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                                  UNITED STATES
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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                              --------------------

                                    FORM 10-K


[ X  ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the Fiscal Year Ended December 31, 1999
                                       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
$30,463,529 at March 20, 2000  (based on the  closing  sale price on the Nasdaq
National  Market on March 20, 2000. At March 20, 2000, the registrant had issued
and  outstanding  an aggregate  of 4,201,866 shares of common stock and 512,989
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 2000,  described in Part III hereof,  are
incorporated by reference in this report.

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<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:
holographic  products such as  authentication  seals used principally to certify
and protect the authenticity of proprietary  products and documents  susceptible
to counterfeiting and tampering and eye-catching holographic packaging;  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; and security  products such as magnetic  stripes and signature  panels for
credit cards and intaglio printing for stocks, bonds, and gift certificates. The
fifth product line is specialty  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. CFC acquired specialty chemical manufacturer
Oeserwerk KG, now called CFC Oeserwerk,  located in Goppingen, Germany for cash,
stock and  assumption  of certain  liabilities  on March 19,  1999,  as well as,
wholly-owned  subsidiary in Paris, France, Oeser France S.A.R.L., now called CFC
Oeser France S.A.R.L. CFC Oeserwerk's sales volume is approximately 55% domestic
Germany  and 45%  export.  The French  operation  is 100%  domestic.  The French
operation  consists of a sales office,  warehouse and slitting.  The  Goppingen,
Germany operation has the capability to manufacture all the company's products.

The Company's  coatings are produced by milling pigments,  solvents,  and resins
into proprietary formulations, which combine multiple layers of custom coatings.
These coatings are designed to react with each other to create a composite solid
coating on a plastic film and are 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
that  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 the
customers  avoid the use of liquid  solvents and adhesives  otherwise  needed to
apply coatings to their 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 provides
eye-catching holographic packaging to major consumer product manufacturers.  The
Company acquired from Applied  Holographics PLC, the worldwide rights to certain
holography technology on January 3, 2000 from its previous joint venture partner
(see "-- Holographic Products"). Previously, the Company's market was limited to
North America. The Company also announced the formation of a division called CFC
Holographics  on January 24, 2000 to focus  resources  on  opportunities  in the
holographic  market.  CFC 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 and Lucent Technologies
of holograms used to authenticate their respective  products.  Sales of products
in this market  represented  approximately  15.8% of the  Company's net sales in
1999. See "-- Holographic 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  26.5% of the  Company's  net sales in 1999.  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  13.8% of
the Company's  net sales in 1999.  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 13.2% of the Company's net sales in 1999.
See "-- Chemical Coatings -- Security 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.  A new product  offering in this area is a
foil,  that is very  receptive  for  printing  inks  for  label  and  high-speed
printers.  This  product  line has grown  with the Oeser  acquisition.  Sales of
products in this market  represented  approximately  30.7% of the  Company's net
sales in 1999.  See "-- Chemical  Coatings -- Specialty  Pigmented and Simulated
Products."

CFC's  products  are sold to more than 5,000  customers  worldwide.  The Company
generated  approximately  49.5% of its 1999  revenues  from sales outside of the
United States and has sales, warehousing, and finishing operations in the United
Kingdom,  Germany, France, 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 $8.3 million in new equipment. The Company received the
International Standards Organization ("ISO") 9001 registration in June 1995, and
was recently  recertified  in June 1999.  The Company's  ISO 9001  certification
provides  assurance  to the  Company's  customers  that its 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.  The Company has  continually  emphasized  the
importance of quality 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  CFC  International,  Inc.  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
March 1999, the Company  acquired  Oeserwerk KG, a specialty  chemical  coatings
manufacturer  based in Goppingen,  Germany,  and its wholly-owned  subsidiary in
France to penetrate  the  European  market with its  products.  The Company also
announced on November 30, 1999 that it would acquire the worldwide rights to the
holographic technology from Applied Holographics PLC on January 3, 2000.

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 the fourth  quarter,  the Company  began to implement a Visual
Process Control (VPC) system to minimize  non-productive areas, to minimize work
in process  between  manufacturing  steps,  which will result in decreasing  the
cycle time and improving delivery to our customers.

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.

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 proprietary holographic technology AEGIS(TM)
(Anti-Counterfeit  Encrypted  Graphic  Image  System)  is the  Company's  latest
holographic development, a computer-based imaging system that offers significant
advances and  improvements  over what the industry calls dot matrix  holography.
The 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 recent  development  of  FLEXWRAP(TM)  to wrap  around
furniture  arms,  legs,  and pedestals will enhance the ability of the Company's
customers to develop products that compete against real wood.

Overview of Products

The Company's principal product types include the following:

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    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,  applied by a membrane press
     adheres to the various surface  elevations of 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.  FLEXWRAP(TM) wraps
     around arms, legs and pedestal parts of furniture parts made with medium
     density fiberboard.

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    Specialty  Pigmented  and Simulated  Metal  Products.  Specialty  Pigmented
     Products include automobile  batteries,  cosmetics  containers,  industrial
     signage,  and other markets  requiring a particularly  durable  specialized
     functional   coating.    Specialty   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.  A new offering in this product line is
     foil which  permits  high-speed  inkjet and laser  printing  to the surface
     foil.

Markets

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

------------     ------------------  ----------------  --------- --------------
                                                        % of CFC      Key
                                         Selected        Sales      Product
Market                 Application       Customers       1999       Features
============     ==================  ================  ========= ==============
Holographic      Authentication      Intel, 3M, JBL,     15.8%   - Fully
Products         seals, trophies,    AquaFresh, Colgate,           integrated
(product         point-of-purchase   Crest, Keebler,               manufacturing
authentication,  packaging,          Arm & Hammer                - Authenticates
high-end eye-    security labels                                   products
catching                                                         - AEGIS
packaging)                                                       - Patented dot
                                                                   matrix

--------------------------------------------------------------------------------
Printed          RTA furniture       Sauder Woodworking, 26.5%   - Large library
Products         (bedroom, office,   Hart, Furniture,              of patterns
(Engineered      entertainment       LEA Industries,             - Superior lead
Board building   centers),           Charleswood, CANA,            times
products,        promotional         Inc., National              - Scratch/mar
consumer         furniture (hotel    Picture and Frame,            resistant
electronics,     and office),        Dallas Woodcrafters,          finishes
home decorating, cabinets, manu-     Ditta Manetti (Italy),        (Armorite
trophies/awards) factured home       Ashley Furniture,              PlusTM)
                 interiors,          Progressive Furniture       - Match to any
                 picture frames,                                   pattern or
                 award plaques,                                    color
                 trophy bases                                    - FLEXRITE TM
                                                                 - FLEXWRAP TM

--------------------------------------------------------------------------------
Pharmaceutical   Intravenous         Baxter Healthcare,   13.8%  - Used on FDA
Products         solution bags,      Abbott Labs,                  approved
                 drainage bags,      Sherwood Davise &             products
                 renal bags,         Geck, B. Braun              - Passes
                 syringes,           Medical, C.R. Bard,           stringent
                 pipettes, tubing    Fresenius, Bieffe             sterilization
                                     Medital                       process
                                                                 - Does not
                                                                   offset

--------------------------------------------------------------------------------
Security         Magnetic stripes,   Visa, MasterCard,    13.2%  - High coerci-
Products         signature panels,   Diners Club,                  vity magnetic
(transaction     and indent and      Discover Card,                stripe is
cards,           tipping foils for   Eurocard, American            durable
identification   credit cards,       Express, Sears,               (exceeds
cards)           debit cards, ATM    Novice, Pier One,             life of card)
                 cards, access       Brinker                     - Reliable, few
                 cards, driver's                                   errors
                 licenses,                                       - Signature
                 passports,                                        panels are
                 intaglio printed                                  tamper
                 security documents                                evident
                                                                 - Intaglio
                                                                   printed
                                                                   stocks, bonds
                                                                   and gift
                                                                   certificates

--------------------------------------------------------------------------------
Specialty        Beverage cases,     Rubbermaid, Delco,   30.7%  - Scratch/mar
Pigmented &      industrial safety   Johnson Controls,             resistant
Simulated        signs, battery      Mattel, Revlon,             - Chemical
Metal Products   cases, vent caps,   AC Rochester,                 resistant
(injection       spark plugs,        Gillette, Bic               - Low-cost
molded and       dashboard inserts,                                alternative
extruded         tail lenses, toys,                              - Variety of
                 cosmetic containers                               colors
                                                                 - Non-toxic
--------------------------------------------------------------------------------


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.

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.  As of
November 30, 1999,  the Company  entered into an agreement with its former joint
venture partner to purchase the worldwide  rights to holography for $3.6 million
as of January 3, 2000.

CFC Applied  Holographics  has given the  Company the unique  ability to produce
holographic art  origination  that involves a patented,  computer-generated  dot
matrix technology.  The Company's  proprietary  holographic  technology,  AEGIS,
further  enhances  this  dot  matrix  holography.   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  13.4%, 17.4% and 15.8% of the
Company's net sales in the three years ended  December 31, 1997,  1998, and 1999
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.  The Company's proprietary holographic technology,  AEGIS,
further  enhances this dot matrix  holography.  AEGIS allows micro precision dot
placement,  and varying dot sizes and shapes to be mixed together to create very
smooth,  fine  lines and  extremely  complicated  arcs and  curves.  AEGIS  puts
advanced  security  into  dots-type  holography,  producing  features  that  are
difficult to reproduce at any resolution.

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  Keebler  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.

The Company 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. The Company receives a 5.0% royalty on gross sales
by Van Leer of products incorporating such licensed materials sold in North
America.

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 38.0%, 35.8% and 26.5% of the
Company's net sales in the three years ended  December 31, 1997,  1998, and 1999
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  recently
introduced FLEXRITE(TM), a new value-added coating for paneled cabinet doors and
products with profiled, rounded edges. The Company is introducing a new product,
FLEXWRAP(TM).  This product  wraps around arms,  legs and pedestals of furniture
made from medium density fiberboard.



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.,
B. Braun Medical, Kendall - Davise & Geck, Bieffe Medital and Fresenius.

Pigmented  coatings used on pharmaceutical  products  represented  approximately
19.1%,  17.5%,  and 13.8% of the  Company's  net sales in the three  years ended
December 31, 1997, 1998, and 1999 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  indent and 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 to 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 had
been the market  standard,  as of June 1, 1999 a 2,750 oersteds  magnetic stripe
became the market 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  increasingly  are 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  16.0%,  19.7%,  and 13.2% of the
Company's net sales in the three years ended  December 31, 1997,  1998, and 1999
respectively.


Specialty 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   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.

Specialty  pigmented and simulated  products  represented  approximately  13.5%,
9.6%, and 30.7% of the Company's net sales in the three years ended December 31,
1997, 1998, and 1999 respectively. In March 1999, the Company acquired Oeserwerk
KG,  located in Germany,  which is a  manufacturer  of specialty  pigmented  and
simulated metal products,  primarily for the European  market.  That acquisition
accounts for the  significant  increase in sales of these  products in 1999. 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.  However,  with the  acquisition of CFC Oeserwerk,  this product
line's volume has increased substantially because the majority of its sales were
in this  category,  representing  76.5% of its  sales for  1999.  The  Company's
strategy is to add  technology  to the  Oeserwerk  product  line and enhance the
value of these products.

International Sales

The Company maintains offices,  warehouse space, and finishing operations in the
United Kingdom, Germany, France 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 fifty-two  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, 1997,  1998,  and 1999,  net sales to
Europe,  the Pacific Rim, and other customers  outside of the United States were
$13,327,000,  $15,128,000,  and $32,762,000 and represented approximately 31.5%,
29.6%,  and 49.5%  respectively,  of the  Company's net sales.  The  substantial
increase in international sales is due to the Oeserwerk acquisition on March 19,
1999, which added $17,752,000 in international 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 the Company's  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 thirteen 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  optical  research  laboratory  in  Ventura,
California which employs two people. In the years ended December 31, 1997, 1998,
and  1999,  the  Company  spent  approximately   $1,344,000,   $1,585,000,   and
$2,022,000,  respectively,  on  research  and  development,  of which  $462,000,
$795,000, and $571,000 respectively, were for holographic research.

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 assist its customers in the  development of new
technology  and  products.  Examples  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.  A new state-of-the-art  computerized
pattern design system, Barco, has been operational since April 1999.


Marketing and Sales

As of December  31,  1999,  the Company had 37 full time sales  people who serve
over 5,000 existing customers. Sales personnel include the Senior Vice President
of Sales and  Marketing,  who is  responsible  for the Americas and Pacific Rim,
eight Product  Managers,  five Regional  Managers and  twenty-three  Field Sales
Engineers who are  compensated on a salary plus commission  basis.  The Managing
Director of the United Kingdom is responsible  for all European,  Middle Eastern
and  African  sales  except  France and  Germany.  The German  Sales  Manager is
responsible for all German domestic  sales.  There are four Product  Managers in
Germany covering  printed  products,  inmold products,  pipe and cable products,
plastic  products,  and  Infraprint  products.  The French  Regional  Manager is
responsible  for France;  and the Japanese  General  Manager is responsible  for
Japan.  The final Regional  Manager is  responsible  for the Pacific Rim (except
Japan) and South America.  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 four distributors who service small accounts
in the United  States  and  fifty-two  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 1999 were Baxter Healthcare,  Ty, Inc.,
and  Smurfit.  Sales  made to Baxter are  pursuant  to a  three-year,  exclusive
provider  contract,  which was renewed in February 1999. 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 1997,  1998,  and  1999  were
$5,460,000,  $5,829,000, and $6,136,000 respectively. Sales to Smurfit are on an
individual  purchase order basis,  which is consistent with Smurfit's  policies.
Sales to Smurfit for each of 1997,  1998 and 1999 were  $1,172,888,  $1,518,959,
and  $2,406,166  respectively.  Sales  to Ty,  Inc.  are  also on an  individual
purchase  order basis.  Sales to Ty, Inc. for each of 1997,  1998, and 1999 were
$0, $461,285, and $2,313,973, 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.  The Company  installed a second 60" wide
state-of-the-art  embosser  in 1998 that 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 1999 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 June 1999.

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.  Compliance with the registration  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  effectively  will  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 & Co. GmbH,
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  that it will be
required to make to comply with these changing laws and regulations.

Employees

As of December 31, 1999, the Company had approximately 413 full-time  employees.
These included 197 in manufacturing, 75 in support services, 74 in marketing and
sales, 31 in research and development,  and 36 in administration and management.
None of the Company's employees are 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 November 30,  1999,  the Company  entered  into an agreement  with its former
joint  venture  partner,  Applied  Holographics  PLC, to purchase the  worldwide
rights to its holographic technology. This transaction closed on January 3, 2000
for the sum of $3.6  million,  10% of which was paid in cash and the  balance of
which was represented by a nine-month, non-interest bearing note.

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  currently  utilizes  approximately  85%  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; a 4,800 square foot
warehouse,  finishing and office facility in Paris,  France; and a 99,000 square
foot  manufacturing,  warehouse,  laboratory  and office  facility in Goppingen,
Germany.  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 $245,000  related to these  matters at
December  31, 1999 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,  1999.  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, 1999, the last reported sale price of the Common Stock on
the Nasdaq National  Market was $6.125 per share. At March 20, 2000,  there were
approximately 147 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, 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
Year Ended December 31, 1999
       1st Quarter .........      11.00    8.00
       2nd Quarter .........      10.87    9.00
       3rd Quarter .........      11.00    8.37
       4th Quarter .........       8.56    6.00

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,   1999,   have   been   audited   by
PricewaterhouseCoopers LLP, independent accountants,  whose report for the years
ended  December 31, 1997,  1998 and 1999 appears  elsewhere in this report.  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,
                                             -----------------------
                                  1995      1996     1997      1998       1999
                                  ----      ----     ----      ----       ----
                                      (In thousands, except per share data)
Income Statement Data:
Net sales ..................... $34,177   $37,227   $42,319   $51,047   $66,147
Cost of sales..................  20,103    22,985    26,063    31,914    44,714
                                -------   -------   -------   -------   -------
Gross profit                     14,074    14,242    16,256    19,133    21,433
Selling, general and
  administrative...............   7,243     7,863     8,846    10,415    14,738
Research and development.......   1,109     1,304     1,344     1,585     2,022

Operating income...............   5,722     5,075     6,066     7,133     4,673
Interest expense...............     705       229       413       570     1,030
Other (income) expense.........     (12)       17       (65)      312       476
                                -------   -------   -------   -------   -------
Income before taxes
  and minority interest........   5,029     4,829     5,718     6,251     3,167
Provision for income
  taxes (1)....................   1,669     1,831     2,207     2,260       922
Minority interest in
  net income of
  CFC Applied Holographics.....     210        15       290       343         -
                                -------   -------   -------   -------   -------
Income from continuing
  operations...................   3,150     2,983     3,221     3,648     2,245
                                -------   -------   -------   -------   -------
Net income..................... $ 3,150   $ 2,983   $ 3,221   $ 3,648   $ 2,245
                                =======   =======   =======   =======   =======


Basic earnings per share
  (see Note 11 in financial
  statements).................. $  0.95   $  0.66   $  0.71   $  0.82   $  0.49
Diluted earnings per share
  (see Note 11 in financial
  statements).................. $  0.95   $  0.66   $  0.71   $  0.80   $  0.49

Other Data:
Capital expenditures........... $ 1,092   $ 3,862   $ 3,319   $ 2,050   $ 2,958
Depreciation and
  amortization.................   1,423     1,535     2,093     1,976     3,233
EBITDA (2).....................   7,157     6,578     7,934     8,454     7,430

Balance Sheet Data
(at period end):
Working capital................ $ 7,950   $10,635   $12,993   $15,306   $10,794
Total assets...................  23,269    28,206    35,498    39,280    55,362
Total debt (3).................   2,110     5,932     8,585    10,624    21,029
Stockholders' equity...........  11,953    15,078    18,567    20,971    23,745
----------------

(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, became a C-corporation.

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

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




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
sophisticated  embossable coatings for holographic  packaging and authentication
seals.  The  Company's net sales  increased  from $34.2 million in 1995 to $66.1
million in 1999. During that period, the Company realized sales dollar growth in
all of its major  product  lines.  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.
Holographic  products  grew  from  13.7% in 1995 to 15.8% of net  sales in 1999,
primarily due to authentication  sales and consumer products  packaging.  During
the period from 1995 to 1999,  printed  products  sales  declined  from 34.9% to
26.5% of net sales.  This decline as a percentage  is due to the growth in other
product lines. Sales of printed products increased from $11.9 million in 1995 to
$17.5  million in 1999,  or an  increase  of 47.1% over that  five-year  period.
Pharmaceutical  products sales declined from 22.2% in 1995 to 13.8% of net sales
in 1999 due to the growth of other product lines. Actual pharmaceutical  product
sales  increased  from  $7.6  million  in 1995 to $9.1  million  in 1999,  or an
increase of 19.7% over that five-year period.  Security products sales increased
from  9.9% in 1995 to  13.2%  of net  sales in  1999.  Specialty  pigmented  and
simulated  metal products  increased from 19.3% in 1995 to 30.7% of net sales in
1999. The Company's acquisition of Oeserwerk KG increased sales in this category
in 1999, by 76.5% or $15.5 million.

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,
                                                     ------------
                                             1997      1998      1999
                                             ----      ----      ----

Net sales.............................      100.0%     100.0%    100.0%

Cost of sales.........................       61.6       62.5      67.6
                                             ----       ----      ----

Gross profit..........................       38.4       37.5      32.4

Selling, general and administrative...       20.9       20.4      22.2
Research and development..............        3.2        3.1       3.1
                                              ---        ---       ---
Operating income......................       14.3       14.0       7.1
Interest expense and other............        0.8        1.7       2.3
                                              ---        ---       ---
Income before taxes and minority
  interest............................       13.5       12.2       4.8
                                             ----       ----       ---
Provision for income taxes............        5.2        4.4       1.4
Minority interest.....................        0.7        0.7         -
Net income............................        7.6%       7.1%      3.4%
                                              ===        ===       ===


1999 Compared to 1998

Net sales for the year ended December 31, 1999 increased  29.6% to $66.1 million
from $51.0  million for the year ended  December 31, 1998.  Holographic  product
sales  increased  17.1% to $10.4  million for the year ended  December  31, 1999
compared to $8.9 million for the year ended December 31, 1998,  primarily due to
the  increase in security  labels to prevent  counterfeiting.  Printed  products
sales decreased 4.0% to $17.5 million from $18.2 million primarily due to a slow
down in the manufactured housing market.  Pharmaceutical product sales increased
2.2% to  $9.1  million  from  $8.9  million  primarily  as a  result  of  Baxter
Healthcare's growth in Europe.  Security products (magstripe,  signature panels,
and tipping products for credit cards and intaglio  printed security  documents)
sales decreased  12.9% to $8.8 million from $10.1 million.  This decrease is due
primarily to pricing pressures in signature panel and magnetic stripes,  as well
as, a continued  contraction  in intaglio  printed  stocks and bonds as they are
being  replaced  by  electronic  forms of  record  keeping.  Sales of  specialty
pigmented and simulated  metal products  increased  314.7% to $20.3 million from
$4.9 million,  primarily due to the Company's acquisition of Oeserwerk KG, which
added $15.5 million in sales to this category.

Gross  profit for the year ended  December  31,  1999  increased  12.0% to $21.4
million  from $19.1  million for the year ended  December  31,  1998.  The gross
profit margin for the year ended December 31, 1999 decreased to 32.4% from 37.5%
for the year ended December 31, 1998. The decrease in gross margin percentage is
primarily due to lower margins in Germany and France.  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 with the exception of the recently acquired  Oeserwerk
product line.

Selling,  general and  administrative  expenses for the year ended  December 31,
1999  increased  41.5% to $14.7  million  from $10.4  million for the year ended
December 31, 1998.  This  increase is primarily  due to the increase in selling,
general  and  administrative  expenses  in  connection  with  the  Oeserwerk  KG
acquisition.  Selling,  general and  administrative  expenses for the year ended
December 31, 1999 increased as a percentage of net sales to 22.2% from 20.4% for
the year ended December 31, 1998.

Research and development expenses for the year ended December 31, 1999 increased
27.5% to $2.0 million  from $1.6  million for the year ended  December 31, 1998.
The  increase in research  and  development  expense  was  primarily  due to the
Oeserwerk research staff.  Research and development  expenses for the year ended
December 31, 1999 and December 31, 1998 as a percentage of net sales were 3.1%.

Operating  income for the year ended December 31, 1999  decreased  34.5% to $4.7
million from $7.1 million for the year ended December 31, 1998. Operating income
for the year ended  December 31, 1999  decreased as a percentage of net sales to
7.1% from 14.0% for the year ended  December 31, 1998.  This decrease was due to
lower  gross  profit as a percent  to net sales  discussed  above and  increased
selling, general, and administrative expenses.

Interest and other expenses for the year ended December 31, 1999 increased 70.8%
to $1.5 million from $882,000 for the year ended December 31, 1998. The increase
in interest expense resulted from the interest on loans  outstanding to fund the
Oeserwerk acquisition.

Income taxes for the year ended  December 31, 1999  decreased  59.2% to $922,000
from $2.3 million for the year ended  December 31, 1998.  This was primarily the
result of a decrease in the Company's operating income.

Net income for the year ended December 31, 1999 decreased  38.5% to $2.2 million
from $3.6  million for the year ended  December  31,  1998.  This  decrease  was
primarily  due to  decreased  gross  profit  as a  percent  to net  sales and an
increase in operating expenses in connection with the Oeserwerk acquisition.


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.  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  holographic packaging coatings applied to consumer
products.  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 specialty  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.

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.


Quarterly Results of Operations

The following table presents  unaudited  financial results for each of the eight
quarters in the period ended December 31, 1999. 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
                  1998    1998   1998    1998    1999    1999    1999    1999
                  ----    ----   ----    ----    ----    ----    ----    ----

Net sales ..... $12,661 $13,111 $12,464 $12,811 $13,004 $17,967 $17,504 $17,672
Cost of sales..   7,796   8,413   7,825   7,880   8,263  12,160  11,486  12,805
                ------- ------- ------- ------- ------- ------- ------- -------
 Gross profit..   4,865   4,698   4,639   4,931   4,741   5,807   6,018   4,867
Selling,
 general and
 administrative
 expense........  2,838   2,931   2,959   3,272   3,160   4,157   4,629   4,814
Operating
  income........  2,027   1,767   1,680   1,659   1,581   1,650   1,389      53
Interest
  expense.......    165     173     144      87     150     312     313     255
Other expense
  (income)......     20     (95)    115     273      73     101     151     151
                ------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
  before taxes
  and minority
  interest....... 1,842   1,689   1,421   1,299   1,358   1,237     925    (353)
Provision
  (benefit)for
  income taxes...   664     578     501     516     576     484     346    (484)
Minority interest
  in income .....   140     131      89     (17)      -       -       -       -
                ------- ------- ------- ------- ------- ------- ------- -------
Net income.......$1,038   $ 980   $ 831   $ 800   $ 782   $ 753   $ 579   $ 131
                 ======   =====   =====   =====   =====   =====   =====   =====


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....  61.6    64.2     62.8   61.5    63.5    67.7    65.6    72.5
                 ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.....  38.4    35.8     37.2   38.5    36.5    32.3    34.4    27.5
Selling,
 general and
 administrative
 expense.........  22.4    22.3     23.7   25.5    24.3    23.1    26.4    27.2
                 ------- ------- ------- ------- ------- ------- ------- -------
Operating
income...........  16.0    13.5     13.5   13.0    12.2     9.2     8.0     0.3
Interest expense.   1.3     1.3      1.2    0.6     1.2     1.7     1.8     1.4
Other expense
 (income)........   0.2    (0.7)     0.9    2.1     0.6     0.6     0.9     0.9
                 ------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
 before taxes and
 minority
 interest........  14.5    12.9     11.4   10.3    10.4     6.9     5.3    (2.0)
Provision
 (benefit)
 for income
 taxes...........   5.2     4.4      4.0    4.0     4.4     2.7     2.0    (2.7)
Minority
 interest
 in income
 (loss)..........   1.1     1.0      0.7    0.1       -       -       -       -
                  ------- ------- ------- ------- ------- ------- ------- ------
Net income ......   8.2%    7.5%     6.7%   6.2%    6.0%    4.2%    3.3%    0.7%
                    ====    ====     ====   ====    ====    ====    ====    ====

The fourth  quarter of 1999 includes a benefit for income taxes  resulting  from
net losses  from  operations,  and the  reversal  of tax  provisions  previously
provided for operations incurring net losses for the year.




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 $4,690,000,  $6,169,000 and $3,095,000 for
the years ended December 31, 1997, 1998 and 1999 respectively.  Cash at year-end
decreased  $3.5  million in the year ended  December 31, 1999 as a result of the
following factors; $4.1 million paid out as part of the acquisition of Oeserwerk
KG; and $3.0 million invested in capital expenditures.

Offsetting  these  decreases,   the  Company's  continued  efforts  to  minimize
inventories and accounts  receivables through better management;  increased cash
by $1.2  million and  $869,000,  respectively.  These  decreases  were  achieved
despite the fact that the  acquisition  of Oeserwerk KG increased the same items
by $4.4 million and $4.6 million, respectively.

The Company's capital expenditures totaled approximately $3,319,000,  $2,050,000
and  $2,958,000   for  the  years  ended  December  31,  1997,   1998  and  1999
respectively,  and included the payments for the new 50" wide printing  press in
1997.

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.

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.

On March 19, 1999, the Company  received a term loan in the amount of $9,525,000
at an annual interest rate of 5.0% used to acquire Oeserwerk.

The Company and its subsidiaries have various revolving credit arrangements that
provide for maximum  borrowings of approximately  $16,000,000 as of December 31,
1999. Under these revolving credit  arrangements,  interest is payable at either
the respective bank's prime rate (8.50% and 7.75% at December 31, 1999 and 1998,
respectively)  or 2% over the Bank of  England's  sterling  base rate (5.50% and
6.25%  December  31,  1999  and  1998,   respectively).   The  revolving  credit
arrangements  expire at various dates beginning in 2001. 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 1999, 1998 and 1997 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. Additionally 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. Additionally, the Company has been able to obtain financing on
normal commercial terms to fund acquisitions or major equipment purchases. It is
expected  that  the  $3.6  million   acquisition  of  the  worldwide  rights  to
holographic  technology  (see  Note 15) will be  funded  from  available  credit
facilities.

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,  fourth  quarter sales have been generally
greater than 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 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  Company  has  addressed  the  issues  associated  with  potential  business
disruptions  relating to the Year 2000 computer  programming  issue. The Company
formed a company-wide  Year 2000 Readiness  Project to identify and resolve Year
2000 issues.  The products of the  Company's  operating  units are not "date and
time sensitive." The project included the inventory of financial, manufacturing,
design, and other internal systems,  hardware,  equipment, and embedded chips in
industrial control instruments, and the assessment,  remediation, and testing of
those systems. All systems were inventoried,  reviewed and assessed in 1998, and
the  majority  of  systems,  which were not Year 2000  ready,  were  remedied or
replaced and tested in 1999. As part of the project, Year 2000 Readiness surveys
were sent to significant service providers,  vendors,  suppliers,  customers and
governmental  entities that were believed to be critical to business operations.
The Company prepared supplier  contingency plans based on survey responses.  The
Company experienced no major disruptions or system failures, and no problems due
to problems at customers or suppliers.  However, the Company will continue to be
diligent in identifying and addressing  potential  issues which could develop in
the coming months.

Business Acquisition

In  November  1999,  the  Company  signed a Letter  of Intent  to  purchase  the
worldwide rights from its former joint venture partner Applied  Holographics PLC
for $3.6 million,  10% of which was paid in cash at closing and the remainder of
which was  represented by a nine-month,  non-interest  bearing note. The closing
occurred on January 3, 2000.

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, 1999
and 1998 based upon  market  prices  for the same or similar  type of  financial
instrument.


<PAGE>




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                          INDEX TO FINANCIAL STATEMENTS



                                                                    Page
                                                                    ----


Report of Independent Accountants.............................       23

Consolidated Balance Sheets at December 31, 1999 and 1998.....       24

Consolidated Statements of Income for the years
  ended December 31, 1999, 1998 and 1997......................       25

Consolidated Statements of Cash Flows for the
  years ended December 31, 1999, 1998 and 1997................       26

Consolidated Statements of Stockholders' Equity
  for the years ended December 31, 1999, 1998 and 1997........       27

Notes to Consolidated Financial Statements....................       28



Financial Statement Schedule


     Schedule II --- Valuation and Qualifying Accounts


<PAGE>






                        REPORT OF INDEPENDENT ACCOUNTANTS






To the Board of Directors and Shareholders
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, 1999 and 1998, and the
results of their operations and their cash flows, for each of the three years in
the period ended  December 31, 1999, in conformity  with  accounting  principles
generally  accepted in the United  States.  In  addition,  in our  opinion,  the
financial  statement  schedule listed in the accompanying index presents fairly,
in all  material  respects,  the  information  set  forth  therein  when read in
conjunction with the related consolidated financial statements.  These financial
statements  and  financial  statement  schedules are the  responsibility  of the
Company's  management;  our  responsibility  is to  express  an opinion on these
financial  statement and financial  statement  schedules based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally accepted in the United States,  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 11, 2000


<PAGE>


                             CFC INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                             December 31,
                                                   ----------------------------
                                                        1999            1998
                                                        ----            ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.........................  $ 1,908,989     $ 5,434,595
Accounts receivable, less allowance
  for doubtful accounts of $1,209,000
  and $625,000 respectively.......................   11,263,452       7,767,135
Employee receivable...............................       37,083          35,653
Inventories (Note 1):
  Raw materials...................................    2,556,769       1,281,868
  Work in process.................................    1,576,822       1,233,287
  Finished goods..................................    6,253,805       4,919,531
                                                    -----------     -----------
                                                     10,387,396       7,434,686
Prepaid expenses and other current assets.........    1,778,477         687,506
Deferred income taxes.............................    1,437,266         868,976
  Total current assets............................   26,812,663      22,228,551
                                                    -----------     -----------
Property, plant and equipment,
  net (Notes 1 and 3).............................   26,558,177      15,323,705
Other assets......................................    1,991,158       1,727,440
                                                    -----------     -----------
Total assets......................................  $55,361,998     $39,279,696
                                                    ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt (Note 4)........  $ 7,394,335     $ 1,347,693
Accounts payable..................................    2,545,831       2,187,784
Accrued environmental liability (Note 13).........      244,937         244,937
Accrued bonus.....................................      177,809         550,944
Accrued vacation..................................      617,752         559,357
Other accrued expenses and current liabilities....    5,037,582       2,031,484
                                                    -----------     -----------
  Total current liabilities.......................   16,018,246       6,922,199
                                                    -----------     -----------
Deferred income taxes.............................    1,963,346       2,110,274
Long-term debt (Note 4)...........................   13,635,116       9,276,587
                                                    -----------     -----------
  Total liabilities...............................   31,616,708      18,309,060
                                                    -----------     -----------
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; 4,392,700 and
  4,226,469 shares issued at
  December 31, 1999 and 1998 respectively.........       43,927          42,281
Class B common stock,  $.01 par value,
  750,000 shares  authorized;  512,989 and
  518,169  shares  issued  and  outstanding
  at  December  31,  1999  and 1998
  respectively....................................        5,130           5,182
Additional paid-in capital........................   11,607,695      10,551,354
Retained earnings.................................   14,225,154      11,979,842
Accumulated other comprehensive income............     (503,445)       (216,852)
                                                    -----------     -----------
                                                     25,378,461      22,361,807
Less 353,346 and 331,346 treasury
  shares of common stock, at cost at
  December 31, 1999 and 1998 respectively.........   (1,633,171)     (1,391,171)
                                                    -----------     -----------
                                                     23,745,290      20,970,636
CONTINGENCIES (Note 13)...........................            -               -
                                                    -----------     -----------
  Total liabilities and stockholders' equity......  $55,361,998     $39,279,696
                                                    ===========     ===========


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





                             CFC INTERNATIONAL, INC.

                        CONSOLIDATED STATEMENTS OF INCOME


                                                     December 31,
                                        ---------------------------------------
                                           1999          1998          1997
                                           ----          ----          ----
Net sales ..........................    $66,147,299   $51,047,399   $42,319,147
Cost of goods sold .................     44,714,285    31,914,511    26,063,431
                                        -----------   -----------   -----------
Gross profit .......................     21,433,014    19,132,888    16,255,716
                                        -----------   -----------   -----------
Marketing and selling expenses .....      7,048,868     5,544,129     4,813,880
General and administrative
  expenses .........................      7,689,424     4,871,277     4,032,066
Research and development expenses...      2,021,555     1,585,458     1,343,678
                                        -----------   -----------   -----------
                                         16,759,847    12,000,864    10,189,624
                                        -----------   -----------   -----------
Operating income....................      4,673,167     7,132,024     6,066,092
Other expenses (income):
  Interest..........................      1,029,755       569,573       412,920
  Miscellaneous.....................        475,881       311,823       (65,183)
                                        -----------   -----------   -----------
                                          1,505,636       881,396       347,737
                                        -----------   -----------   -----------
Income before income taxes
  and minority interest.............      3,167,531     6,250,628     5,718,355
Provision for income taxes (Note 5).        922,219     2,259,607     2,207,021
                                        -----------   -----------   -----------
                                          2,245,312     3,991,021     3,511,334
Minority interest in income
  of CFC Applied Holographics.......              -      (343,029)     (290,131)
                                        -----------   -----------   -----------
Net income..........................    $ 2,245,312   $ 3,647,992   $ 3,221,203
                                        ===========   ===========   ===========

Basic earnings per share (Note 11):
  Net income per share..............       $   0.49      $   0.82      $   0.71
Diluted earnings per share (Note 11):
  Net income per share..............       $   0.49      $   0.80      $   0.71


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



<PAGE>
                             CFC INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        December 31,
                                         --------------------------------------
                                           1999         1998          1997
                                           ----         ----          ----
Cash flow from operating activities:
  Net income...........................  $2,245,312   $3,647,992    $3,221,203
   Adjustments to reconcile
    net income to net cash provided
    by operating activities:
     Depreciation and amortization.....   3,233,021    1,976,173     2,092,937

      Deferred income taxes............    (715,218)     (91,667)      210,745
      Minority interest in
       CFC Applied Holographics........           -      343,029       290,131
      Changes in assets and liabilities:
       Accounts receivable..............    868,925   (1,204,670)     (277,186)
       Inventories......................  1,248,918    1,139,256    (1,134,997)
       Employee receivable..............     (2,937)     108,367       (33,095)
       Prepaid expenses and other
        current assets.................. (1,112,672)    (178,732)       (3,104)
       Accounts payable................. (2,255,535)    (906,094)      259,602
       Accrued bonus....................   (371,779)     476,446      (124,225)
       Accrued vacation.................     58,462      254,684             -
       Accrued expenses and other
        current liabilities.............   (101,028)     603,856       187,839
Net cash provided by operating
  activities............................  3,095,469    6,168,640     4,689,850
                                         ----------   ----------    ----------

Cash flows from investing activities:
  Additions to property, plant
   and equipment........................ (2,957,717)  (2,049,902)   (3,318,819)
  Restricted cash.......................          -            -     1,510,827
  Cash invested in acquired business.... (4,090,210)           -    (1,758,327)
                                         ----------   ----------    ----------
Net cash used in investing activities... (7,047,927)  (2,049,902)   (3,566,319)
                                         ----------   ----------    ----------

Cash flows from financing activities:
  Proceeds from Oeser term loan.........  4,457,100            -             -
  Repayments of Oeser term loan......... (8,055,000)           -             -
  Proceeds from revolving credit
   agreements...........................  5,321,313      127,530     1,600,000
  Repayments of revolving credit
   agreements...........................          -            -    (1,600,000)
  Proceeds from term loans..............          -    2,625,000      (111,504)
  Repayment of term loans............... (1,053,008)  (1,991,005             -
  Repayment of IRB......................   (200,250)    (200,250)      (200,250)
  Repayment of capital lease............   (187,601)     (70,596)       (49,521)
  Minority interest payments............          -           99              -
  Proceeds from issuance of
   common stock.........................     72,049       86,369        147,556
  Distributions to stockholders.........          -   (1,090,615)             -
                                         ----------   ----------     ----------
Net cash used in (provided by)
  financing activities..................    354,603     (513,468)      (213,719)
Effect of exchange rate changes
  on cash and cash equivalents..........     72,249      (11,745)         3,555
                                         ----------   ----------     ----------
Increase (decrease) in
  cash and cash equivalents............. (3,525,606)   3,593,525        913,367

Cash and cash equivalents:
  Beginning of period.................... 5,434,595    1,841,070        927,703
  End of period..........................$1,908,989   $5,434,595     $1,841,070
                                         ==========   ==========     ==========

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


<PAGE>


                             CFC INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                               Accumu-
                                               lated
                          Addi-                other                 Total
                 Class B  itional              compre-               stock
         Common   common  paid-in   Retained   hensive  Treasury     holders'
          stock   stock   capital   earnings   income    stock       equity
          -----   -----   -------   --------   ------    -----       -------
Balance
at
12/31/96..$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
purchases.    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
12/31/97.. 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
purchases.     82                        86,281                          86,363
Exercise
of
options...     17                            88                             105
Repurchase
of
shares....                                               (1,200,458) (1,200,458)
          ------- ------ ----------- ---------- --------- --------- -----------
Balance
at
12/31/98.. 42,281  5,182  10,551,354 11,979,842 (216,852)(1,391,171) 20,970,636
Compre-
hensive
income:
Net
 income...                            2,245,312                       2,245,312
Foreign
currency
trans-
lation
adjust-
ment......                                       (286,593)             (286,593)
          ------- ------ ----------- ---------- --------- --------- -----------
Total
compre-
hensive
income....                            2,245,312  (286,593)            1,958,719
Employee
stock
purchases.     94            71,955                                      72,049
Shares
issued
for
Oeser
acqui-
sition....  1,000           876,600                                     877,600
Restricted
shares
issued....    500           107,786                                     108,286
Repurchase
of
shares....                                                  (242,000)  (242,000)
Reclassify
shares....     52    (52)                                                     -
          ------- ------ ----------- ---------- --------- --------- -----------
Balance
at
12/31/99..$43,927$5,130 $11,607,695$14,225,154$(503,445)$(1,633,171)$23,745,290
          ======= ===== =========== ========== ========= =========== ==========


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


<PAGE>


                             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") formulates,  manufactures and sells chemically complex, multi-layered
functional coatings and sophisticated  holographic  technologies.  Its customers
are primarily  companies in the consumer products and medical supply industries.
One pharmaceutical customer accounted for approximately 8, 11, and 13 percent of
net  sales  during  1999,  1998  and  1997,  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  all  foreign
operations 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 11 for  computation of basic and diluted  earnings
per share.

SFAS No. 123. The Company has 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, 1999, 1998 and 1997, 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 has adopted Statement of Financial Accounting
Standards (SFAS No. 130),  "Reporting  Comprehensive Income."  In  accordance
with SFAS No.  130,  the  Company  reports  comprehensive  income  and its
components  in the  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 $1.5 million and $1.6 million at December 31, 1999 and
1998 respectively.  Accumulated  amortization amounted to $529,954, and $370,117
at December 31, 1999 and 1998, respectively.  Amortization expense was $159,837,
$160,117  and $123,000 in 1999,  1998 and 1997,  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,
                                  -------------------------------------------
                                        1999           1998          1997
                                        ----           ----          ----
Cash paid during the year for:
  Interest paid................... $ 1,088,092      $  471,270    $  358,000
  Income taxes paid...............   2,180,755       1,511,000     2,270,000
Non-cash investing and
financing activities:
  Assumption of debt and
   issuance of securities
   for acquisition ..............    16,800,000              -     3,240,000


Note 2.  Acquisitions

On March 19,  1999,  the Company  acquired  substantially  all of the assets and
assumed  substantially  all of the liabilities of Oeserwerk KG for approximately
$20.8  million  including  cash,  issuance of commons  shares,  direct costs and
assumption of debt.  Oeserwerk  formulates and manufactures  chemically complex,
multi-layered   functional   coatings  including  printed  woodgrain   patterns,
simulated  metal  and  pigmented  products  for  the  graphics  and  bookbinding
industries.  The total purchase price,  plus  liabilities  assumed was allocated
$9.4 million to property,  plant, and equipment and $11.4 million to net current
assets.  Severance  liabilities of $0.6 million were recorded in connection with
the Oeser  acquisition  of which $0.2  million  remained  unpaid at December 31,
1999.  The Company  financed  the  acquisition  with $4.1  million  cash and the
issuance of 100,000 shares of restricted common stock. In addition,  the Company
assumed  approximately  $10.0  million of  Oeserwerk's  debt.  The Company  also
incurred approximately  $800,000 of fees associated with the acquisition,  which
is included in the $4.1 million in cash.  The results of operations of Oeserwerk
have been included in the accompanying  consolidated  financial statements since
March 19, 1999.

The following  summarized  unaudited  pro forma  financial  information  for the
twelve  months  ended  December 31, 1999 and 1998  assumes the  acquisition  had
occurred on January 1 of each year (in 000's).

                        1999      1998
                        ----      ----
Net sales .........   $69,480   $74,037
Net income ........     1,193     2,411
Earnings per share:
    Diluted .......   $  0.27   $  0.51

The pro forma data does not purport to be  indicative  of the results that would
have been  obtained had these events  actually  occurred at the beginning of the
periods presented, does not reflect any benefits for actions taken subsequent to
the acquisition, and is not intended to be a projection of future results.

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 acquisition was accounted for using the purchase method of accounting.
Approximately  $1,500,000  of the  cash  purchase  price  was  obtained  through
borrowings under the Company's revolving credit facility.


Note 3.  Property, Plant and Equipment

Property, plant and equipment consist of the following:

                                                        December 31,
                                            ----------------------------------
                                                                     Estimated
                                             1999         1998      Useful Life
                                             ----         ----      -----------
Land....................................  $ 3,233,422  $   105,670
Building................................    5,800,835    4,347,656     25 years
Machinery and manufacturing equipment...   29,071,085   21,348,256     10 years
Furniture and office equipment..........    3,941,089    2,283,529     10 years
Construction in process.................      392,831            -
                                          -----------  -----------
                                           42,439,262   28,085,111
Less - Accumulated depreciation.........  (15,881,085) (12,761,406)
                                          -----------  -----------
                                          $26,558,177  $15,323,705
                                          ===========  ===========

Note 4.  Long-Term Debt

Long-term debt consists of the following:

                                                              December 31,
                                                      -------------------------
                                                          1999           1998
                                                          ----           ----
Illinois Revenue Bonds ...........................    $ 3,395,297    $ 3,604,500
Term Loan "A" ....................................      2,543,542      2,612,285
Term Loan "B" ....................................     10,919,438           --
Convertible Subordinated Note ....................      2,333,333      2,666,667
Capital Leases ...................................        518,834           --
Note Payable .....................................      1,117,613      1,548,103
Other ............................................        201,394        192,725
                                                      -----------    -----------
                                                       21,029,451     10,624,280
Less - Amounts included in current liabilities ...      7,394,335      1,347,694
                                                      -----------    -----------
                                                      $13,635,116     $9,276,586
                                                      ===========     ==========

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.

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, 1999 and  December  31,  1998.  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  Loans.  Term  Loan  "A" is  payable  in  monthly  principal  and  interest
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
matures on November 1, 2003.

Term Loan "B" consists of a revolver and several loans,  all associated with the
Company's  acquisition  of Oeserwerk  KG (see Note 2). The  revolver  expires on
April 15,  2004,  and interest is payable  monthly at a fixed rate of 4.2%.  The
various loans have quarterly interest payable at their respective fixed interest
rates  ranging from 5.6% to 7.2%.  These loans  contain  covenants  that include
financial tests.


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.

Revolving Credit  Arrangements.  The Company and its  subsidiaries  have various
revolving   credit   arrangements   that  provide  for  maximum   borrowings  of
approximately $16 million. Interest under the credit agreements range from prime
to  2.0%  over  certain  bank  established  base  rates.  The  revolving  credit
arrangements  expire at various dates  beginning in 2001.  Under the main credit
line,  the Company is required to pay a quarterly fee for the unused  portion at
an amount  equal to .25% times the daily  average of the  unused  portion.  Such
payments in 1999, 1998 and 1997 were not significant.

The credit 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, 1999 are as follows:

2000..........................................................        7,001,963
2001..........................................................        1,446,118
2002..........................................................        1,534,755
2003..........................................................        1,147,729
2004..........................................................        3,463,365
Thereafter....................................................        5,916,687
                                                                      ---------
                                                                  $ 20,510,617

Note 5.  Income Taxes

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

                                                For Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998          1997
                                            ----          ----          ----
Current Payable:
  Federal .............................  $1,266,583    $1,742,970    $1,805,870
  State ...............................     255,097       406,356       337,215
  Foreign .............................     115,757       201,948      (146,809)
Deferred ...............................   (715,218)      (91,667)      210,745
                                         -----------   -----------  ------------
                                         $  922,219    $2,259,607    $2,207,021
                                         ===========   ===========   ===========


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
before  income  taxes  and  minority  interest  as a  result  of  the  following
differences:

                                            1999         1998          1997
                                           Actual       Actual        Actual
                                           ------       ------        ------
Statutory U.S. tax rates                    34.0%        34.0%         34.0%
Differences in rates resulting from:
  State and local taxes                      4.4%         4.3%          4.7%
  Effect of foreign tax rates               (4.6%)        0.0%          0.0%
  Other, net                                (4.7%)       (2.1%)         2.0%
                                            ------       ------        -----
Effective tax rate                           29.1%        36.2%         40.7%
                                            ======       ======        ======

Deferred tax liabilities (assets) result from the following:

                                                          December 31,
                                                      1999            1998
                                                      ----            ----
Depreciation....................................    $1,940,637      $2,041,117
Other, net......................................     (795,675)       (799,819)
Foreign net operating loss carryforward.........     (618,882)               -
                                                  -------------   -------------
                                                      $526,080      $1,241,298
                                                  =============   =============

Foreign net operating loss carryforwards may be carried forward indefinitely.

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 of these products (in millions) were as
follows:

                                                   1999      1998      1997
                                                   ----      ----      ----
Holographic Products............................   $10.4     $ 8.9     $ 5.6
Printed Products................................    17.5      18.2      16.1
Pharmaceutical Products.........................     9.1       8.9       8.1
Security Products...............................     8.8      10.1       6.8
Simulated Metal and Other
    Pigmented Products..........................    20.3       4.9       5.7
                                                   -----     -----     -----
Total...........................................   $66.1     $51.0     $42.3
                                                   =====     =====     =====

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
               -------------------------------------  ------------------------
                  1999      1998            1997         1999         1998
                  ----      ----            ----         ----         ----
United States..$33,385,384  $35,919,399  $28,991,624  $15,509,701  $15,162,865
Germany........ 15,045,505            -            -   10,772,735            -
Other Foreign   17,716,409   15,128,000   13,327,523      275,741      160,840
               -----------  -----------  -----------  -----------  -----------
               $66,147,298  $51,047,399  $42,319,147  $26,558,177  $15,323,705
               ===========  ===========  ===========  ===========  ===========

Foreign revenue is based on the country in which the customer is domiciled.


Note 7.  International Operations and Export Sales

The  Company  has  divisions  in Europe  and Asia.  The  following  data in U.S.
dollars, relative to the subsidiaries, is included in the accompanying financial
statements as of and for the year ended December 31:

Europe
------
                                      1999             1998             1997
                                      ----             ----             ----
Assets.........................   $21,845,393      $ 1,997,537     $ 1,469,032
Liabilities....................    14,686,398          410,087         255,975

Net sales......................    24,549,859        7,118,662       6,673,591
Net income/(loss)..............      (429,142)         507,238         134,736


Asia
----
                                       1999             1998             1997
                                       ----             ----             ----
Assets.........................   $   447,881      $   140,323     $   422,353
Liabilities....................       176,630           33,661         110,615
Net sales......................     1,154,671        1,024,530        1,197,662
Net (loss).....................      (117,673)        (207,228)        (222,254)

Export sales from U.S. operations amounted to $7,057,142, $6,984,808 and
$5,456,000 in 1999, 1998 and 1997, 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,  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  $97,500,  $105,000 and $86,000 of 401(K) matching  expense during
1999, 1998 and 1997, 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 1999, 1998
and 1997,  there were  5,180,  0, and 10,520  shares,  respectively,  of Class B
common stock converted into an equal number of shares of common stock.


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.  The
Company's  Board of  Directors  approved a new stock  option plan on November 6,
1999  subject to  shareholders  ratification  in April 2000.  A total of 150,000
shares of common are  reserved  for this  plan,  subject  to  anti-dilution  and
adjustment  provisions.  A total of 400,000  shares of common stock are reserved
for  issuance  under both the Plans,  subject to  anti-dilution  and  adjustment
provisions.  No options may be granted  under the initial Plan after August 15,
2005, and no options may be granted under the second Plan after November 6,
2009. 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  Executive
Performance  Plan  ("Performance  Plan") vest at 8 years  unless certain Company
performance criteria are achieved.  The range of exercise prices for  options
under the Plan at  December  31,  1999 is $5.50 to $15.25,  with a weighted
average remaining contractual life of 7.1 years.

Stock option activity in 1999, 1998 and 1997 for the Plan is summarized below:

                        1999             1998             1997
                   ---------------  ---------------  --------------
                           Average          Average         Average
                           Option           Option           Option
                   Shares   Price   Shares   Price   Shares   Price
                   ------   -----   ------   -----   ------   -----

Beginning balance 167,571  $11.87  174,783  $11.86   76,673  $10.78
Granted            89,800    9.43   38,810   11.47   99,610  $12.69
Forfeited          (9,500)  11.54  (44,354)  11.92   (1,250) $11.52
Exercised               -       -   (1,668)    .06     (250) $10.88
                  -------- ------  -------- ------  -------- ------
Ending Balance    247,871  $11.11  167,571  $11.87  174,783  $11.86
                  =======  ======  =======  ======  =======  ======
Options
exercisable
at year end        60,404  $11.52   46,768  $11.54   18,918  $10.77
                  =======  ======  =======  ======  =======  ======
Average fair
value of options
outstanding at
the end of the
year                       $ 5.70           $ 6.04           $ 6.07
                           ======           ======           ======

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. 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, 1999 is
$6.13 to $9.50, with a weighted average  remaining  contractual life of 4 years.
On November  6, 1999,  the  Company's  Board of  Directors  approved a new stock
option plan for non-employee directors of the Company (the new "DSOP"),  subject
to  shareholder's  approval  in April 2000.  A total of 50,000  shares of common
stock are reserved for issuance under the new DSOP, subject to anti-dilution and
other adjustment  provisions.  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. In addition,  non-employee  directors  re-elected to the Board at or
after the April 2000 annual meeting of shareholders will be granted an option to
purchase  2,500  shares of common  stock.  The terms of the option  granted  are
similar to the terms of the grants under the DSOP.  Stock option grants may also
be made to  non-employee  directors from time to time as determined by the Board
of  Directors,  provided  that  such  grants  are  approved  or  ratified  by an
affirmative  vote of the majority of the Company's  stockholders,  no later than
the date of the next annual meeting.


Stock option activity in 1999, 1998 and 1997 for the DSOP is summarized below:

                           1999             1998             1997
                      ---------------  ---------------  ---------------
                              Average          Average          Average
                              Option           Option           Option
                      Shares   Price   Shares   Price   Shares   Price
                      ------   -----   ------   -----   ------   -----
Beginning balance...  40,000   $9.31   40,000   $9.31   30,000   $9.50
Granted.............  10,000   $6.13        -       -   10,000   $8.75
                      ------   -----   ------   -----   ------   -----
Ending balance......  50,000   $8.67   40,000   $9.31   40,000   $9.31
                      ======   =====   ======   =====   ======   =====
Options exercisable
 at year end........  35,000   $9.39   25,000   $9.43   15,000   $9.50
                      ======   =====   ======   =====   ======   =====
Average fair value
 of options
 outstanding at
 the end of the year.          $3.93            $3.82            $4.22
                               =====            =====            =====

All options  granted under the Plan and the DSOP have  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 44%) 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 6 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:

                                                1999     1998     1997
                                                ----     ----     ----
Proforma net income (dollars in thousands)..   $2,067   $3,500   $3,031
Proforma earnings per share (basic) ........   $ 0.45   $ 0.80   $ 0.67
Proforma earnings per share (diluted) ......   $ 0.45   $ 0.78   $ 0.67

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 at December 31,
1999.  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
1999,  1998, and 1997  respectively,  9,400,  8,243, and 14,816 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
                                                   1999
                                                ----------
                                                                 Per
                                       Income      Shares       Share
                                       ------      ------       -----
Basic Earnings per Share:
Income available to
Common Stockholders.............      $2,245,312   4,546,015    $0.49

Effect of Dilutive Securities:
 Options exercisable......                             2,533
 Convertible debt.........                93,000     176,038
                                      ----------   ---------    -----
Diluted Earnings per Share.......     $2,338,312   4,724,586    $0.49
                                      ==========   =========

                                                    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
                                      ==========   =========


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,  a  partnership  formed to
manufacture  and market  holograms.  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.

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 $245,000 at December 31,
1999. The adequacy of this reserve is reviewed  periodically  as more definitive
information becomes available.

At December 31, 1999, the Company has non-cancelable  operating leases for which
future minimum rental  commitments are estimated to total $1,147,000,  including
$638,620  in 2000,  $273,960  in 2001,  $90,084 in 2002,  $77,546  in 2003,  and
$68,472  thereafter.  Rental expense under operating  leases totaled $626,850 in
1999 and $84,918 in 1998.

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

                                      Quarter Ended
           ---------------------------------------------------------------------
            12/31    09/30    06/30    03/31    12/31    09/30    06/30  03/31
            1999      1999     1999     1999     1998     1998     1998   1998
            ----      ----     ----     ----     ----     ----     ----   ----

Revenues...$17,672  $17,504  $17,967  $13,004  $12,811  $12,464  $13,111 $12,661

Gross
 profit....  4,867    6,018    5,807    4,741    4,931    4,639    4,698   4,865
Operating
 income
 (loss)....   (353)   1,389    1,650    1,581    1,659    1,680    1,767   2,027
Net
 income....    131      579      753      782      800      831      980   1,038
Basic
 earnings
 per share.   0.03     0.13     0.17     0.17     0.19     0.19     0.21    0.23
Diluted
 earnings
 per share.   0.03     0.13     0.16     0.17     0.18     0.18     0.21    0.23

Note 15.  Recent Developments

As of January 3, 2000,  the Company  entered into an agreement  with it's former
joint venture partner, Applied Holographics PLC to purchase the worldwide rights
to certain  holographic  technology for the sum of $3.6 million payable,  10% of
which  was paid in cash at  closing  and the  balance  of which  was paid with a
nine-month, non-interest bearing note.


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

None.



<PAGE>




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 2000 (the "Proxy
Statement"), is incorporated herein by reference.

Officers

Set forth below are the names of the  executive  officers and  officers,  of the
Company and its  subsidiaries,  their ages at December 31, 1999,  the  positions
they hold with the Company or its subsidiaries,  and summaries of their business
experience.  Executive officers and 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...........   49      President, Chief Operating Officer
                                             and Director
Dennis W. Lakomy................   54      Executive Vice President, Chief
                                             Financial Officer, Secretary,
                                             Treasurer and Director
Scott D. Coney..................   33      Vice President of Operations
Mark A. Lamb....................   48      Vice President and General Manager
                                             - Security Printing
William A. Herring..............   52      Senior Vice President of Research
                                             and Development
Robert E. Jurgens...............   58      Senior Vice President of Sales
                                             & Marketing
Craig D. Newswanger.............   47      Vice President of Research &
                                             Development - Holographics
Jeffrey E. Norby................   43      Vice President and Controller
Peter C. McGillivray............   55      Managing Director - United Kingdom
                                             Operations
Florian Oeser...................   39      Managing Director - German Operations
Toshio Ohnuma...................   43      Managing Director - Japan Operations

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, Executive 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 Research and  Development  of the
Company,  joined the Company in June 1996 as Vice President of Operations and on
July 1, 1999  became  head of  Research  and  Development.  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.

Scott D. Coney, Vice President of Operations, joined the Company in August 1999.
Prior to joining the Company,  Mr. Coney served from 1994 in  various management
positions  with  Stimsonite  Corporation.  Mr.  Coney  had been in the  position
of Plant  Manager  with Stimsonite  since 1997.  Mr. Coney  earned a bachelors
degree from Purdue  University  and a Masters of Business  Administration  from
Loyola University of Chicago.

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, Vice President,  Controller 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.

Florian  E.  Oeser  has  been  Managing  Director  of CFC  Oeserwerk  since  its
acquisition  on March 19, 1999.  Prior to that time, he held several  managerial
positions in  manufacturing  and research and  development  with the predecessor
Ernst Oeser and Sons since 1992.  Mr.  Oeser  holds an  undergraduate  degree in
Engineering  Packaging  and Printing from the  University  of  Stuttgart,  and a
Masters Degree in International Marketing from Reutlingen University.

Toshio Ohnuma,  Managing Director of CFC Asia-Pacific joined the Company in July
12, 1999.  Prior to joining the  Company,  Mr.  Ohnuma held  several  management
positions with Dupont Japan, ICI Japan and Kuraray. Mr. Ohnuma earned an Applied
Chemistry  degree  from  Waseda  University  and a  Masters  Degree  in  Applied
Chemistry at Waseda University Graduate School.


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 no Report on Form 8-K in the fourth quarter of 1999.

(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
          (incorporated by reference to Exhibit 10.1(e) to the Company's
          Report on Form 10-K for the year ended December 31, 1998).

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).

10.6(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).

10.6(b)   Baxter Healthcare Corporation contract renewed on February 15,
          1998,  (incorporated  by reference  to Exhibit  10.6(b) to the
          Company's  Report on Form 10-K for the year ended December 31,
          1998).

10.7      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


<PAGE>

                            CFC INTERNATIONAL, INC.

                          FINANCIAL STATEMENT SCHEDULES
                  SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS





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

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

Year Ended
December 31, 1999
Allowance
for Doubtful
Accounts................  $625    $668        $2,198    $(2,282)       $1,209

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






<PAGE>


                                   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 29,2000.

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

     Principal Executive Officer:


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


     Principal Financial Officer:


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

     Principal Accounting Officer:


     /s/ JEFFREY E. NORBY                    Vice President, 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