrued.  Eligible  employees  may also  contribute up to 18% of their
compensation to the plan subject to the maximum deferral limitations established
by the IRS. Employee contributions are matched by the Company at the rate of 50%
on the first 4% of the employee's compensation. The Company had no discretionary
profit  sharing  expense for the three  years  presented.  The Company  incurred
approximately  $105,000,  $86,000 and $81,000 of 401(K) matching  expense during
1998, 1997 and 1996, respectively.



Note 9.  Stockholders' Equity

The Company has authorized 750 shares of Voting  Preferred Stock, par value $.01
per share, which has no preemptive,  conversion, redemption, or exchange rights.
Dividends and liquidation  preference shall be applied to the purchase price per
share.  The  Company's  principal  stockholder  holds an option to purchase  534
shares of voting preferred  stock,  subject to  anti-dilution  adjustments,  par
value $.01 per share,  which voting  preferred  stock is entitled to 1,000 votes
per  share,  quarterly  dividends  at an annual  rate equal to the prime rate in
effect as of the prior  December 31 applied to the $500 per share exercise price
and a liquidation  preference of $500 per share plus any  accumulated and unpaid
dividends. The option is currently exercisable, and is not transferable.


Common  stock and Class B common  stock have  identical  rights  and  privileges
except for voting and conversion rights. Class B common stock is nonvoting,  and
is convertible at any time into an equal number of shares of common stock except
that the  conversion  option is not available to any Class B common  stockholder
affiliated with the Company's  principal common  stockholder.  During 1998, 1997
and 1996,  0, 10,520,  and 5,340 shares,  respectively,  of Class B common stock
were converted into an equal number of shares of common stock.  In January 1998,
the Company agreed to purchase all the common stock,  79,509  shares,  held by a
former  executive in the amount of $755,336,  of which 644,784 was paid in cash.
The balance of $110,552  was offset  against  the note  receivable  due from the
former executive to the Company.


Note 10.  Stock Plans

Stock Option Plan. The Company's  stockholders approved a Stock Option Plan (the
"Plan") in August  1995,  which  provides for the grant of  non-qualified  stock
options to employees and directors of the Company and its subsidiaries.  A total
of 250,000  shares of common stock are  reserved  for  issuance  under the Plan,
subject to anti-dilution  and adjustment  provisions.  No options may be granted
under the Plan after August 15, 2005.  If an option  expires or is terminated or
canceled  unexercised,  the shares  related to such  options are returned to the
total shares  reserved for  issuance.  The Plan is  administered  by a committee
appointed by the Board of Directors,  which  determines the term of each option,
option price, and number of shares for which each option is granted.

All options have terms of ten years, and employee options  generally vest over a
period of four years.  Options  granted in  connection  with the 1997  Executive
Performance  Plan  ("Performance  Plan") vest over a period of 9.5 years  unless
certain Company  performance  criteria are achieved,  in which case vesting of a
portion of the total options for each executive  employee under the  Performance
Plan is  accelerated  to a  period  of two  years,  upon  the  election  of each
executive. Based on 1998 Company performance and executive elections, executives
under the  Performance  Plan will vest in 7,748 shares over the two-year  period
ending  December 31, 2001.  The range of exercise  prices for options  under the
Plan at December 31, 1998 is $10.88 to $15.25, with a weighted average remaining
contractual life of 8.8 years.

Stock option activity in 1998, 1997 and 1996 for the Plan is summarized below:

                           1998             1997              1996
                           ----             ----              ----
                                                   Average           Average
                                 Average           Option            Option
                       Shares    Option   Shares   Price    Shares   Price
                                                     Price
Beginning balance      174,783   $11.86   76,673   $10.78        -   $ -
Granted                 38,810    11.47   99,610   $12.69   77,673   $10.78
Forfeited              (44,354)   11.92   (1,250)  $11.52   (1,000)  $10.88
Exercised               (1,668)     .06     (250)  $10.88        -   $ -
                       --------  ------  --------           -------
Ending Balance         167,571    11.87  174,783   $11.86   76,673   $10.78
                                         ========  ======   =======  ======

Options exercisable 
  at year end           46,768   $11.54   18,918   $10.77        -   $ -
                       ========  ======  ========  ======    ======  ====== 

Average fair value 
  of options
 outstanding at 
 the end of the year            $  6.04           $ 6.07             $ 4.67
                                =======           ======             ======



Director Stock Option Plan. In August 1995, the Company's  stockholders approved
a Director Stock Option Plan (the "DSOP"), which is administered by the Board of
Directors.  Options may be granted under the DSOP only to non-employee directors
of the  Company.  A total of  50,000  shares of common  stock are  reserved  for
issuance  under  the  DSOP,   subject  to  anti-dilution  and  other  adjustment
provisions.  An option to  purchase  10,000  shares of the  Company's  stock was
granted to each of the three  non-employee  directors  of the Company  effective
upon the closing of the initial  public  offering at an exercise  price equal to
the  initial  public  offering  price  of  $9.50  per  share.   Each  additional
non-employee  director  elected  to the  Company's  Board of  Directors  will be
granted an option to purchase  10,000 shares of common stock upon  election,  at
the fair market value at the date of such grant.  The term of each option is ten
years subject to earlier  termination  if the  optionee's  service as a director
terminates.  Each option becomes  exercisable  with respect to 25% of the shares
upon expiration of each successive  twelve-month period after the date of grant.
The range of exercise  prices for options under the DSOP at December 31, 1998 is
$8.75 to $9.50, with a weighted average remaining contractual life of 8.3 years.

Stock option activity in 1998, 1997 and 1996 for the DSOP is summarized below:


                             1998             1997              1996        
                      ------------------ ---------------- -----------------
                                Average           Average           Average
                                Option            Option            Option
                       Shares   Price    Shares   Price    Shares   Price
Beginning balance..... 40,000   $ 9.31   30,000   $ 9.50   30,000   $  9.50
Granted...............      -            10,000     8.75        -         -
                       ------            ------            ------
Ending balance........ 40,000   $ 9.31   40,000   $ 9.31   30,000   $  9.50
                       ======   ======   ======   ======   ======   =======

Options exercisable 
  at year end.....     25,000   $ 9.43   15,000   $ 9.50    7,500   $  9.50
                       ======   ======   ======   ======    =====   =======
Average fair 
  value of 
  options 
  outstanding 
  at the end 
  of the year.....              $ 3.82            $ 4.22            $     -
                                ======            ======            =======


All options  granted  under the Plan and the DSOP have had exercise  prices 
equal to the fair market value of the shares on the date of grant.

The fair  value of each  option  granted is  estimated  at the date of the grant
using the  Black-Scholes  option-pricing  model  utilizing  expected  volatility
calculations  based on historical  data of companies with similar  structure and
volatility  over a period  commensurate to the expected term of the options (25%
to 40%) and risk free rated based on U.S.  government strip bonds on the date of
the grant with  maturities  equal to the expected  option term (5.56% to 6.68%).
The expected lives were determined to be six years for employee  options and 9.5
years for  options  under the  Performance  Plan (see above) and  dividends  are
assumed to be zero.

The Company  applies APB 25 and related  Interpretations  in accounting  for the
aforementioned  stock  plans.   Accordingly,   no  compensation  cost  has  been
recognized for its stock option plans. Had  compensation  cost for the Company's
fixed stock option plans been determined based upon the fair value based method,
as defined in SFAS No. 123, the Company's net earnings per share would have been
reduced to the pro-forma amounts indicated below:

                                             1998        1997        1996
                                             ----        ----        ----
Proforma net income
  (dollars in thousands) ............   $    3,500   $   3,031   $   2,928
Proforma earnings per share (basic) .   $     0.80   $    0.67   $    0.65
Proforma earnings per share (diluted)   $     0.78   $    0.67   $    0.65

The  effects of applying  SFAS 123 on the above  pro-forma  information  are not
indicative of future  amounts,  as such amounts are likely to be affected by the
number of grants awarded.



Employee  Stock  Purchase  Plan.  In August  1995,  the  Company's  stockholders
approved an Employee  Stock Purchase Plan (the "Stock  Purchase  Plan") which is
administered by a committee appointed by the Board of Directors. Pursuant to the
Stock Purchase  Plan,  100,000 shares of common stock are reserved for issuance,
which may be offered for sale to employees  through annual options to be granted
in the five-year period  commencing  January 1, 1996. During 1998, 1997 and 1996
respectively,  8,243,  14,816 and  14,114  shares of common  stock  were  issued
pursuant to the Stock  Purchase  Plan.  The Stock  Purchase  Plan is intended to
qualify as an "employee  stock  purchase plan" under Section 423 of the Internal
Revenue Code. Generally,  all persons who have been employed by the Company on a
full-time  basis for at least six months,  except holders of more than 5% of the
Company's  common stock, are eligible to participate in the Stock Purchase Plan.
The Stock  Purchase  Plan permits  eligible  employees to purchase  common stock
(which  may  not  exceed  the  lesser  of  $10,000  or  10%  of  an   employee's
compensation),  at 95% of the fair market value of the common stock at the grant
date or exercise date, whichever is less. The shares are purchased automatically
at the  end of the  quarter  for  such  number  as  may be  purchased  with  the
accumulated  payroll  deductions  of the  employee on that date.  Employees  may
terminate  their  participation  in the  Stock  Purchase  Plan at any  time  and
participation  automatically  ends  upon  termination  of  employment  with  the
Company.  The Stock Purchase Plan will terminate at any time upon the discretion
of the Board of Directors or when the participating employees become entitled to
purchase a number of shares equal to the number of shares remaining.

Note 11.  Earnings per Share

                                               1998                
                                 -----------------------------    
                                                          Per     
                                   Income      Shares    Share    
Basic Earnings per Share:
Income available to Common
     Stockholders............... $3,647,992  4,453,870    $0.82   

Effect of Dilutive Securities:
     Options exercisable........                 5,254            
     Convertible debt...........   $105,000    202,381            
Diluted Earnings per Share...... $3,752,992  4,661,505    $0.80   

                                               1997
                                 -----------------------------
                                                          Per
                                   Income      Shares    Share
Basic Earnings per Share:
Income available to Common
     Stockholders............... $3,221,203  4,529,562    $0.71

Effect of Dilutive Securities:
     Options exercisable........                11,001
     Convertible debt...........    $36,000     71,428
Diluted Earnings per Share...... $3,257,203  4,611,991    $0.71   


                                               1996            
                                 -----------------------------
                                                          Per  
                                   Income      Shares    Share 
Basic Earnings per Share:
Income available to Common
     Stockholders............... $2,983,470   4,504,067   $0.66

Effect of Dilutive Securities:
     Options exercisable........     12,534
     Convertible debt...........
Diluted Earnings per Share...... $2,983,470   4,516,601   $0.66


Note 12.  CFC Applied Holographics

Effective  October 1, 1998,  the Company  bought the  remaining 25% owned by the
joint venture partner of CFC Applied Holographics. The Company agreed to pay the
joint venture  partner it's  minority  interest in the amount of $1,548,103 on a
quarterly  basis over 4 years.  The partner agreed to reimburse 50% of the costs
of the Ventura, California optical research and development laboratory. Prior to
October 1, 1998 and effective  October 1, 1994, the Company held a 75% ownership
interest in CFC Applied  Holographics,  a partnership  formed to manufacture and
market holograms.



Note 13.  Commitments and Contingencies

The Company's former parent has been named by government  environmental agencies
as a "potentially  responsible party" with respect to a waste disposal site. The
former  parent and other  potentially  responsible  parties  have entered into a
settlement agreement with such agencies that provides for the remediation of the
site,  estimated  to  cost  approximately  $40  million,  based  upon  currently
available  facts.  While the  Company has been named a  potentially  responsible
party,  the former parent and the Company have reached an agreement  whereby the
former  parent and the Company will share  equally in 0.7% (or .35% each) of the
total cost of  remediation  that is  ultimately  determined  to be attributed to
waste  produced by the Company's  former parent.  Additionally,  the Company and
nineteen other parties were  defendants in litigation  filed by another party at
the same site seeking reimbursement for some portion of the $1 million spent for
clean up outside of the  aforementioned  settlement.  The Company paid $4,000 in
full settlement of this suit in 1995. In 1992, the Company  recorded a liability
of $300,000 related to these matters, of which approximately $50,000 was paid in
1996. It is management's opinion, based upon investigation of the quantities and
types of waste and the other parties  involved,  that the Company's share of any
liability will not substantially  exceed the accrual of $246,000 at December 31,
1998. The adequacy of this reserve is reviewed  periodically  as more definitive
information becomes available.

The Company has non-cancellable operating leases for which future minimum rental
commitments are estimated to total $448,182,  including $74,697 in 1999, $74,697
in 2000,  $74,697  in  2001,  $74,697  in 2002,  $74,697  in 2003,  and  $68,472
thereafter. Rental expense under operating leases totalled $6,225 in 1998 and $0
in 1997.


Note 14.  Selected quarterly financial data (unaudited), in thousands, except 
per share data

                                        Quarter Ended
                                        -------------
            Dec. 31  Sept. 30 June 30  Mar. 31 Dec. 31  Sept. 30 June 30 Mar. 31
               1998     1998     1998     1998    1997     1997    1997    1997
               ----     ----     ----     ----    ----     ----    ----    ----
Revenues ....$12,811  $12,464  $13,111  $12,661 $11,584  $10,927  $9,999  $9,810
Gross 
  Profit ....  4,931    4,639    4,698    4,865   4,305    4,160   3,762   4,029
Operating
  Income ....  1,659    1,680    1,767    2,027   1,404    1,668   1,194   1,800
Net Income ..    800      831      980    1,035     692      831     667   1,031
Basic 
  earnings
  per share .    .19      .19      .21      .23     .15      .18     .15     .23
Diluted 
  earnings
  per share .    .18      .18      .21      .23     .15      .18      .15    .23


Note 15.  Business Acquisition

In December 1998 the Company signed a Letter of Intent to acquire  substantially
all of the assets and assume  substantially  all of the liabilities of Oeserwerk
KG (Oeserwerk), a German specialty chemical coatings manufacturer.  Consummation
of the  acquisition  is expected to occur by April 30,  1999,  and is subject to
various  conditions,  including,  but not limited to,  approval by the Company's
Board of Directors and partners of Oeserwerk.  Oeserwerk, which is headquartered
in Goppingen,  Germany produces  coatings for the pigmented and simulated metals
markets and has the production capabilities for signature panel, magnetic stripe
and printed products.  Oeserwerk had sales in 1998 of approximately $25 million.
In consideration of the  acquisition,  the Company expects to issue shares,  pay
cash and assume debt for a total  purchase price of  approximately  $16 million.
The acquisition will be accounted for under the purchase method of accounting.



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

None.




PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors
---------

The  information  appearing  under the  captions  "Election  of  Directors"  and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement for the Annual Meeting of  Stockholders to be held in 1998 (the "Proxy
Statement"), is incorporated herein by reference.

Executive Officers
------------------

Set forth below are the names of the  executive  officers of the Company and its
subsidiaries,  their ages at December 31, 1998, the positions they hold with the
Company  or its  subsidiaries,  and  summaries  of  their  business  experience.
Executive  officers of the Company are elected by and serve at the discretion of
the Board of Directors of the Company.


Name                                             Age       Position
----                                             ---       --------
Roger F. Hruby..........................         64       Chairman of the Board 
                                                          of Directors, 
                                                          Chief Executive
                                                          Officer

Richard L. Garthwaite*..................         48       President, Chief 
                                                          Operating Officer 
                                                          and Director

Dennis W. Lakomy........................         54       Vice President, Chief 
                                                          Financial Officer, 
                                                          Secretary, Treasurer 
                                                          and Director

Mark A. Lamb............................         47       Vice President and 
                                                          General Manager 
                                                          - Security Printing

William A. Herring......................         52       Senior Vice President 
                                                          of Operations

Robert E. Jurgens.......................         57       Senior Vice President 
                                                          of Sales & Marketing

Craig D. Newswanger.....................         45       Vice President of 
                                                          Research & Development
                                                          - Holographics

Jeffrey E. Norby........................         43       Controller

Peter C. McGillivray....................         54       Managing Director 
                                                          - United Kingdom 
                                                          Operations

Shigemitsu Takashima....................         64       Managing Director 
                                                          - Japan Operations


* Richard Garthwaite was appointed  President and Chief Operating Officer of 
CFC  International,  Inc. on January 14, 1999. He was also appointed a Director 
on March 26, 1999.



Roger F. Hruby,  Chairman of the Board, Chief Executive  Officer,  and President
and Chief Operating  Officer of the Company's  predecessor,  Bee Chemical,  from
1977 until the sale of that company to Morton  Thiokol,  Inc., in 1985, at which
time Mr. Hruby also became its Chief Executive Officer. Mr. Hruby also organized
the formation of Bee  Chemical's  Japanese  joint venture in 1970 and supervised
its growth from a start-up venture to a significant  manufacturing  company with
sales in excess of $40 million.  In 1986,  Mr.  Hruby formed the Company,  which
purchased Bee Chemical's  specialty  transferable  solid coatings  division from
Morton Thiokol and has been Chairman of the Board, Chief Executive Officer,  and
until June 1995,  President of the Company since the date of its  incorporation.
Mr. Hruby has been involved in the specialty  chemical  industry since 1958. Mr.
Hruby earned a bachelors  degree in chemistry  from North Central  College and a
Masters of Business Administration from the University of Chicago.

Richard L. Garthwaite,  President,  Chief Operating Officer and a Director,
joined the Company in January 1999. Prior to joining the Company, Mr. Garthwaite
served from 1990 as President and Chief Executive  Officer of A.L. Hyde Company.
Mr.  Garthwaite  earned a bachelors  degree from The  University of Michigan cum
laude and a masters  degree of business  administration  from  Harvard  Business
School.

Dennis W. Lakomy, Vice President, Chief Financial Officer, Secretary,  Treasurer
and a Director of the  Company,  joined Bee  Chemical in 1975 and served as Vice
President and  Controller of that company from 1982 until  co-founding  CFC with
Mr.  Hruby in 1986.  Mr.  Lakomy was elected a director of the Company in August
1995. Mr. Lakomy earned a bachelors degree in accounting from Loyola  University
of Chicago  and a Masters of  Business  Administration  from the  University  of
Chicago.

William A. Herring,  Senior Vice President of Operations of the Company,  joined
the Company in June 1996. Prior to joining the Company,  Mr. Herring served from
1992 as Vice  President -  Manufacturing  and Technology  with Central  Products
Company,  where he was  responsible for three  manufacturing  locations and five
distribution  centers.  Mr. Herring earned a bachelors and a masters degree from
the University of Missouri in Chemical Engineering.

Robert E. Jurgens, Senior Vice President of Sales and Marketing, joined the
Company in June 1987.  Prior to  joining  the  Company,  Mr.  Jurgens  served in
successive senior management  positions with White Graphic Systems.  Mr. Jurgens
began his career with White  Graphics  Systems in 1966 in sales and design.  Mr.
Jurgens earned a bachelors degree from Indiana University.

Mark A. Lamb,  Vice  President  and General  Manager of  CFC-Northern  Bank Note
joined Northern Bank Note in 1977, and has held various positions in production,
sales and marketing and executive management before assuming the General Manager
position in September 1997. Mr. Lamb holds a B.S. Degree from Northern  Illinois
University  and  graduated  from the Printing  Industry of  America's  Executive
Development Program.

Craig D. Newswanger  formed  Advanced  Dimensional  Displays in 1984,  which was
merged into Applied  Holographics PLC in 1989. In 1992,  following the formation
of  CFC  Applied  Holographics,  he  was  named  Vice  President,  Research  and
Development - Holographics, of the Company.

Jeffrey E. Norby joined the Company in 1995 as Controller. Prior to that time he
held several managerial  positions in administration and accounting with Newell,
Inc. and Chicago Bullet Proof Company.  He is a Certified Public  Accountant and
earned a Masters of Business Administration from the University of Illinois.

Peter C.  McGillivray  has  been  Managing  Director  of  CFC's  United  Kingdom
Operations  since  1988.  Prior  thereto,  Mr.  McGillivray  served  as a  sales
representative  for  British  Cellulose  Lacquers,  which  was  acquired  by Bee
Chemical Company and later included as part of the ongoing business purchased by
the Company.

Shigemitsu  Takashima  joined  the  Company in 1997.  Prior to joining  the
Company, Mr. Takashima served from 1973 in successive  management positions with
Nippon Bee Chemical  Company and was responsible for worldwide  operations.  Mr.
Takashima had been in the position as President since 1985. Mr. Takashima earned
his Industrial Chemist Degree from Ritsumeikan University in Japan.




ITEM 11.  EXECUTIVE COMPENSATION

Information  appearing under the caption "Management  Compensation" in the Proxy
Statement is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information  appearing under the caption  "Principal  Stockholders" in the Proxy
Statement is incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information  appearing  under the caption  "Certain  Transactions"  in the Proxy
Statement is incorporated herein by reference.



                                     PART IV

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

(a) (1)  Financial Statements
         Reference is made to the information  set forth in Part II, Item 8 of 
         this Report,  which  information is incorporated  herein by reference.

(a) (2)  Financial Statement Schedules
         Reference is made to the information  set forth in Part II, Item 8 of 
         this Report,  which  information is incorporated  herein by reference.

(a) (3)  Exhibits
         The  exhibits to this report are listed in the Exhibit  Index  included
         elsewhere  herein.  Included  in the  exhibits  listed  therein are the
         following   exhibits,   which   constitute   management   contracts  or
         compensatory plans or arrangements.

         10.2     Stock Option Plan of the Company
         10.3     Director Stock Option Plan of the Company
         10.4     Employee Stock Purchase Plan of the Company

(b)      Reports on Form 8-K
         The Company filed a Report on Form 8-K dated December 15, 1998 relating
         to the  Company's  agreement in principal  to acquire  Oeserwerk  KG, a
         German manufacturer of specialty chemical coatings.


(c)      Exhibits


       Exhibit
       Number     Description of Exhibit
       ------     ----------------------

         3.1      Restated  Certificate  of  Incorporation  of the Company  
                  (incorporated  by reference to Exhibit 3.1 to the Company's
                  registration statement on Form S-1, Registration 
                  No. 33-96110).

         3.2      Amended and Restated Bylaws of the Company  (incorporated  
                  by reference to Exhibit 3.2 to the Company's  registration
                  statement on Form S-1, Registration No. 33-96110).

         4.1      Specimen  Certificate  Representing Shares of Common Stock 
                  (incorporated by reference to Exhibit 4.1 to the Company's
                  registration statement on Form S-1, Registration 
                  No. 33-96110).

         10.1(a)  Amended and Restated Credit  Agreement,  dated as of March 18,
                  1992, between the Company and LaSalle Northwest National Bank,
                  as amended (the "Credit Agreement") (incorporated by reference
                  to Exhibit  10.1 to the  Company's  Registration  Statement on
                  Form S-1, Registration No. 33-96110).

         10.1(b)  Tenth Amendment to the Credit  Agreement,  dated as of June 1,
                  1996,  and related  documents  (incorporated  by  reference to
                  Exhibit  10.1(b.) to the Company's Report on Form 10-K for the
                  year ended December 31, 1997).

         10.1(c)  Eleventh  Amendment  to  the  Credit  Agreement,  dated  as of
                  February  1, 1997,  and  related  documents  (incorporated  by
                  reference to Exhibit  10.1(c) to the Company's  Report on Form
                  10-K for the year ended December 31, 1997).

         10.1(d)  Twelfth Amendment to the Credit  Agreement,  dated as of March
                  3, 1997, and related  documents  (incorporated by reference to
                  Exhibit  10.1(d) to the Company's  Report on Form 10-K for the
                  year ended December 31, 1997).

         10.1(e) Sixth Amendment to Mortgage and Assignment of Rents and Leases,
                 dated as of November 13, 1998, and related documents. 

         10.2    Stock Option Plan of the Company  (incorporated  by reference 
                 to Exhibit 10.7 to the Company's registration statement
                 on Form S-1, Registration No. 33-96110).

         10.3    Director Stock Option Plan of the Company  (incorporated  by 
                 reference to Exhibit 10.8 to the Company's  registration
                 statement on Form S-1, Registration No. 33-96110).

         10.4    Employee Stock Purchase Plan of the Company (incorporated by 
                 reference to Exhibit 10.9 to the Company's  registration
                 statement on Form S-1, Registration No. 33-96110).

         10.5    Stock Option  Agreement,  dated  August 18, 1995,  between the
                 Company  and  Roger F.  Hruby,  as  amended  (incorporated  by
                 reference  to  Exhibit  10.10  to the  Company's  registration
                 statement on Form S-1, Registration No. 33-96110).

         10.6    CFC Applied  Holographics  Joint Venture Agreement dated April
                 1, 1992,  among the Company,  CFC  Management,  Inc.,  Applied
                 Holographics PLC, and Applied Holographics,  Inc., as amended,
                 and related Partnership Agreement,  Representation  Agreement,
                 and License  Agreement  (incorporated  by reference to Exhibit
                 10.13 to the  Company's  registration  statement  on Form S-1,
                 Registration No. 33-96110).

         10.7(a) Purchase  Agreement,  dated  November  18,  1994,  between the
                 Company and Baxter  Healthcare  Corporation  (incorporated  by
                 reference  to  Exhibit  10.14  to the  Company's  registration
                 statement on Form S-1, Registration No. 33-96110).

         10.7(b) Baxter Healthcare Corporation contract renewed on February 15, 
                 1998.

         10.8    Form of Indemnification Agreement between the Company and each
                 of its Officers and  Directors  (incorporated  by reference to
                 Exhibit 10.15 to the Company's  registration statement on Form
                 S-1, Registration No. 33-96110).

         21.1    List of Subsidiaries of the Company

         23.1    Consent of Experts and Counsel

         27.1    Financial Data Schedule



                             CFC INTERNATIONAL, INC.
                          FINANCIAL STATEMENT SCHEDULES
                  SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS





                                          Additions
                              Balance at  Charged To                 Balance
                              Beginning   Costs and                  at end
       Description            Of Year      Expenses   Deductions*   Of Year
       -----------            -------      --------   -----------   -------
                                            (in thousands)

Year Ended December 31, 1996
  Allowance for Doubtful
  Accounts .................   $   348     $ 1,244     $(1,027)     $   565

Year Ended December 31, 1997
  Allowance for Doubtful
  Accounts .................   $   565     $ 1,275     $(1,228)     $   612

Year Ended December 31, 1998
  Allowance for Doubtful
  Accounts .................   $   612     $ 1,492     $(1,479)     $   625

-------------------------
*  Deductions represent amounts written off.




                                   SIGNATURES


Pursuant to the requirements  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, on March 19, 1999.


                              CFC INTERNATIONAL, INC.

                              By:         /s/  ROGER F. HRUBY             
                              -----------------------------------
                                          Roger F. Hruby
                                          Chairman of the Board of Directors,
                                          Chief Executive Officer


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 on March 19, 1999.

     Signature                               Title
     ---------                               -----

     Principal Executive Officer:


     /s/ ROGER F. HRUBY                      Chairman of the Board of Directors,
     --------------------------------------  Chief Executive Officer
         Roger F. Hruby                                 




     Principal Financial Officer:


     /s/ DENNIS W. LAKOMY                    Vice President, Chief Financial 
     ----------------------------------      Officer, Secretary, Treasurer, and
         Dennis W. Lakomy                    Director                           


     Principal Accounting Officer:


     /s/ JEFFREY E. NORBY                    Controller
     -----------------------------------
         Jeffrey E. Norby




     Signature                               Title
     ---------                               -----

     A Majority of the Directors:


     /s/ ROGER F. HRUBY                      Director
     ------------------------------------
         Roger F. Hruby



     /s/ WILLIAM G. BROWN                    Director
     ------------------------------------
         William G. Brown



     /s/ ROBERT B. COVALT                    Director
     ------------------------------------
         Robert B. Covalt



     /s/ DENNIS W. LAKOMY                    Director
     -------------------------------------
         Dennis W. Lakomy


     /s/ RICHARD L. GARTHWAITE               Director
     -------------------------------------
         Richard L. Garthwaite


     /s/ RICHARD PIERCE                      Director
     --------------------------------------
         Richard Pierce


     /s/ DAVID D. WESSELINK                  Director
     --------------------------------------
         David D. Wesselink



                                  Exhibit 23.1


We hereby consent to the incorporation by reference in the Registration 
Statement on Form S-8 (No. 333-2978 and 333-32481), and in the Prospectus 
constituting part of the Registration Statement on Form S-3 (No. 333-47719) of 
CFC International, Inc. of our report dated February 10, 1999.






PricewaterhouseCoopers LLP
Chicago, Illinois
March 29, 1999