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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

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

                                    FORM 10-K


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

        For the Fiscal Year Ended December 31, 2001

                                       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. |X|

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,
$16,507,358  at March 11, 2002  (based on the  closing  sale price on the Nasdaq
National  Market on March 11, 2002. At March 11, 2002, the registrant had issued
and  outstanding  an aggregate  of 4,179,078  shares of Common Stock and 512,989
shares of Class B non-voting 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 2002,  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 (both
paper and debit cards). The fifth type of product 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.

In March 1999, CFC acquired German specialty chemical coatings manufacturer
Ernst Oeser & Sons KG, now called CFC Oeserwerk GmbH, together with its
wholly-owned French subsidiary, Oeser France S.A.R.L., after the acquisition
called CFC Oeser France S.A.R.L. As of December 31, 2001, the French subsidiary
is being merged into CFC Oeserwerk GmbH. References in this report to "CFC
Oeser" are to these acquired businesses.

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 that film and onto 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. On
January 3, 2000 the Company acquired from Applied Holographics PLC, its previous
joint venture partner, the worldwide rights to certain holography technology
(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
worldwide 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 of holograms used
to authenticate certain of its products. Sales of products in this market
represented approximately 17% of the Company's net sales in 2001. See "--
Holographic Products."


<PAGE>





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, 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,
stains, the cost and environmental consequences of using real wood are becoming
more significant. Sales of products in this market represented approximately 28%
of the Company's net sales in 2001. See "-- Chemical Coatings -- Printed
Products."

Another significant area for the Company's products is the pharmaceutical
industry, which includes heat transfer printing for intravenous solution bags
and other medical supplies. The Company's products provide the pharmaceutical
industry with a reliable, environmentally safe method of conveying crucial
medical information on surfaces on which printing is difficult. The Company's
coatings for this market are used on FDA-approved products and are able to
survive the sterilization process without degradation. The Company is one of the
most significant suppliers to this stable and growing market and is the sole
supplier to Baxter Healthcare Corporation for these products. Sales of products
in this market represented approximately 17% of the Company's net sales in 2001.
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, ATM cards and gift 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
on credit cards for MasterCard, VISA and Diners Club International, to enhance
the security and processing speed of transaction cards. The Company also has the
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 15% of the Company's net sales in 2001.
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. Another product offering in this area is
Infraprint, a foil that is very receptive for printing inks for label and
high-speed printers. This product category has grown as a result of the CFC
Oeser acquisition, although sales of this product line in Germany continue to
decline as the Company deemphasizes this product line in favor of more
profitable products. Sales of products in this market represented approximately
23% of the Company's net sales in 2001. See "-- Chemical Coatings -- Specialty
Pigmented and Simulated Products."

CFC's products are sold to more than 5,000 customers worldwide. The Company
generated approximately 47.8% of its 2001 revenues from sales outside of the
United States and has sales, warehousing and finishing operations in the United
Kingdom, as well as manufacturing and sales capability in Germany. The Company's
margins and operating income result from the Company's proprietary technologies
and from the Company's focus on quality. The Company received its International
Standards Organization ("ISO") 9001 registration in June 1995, and was recently
re-certified in July 2001. 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 implementation 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
to the Company in this report mean CFC International, Inc. and its consolidated
subsidiaries, unless the context requires otherwise.


<PAGE>





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 through
alliances with foreign manufacturing organizations in order to benefit from the
increasing globalization of the markets for the Company's products. In
furtherance of this strategy, in March 1999, the Company acquired CFC Oeser,
based in Germany and France, to penetrate the European market with its products.
Also, in January 2000, the Company acquired worldwide rights to manufacture and
market certain holographic technology from an English joint venture partner,
expanding rights previously limited to North America.

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. The Company uses its Visual Process Control (VPC) system to
identify and address non-productive areas, and minimize work in process between
manufacturing steps. The Company continues to focus on solving non-conformancies
in the liquid portion of the manufacturing process.

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 operations 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 include the proprietary technology NeoClad(TM) which
the Company believes offers significant advantages and improvement over vinyl
laminates in the printed products markets. The Company also has combined its
ability to print in registration with its InMold technology that permits for
decorating in the mold while a part is being molded to produce lenses for hand
held electronical devices. The Company is also in the process of introducing a
new product called Super Voidable Tapes. These tapes are used on money pouches,
and if the bags are tampered with enroute to their destination, the word "void"
appears on the tape. The Company has also developed another method to simplify
the decoration process in packaging called "cold transfer." By using cold
transfer technology, there is no need to use a stamping die, heat or high
pressure to create a transfer. Instead, the customer prints a special adhesive
onto the desired patterned area, and simply presses the cold transfer product
against the adhesive to complete the transfer.


<PAGE>





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. The Company has also introduced AEGIS(TM) (Anti-Counterfeit Encrypted
     Graphic Image System), a computer-based imaging system that offers
     significant advances and improvements over what the industry calls dot
     matrix holography.

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,
     consumer electronics,  automotive and appliance markets.  NeoClad(TM)is a
     non-PVC laminate that is more environmentally friendly than competitive
     vinyl laminates.  This product 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.  Another new  application is a combination of the Company's ability
     to print in  registration  with the Company's InMold decorating technology
     to produce lenses for hand held electronical devices.

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, birth
     certificates, gift certificates, certificates of authenticity and encoding
     numbering and applying security devices to gift cards. This product group
     also includes a new product offering called Super Voidable tapes. These
     tapes are used to seal money pouches and if the bags are tampered with
     enroute to their destination the word "void" appears on the tape.

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. Another offering in this product category
     is Infraprint, a foil that permits high-speed inkjet and laser printing to
     its surface.



<PAGE>






Markets

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


                                                      # of
                                                      CFC
                                        Selected      Sales
Market         Application              Customers     2001  Key Product Features
------         -----------              ---------     ----  --------------------

Holographic    Authentication seals,    Intel, Xerox,  17%  - Fully integrated
Products       trophies, point-of-      AquaFresh,            manufacturing
(product       purchase packaging,      Colgate, Crest,       process
authenti-      security labels          NASA Magaine,       - Authenticates
cation,                                 Foreign Government    products
high-end
eye-catching
packaging)

Printed        RTA furniture (bedroom,  Sauder         28%  - Superior lead
Products       office, entertainment    Woodworking,          times
(Engineered    centers), promotional    Hart Furniture,     - Scratch/mar
Board,         furniture (hotel and     Ameriwood, Lazy       resistant finishes
building       office), cabinets,       Boy, Cana, Inc.,      (Armortite
products,      manufactured home        National Picture      Plus(TM))
consumer       interiors, picture       Frame, Giusto       - Match to any
electronics,   frames, award plaques,   Manetti Battiloro     pattern or color
home           tropy bases, InMold      S.p.A. (Italy),     - NeoClad(TM)
decorating,    products                 Ashley Furniture,
trophies/                               Progressive Furniture
awards)

Pharmaceutial  Intravenous solution     Baxter         17%  - Used on FDA
Products       bags, drainage bags,     Healthcare,           approved products
               renal bags, syringes,    Abbott Labs,        - Passes stringent
               pipettes, tubing         Tyco Kendal,          sterilization
                                        B. Braun Medical,   - Does not offset
                                        C.R. Bard,
                                        Fresenius,
                                        Bieffe Medital

Security       Magnetic stripes,        Visa,          15%  - High coercivity
Products       signature panels,        MasterCard,           magnetic stripe is
(transaction   indent and tipping       Diners Club,          durable (exceeds
cards,         foils for credit         Discover Card,        life of card)
identifi-      cards, debit cards,      Eurocard, American  - Signature panels
cation cards)  ATM cards, access        Express, Sears,       are tamper evident
               cards, driver's          Novice, Best Buy,   - Intaglio printed
               licenses, passports,     Foreign Government    stocks, bonds,
               intaglio printed                               birth certificates
               security documents,                            and gift
               gift cards, money                              certificates
               delivery pouches                             - Gift cards
                                                            - Super Voidable
                                                              Tapes

Specialty      Beverage cases,          Rubbermaid,    23%  - Scratch/mar
Pigmented and  industrial safety        Johnson               resistant
Simulated      signs, battery cases,    Controls, Mattel,   - Chemical resistant
Metal          vent caps, spark         Rehrig Pacific,     - Low-cost
Products       plugs, dashboard         Gillette, Bic         alternative
(injection     inserts, tail lenses,                        - Variety of colors
molded and     toys, cosmetic                               - Non-toxic
extruded       containers
plastics


<PAGE>




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. Specialty coatings for
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 January 2000 the Company purchased the worldwide rights to certain
holographic technology from a former joint venture partner, Applied Holographics
PLC, for $3.6 million, and formed a new division, CFC Holographics to develop
and exploit those rights and manufacture and market holographic products to
customers around the world.

CFC 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 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.

In mid-2001 the Company consolidated its Ventura, California Optical Laboratory
into its Countryside, Illinois facility. 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 15.8%, 19.4% and 17.0% of the
Company's net sales in the years ended December 31, 1999, 2000 and 2001
respectively.


<PAGE>





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. For example, the Company supplies holograms used to authenticate
Intel Corp.'s Pentium(R) 3 and 4 microprocessors.

CFC 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. The Company has introduced HoloLam, a full-face holographic pattern
laminate for the full front and back of credit cards. The Company is introducing
HoloMag, a magnetic stripe imbedded in a holographic design with overt and
covert features.

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, 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.
Most competitors use embossers 6" to 30" wide. An example of this type of
product application is the Company's development of holographic promotional
packaging for Aquafresh Whitening Toothpaste and Colgate Total Toothpaste.

In holography, the Company developed a product that uses cold transfer
technology to simplify the decoration process of packaging. By using the cold
transfer technology, there is no stamping die, heat or high pressure to create
the transfer. Rather, the customer prints a special adhesive onto the desired
patterned area, and simply presses the cold transfer product against the
adhesive to complete the transfer.

Printed Products

The Company's printed coatings are featured on numerous consumer products
manufactured by companies such as Ashley, Cana, Guisto Manetti Batiloro SPA
(Italy), Hart and Sauder. Printed Products include Engineered Board coatings for
RTA and promotional furniture, picture frames, manufactured housing and window
treatments. These products represented approximately 26.5%, 25.6% and 28.2% of
the Company's net sales in the years ended December 31, 1999, 2000 and 2001,
respectively.


<PAGE>





Engineered  Board  Coatings.   Engineered  Board  coatings  are  functional  and
simulated patterned coatings including woodgrains,  marbles,  granites and other
patterns 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.  NeoClad(TM)  is a non-PVC
laminate that is more environmentally friendly than competitive vinyl laminates.
It also has the feel of real wood. This specially  formulated film is a durable,
thermo formable  decorating  laminate  available in woodgrain patterns and other
designs.  NeoClad  is also  protected  with the  Company's  proprietary  topcoat
technology  Armorite  Plus(TM).   The  Company's   FLEXRITE(TM)  product,  is  a
value-added  coating for  paneled  cabinet  doors and  products  with  profiled,
rounded edges.  The Company's  FLEXWRAP(TM)  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  reducing   the  need  for  another   processing
application.  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.

The Company's printed InMold products provide additional functionality and
improved productivity for precision layouts on the housings of hand held
electrical devices.


<PAGE>





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 stringent 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
approximately  800 suppliers) that meets Baxter's  stringent  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 for heat transferable coatings with Baxter,
and Baxter has a majority  market share of the  intravenous  solution  bags sold
worldwide.  This contract was renewed for three years in March 2001. The Company
also 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,  Tyco Kendal, Bieffe Medital
and  Fresenius.  It is one of the goals of CFC to  achieve  a  similar  supplier
relationship  with other  pharmaceutical  companies  that  require  transferable
coatings.

Pigmented coatings used on pharmaceutical products represented approximately
13.8%, 13.0%, 17.2% of the Company's net sales in the years ended December 31,
1999, 2000 and 2001 respectively.

Security Products

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

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. 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.


<PAGE>







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.

CFC-Northern Bank Note 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. CFC-Northern Bank Note
also prints, numbers, encodes and applies security devices and distributes
gift/debit type cards.

The Company recently has developed a unique security product called Super
Voidable tapes. Super Voidable tapes are a pressure sensitive tape that will be
used to securely seal plastic moneybags (i.e., from banks, stores and casinos).
The tapes possess special tamper-evident features that would indicate any
attempts to open the bags before they have arrived at their intended
destination. In addition, we are working diligently to expand this technology
into a family of security tapes and labels (including holographic versions) for
a variety of markets.

Security products represented approximately 13.2%, 11.6% and 15.1% of the
Company's net sales in the years ended December 31, 1999, 2000 and 2001
respectively.


Specialty Pigmented and Simulated Metal Products

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 they are used 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 30.7%,
30.3% and 22.3% of the Company's net sales in the years ended December 31, 1999,
2000 and 2001 respectively. The market for simulated metal coatings,
particularly for use in graphics, is highly competitive and has been
experiencing generally declining gross margins. Accordingly, the Company has
determined to not actively pursue low margin graphics business in this market.
Notwithstanding this decision, beginning with the CFC Oeser acquisition in March
1999, this product line's volume has increased substantially because the
majority of CFC Oeser's sales were in this category, representing 81.1% of
specialty pigmented and simulated metal sales for 2001. The Company's strategy
is to add technology to the CFC Oeser product line and enhance the value of
these products.


<PAGE>





International Sales

The Company maintains offices,  warehouse space and finishing  operations in the
United  Kingdom,  and  manufacturing,  laboratory  and  offices in  Germany.  In
addition to sales made  directly to  international  customers  by the  Company's
Regional Managers covering Europe,  and the Pacific Rim (including  Japan),  the
Company  sells to  customers  around the world  through a network  of  forty-one
distributors.  The  Company's  markets  have seen a new  globalization,  and the
Company  plans to continue its  emphasis on the  worldwide  requirements  of its
customers and expanding overseas demand.

During the years ended December 31, 1999, 2000 and 2001, net sales to Europe,
the Pacific Rim, and other customers outside of the United States were
$31,607,000, $35,249,000 and $29,625,000, respectively, and represented
approximately 47.8%, 51.7% and 47.8%, respectively, of the Company's net sales.

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, functionality and the
expansion of the market for the Company's holographic products. The recent
development of NeoClad(TM) for printed products allows the Company's customers
to use an environmentally friendly laminate that has the feel of real wood. The
Company has also developed another method to simplify the decoration process in
packaging called "cold transfer." By using cold transfer technology, there is no
need to use a stamping die, heat or high pressure to create a transfer. Instead,
the customer prints a special adhesive onto the desired patterned area, and
simply presses the cold transfer product against the adhesive to complete the
transfer.

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, Illinois that employs thirteen people. In addition, the Company
maintains an art origination studio in Countryside, Illinois, that is dedicated
to holographics and which employs four people who perform holographic research
and development. The former holographic research laboratory in Ventura,
California was consolidated into Countryside, Illinois in June 2001. In the
years ended December 31, 1999, 2000 and 2001, the Company spent approximately
$2,022,000, $2,745,000 and $2,222,000 respectively, on research and development.

Customers in the markets served by CFC are in the process 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. Recent examples include InMold products for in mold
decorating, NeoClad for furniture and home decorating products, HoloLam and
HoloMag for custom credit card runs, Super Voidable Tape products and cold
transfer technology for packaging.


<PAGE>





Marketing and Sales

As of December 31, 2001, the Company had 21 full time sales people serving over
5,000 existing customers. Sales personnel include the Vice President of Sales
and Marketing, who is responsible for the Americas, one Product Manager, four
Regional Managers and fifteen Field Sales Engineers who are compensated on a
salary plus commission basis. The Managing Director of the United Kingdom is
responsible for all United Kingdom and African sales, the German Domestic Sales
Manager is responsible for all German domestic sales, the German Export Manager
is responsible for all Europe export sales from Germany and the Middle East, and
a Regional Manager is responsible for the Pacific Rim (including Japan). The
Vice President of CFC NBN is the security product manager. 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 two distributors who service small accounts in the United
States and thirty-nine distributors who service international markets. The
Company's Japanese technical sales representative is responsible for Japan;
however, all Japanese sales are through a distributor.

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 2001 were Baxter Healthcare, Ty, Inc.
and Best Buy. Sales made to Baxter are pursuant to an exclusive provider
contract, which was renewed for three years in March 2001. 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 1999, 2000 and 2001, were
$6,136,000, $5,558,000 and $6,926,000, respectively. Sales to Ty, Inc. for each
of 1999, 2000 and 2001 were $2,314,000, $3,081,000 and $1,951,000, respectively.
Sales to Ty, Inc. are made on an individual purchase order basis. Sales to Best
Buy are made on a contract basis, prices may be adjusted similar to Baxter, and
runs through December 31, 2002. Sales to Best Buy for each of 1999, 2000 and
2001 were $181,000, $733,000 and $1,976,000, respectively.

Manufacturing and Production

Much of the Company's machinery and equipment was engineered and developed by
the Company. Technical manufacturing efficiencies allow the Company to maintain
high quality standards while producing products efficiently. The Company's
introduction of a 60" wide holographic embosser has given the Company a
competitive cost advantage over the industry norm of 6" to 30" wide
capabilities. Management of the Company believes this significantly increases
the potential applications for holographic products.

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 successfully received re-certification in July 2001.

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.


<PAGE>





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.

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. Partner customers agree to purchase not less than 80% of their
requirements from CFC and to furnish CFC with continuing long-term procurement
projections. This gives partner customers preferential scheduling, priority
research and development and personalized customer service.

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, which is currently
designated by EPA standards as Maximum Achievable Control Technology and which,
in tests observed in 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.


<PAGE>





Employees

As of December 31, 2001, the Company had approximately 373 full-time employees.
These included 191 in manufacturing, 76 in support services, 54 in marketing and
sales, 24 in research and development and 28 in administration and management.
Certain of the Company's manufacturing employees in Germany are covered by
collective bargaining agreements. The Company has never experienced a
significant work stoppage and considers its employee relations to be good.

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 75% of the
building's capacity. The Company's other principal properties are leased and
include the following: a 38,000 square foot intaglio printing facility in
Countryside, Illinois; a 10,000 square foot warehouse in Chicago Heights; a
10,000 square foot warehouse, finishing, and office facility in a suburb of
London, England; and a 109,000 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 would be able to acquire or lease additional property, if 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
the government agencies that provide for the remediation of the site, estimated
to cost approximately $40 million, and which allocates approximately 0.24% 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 0.12% of the total cost of remediation at the Fisher-Calo Site.
There is no assurance that remediation of the Fisher-Calo site can be
accomplished for $40 million. The Company has a remaining previously established
accrued liability balance of $141,000 related to these matters at December 31,
2001. 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 would not substantially exceed that amount. The adequacy of the
accrued liability is reviewed periodically as more definitive information
becomes available. In January 2002, the Company made a payment of $44,027, which
represented a progress payment for remediation of this site. The Company's
former parent has been notified it may be a potential responsible party with
respect to environmental liabilities at the Galaxy Superfund site in Elkton,
Maryland. At this time, the Company's liability, if any, can not be ascertained,
however, the Company's management believes this will not have a material effect
on the financial condition or results of operations of the Company.

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

None.


<PAGE>





                                     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." On December 31, 2001, the last reported sale price of the
Common Stock on the Nasdaq National Market was $4.00 per share. At March 11,
2002, there were approximately 134 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, 2000
       1st Quarter ...............................         7.25           4.88
       2nd Quarter ...............................         9.00           4.75
       3rd Quarter ...............................         7.75           5.25
       4th Quarter ...............................         7.00           3.06
Year Ended December 31, 2001
       1st Quarter ...............................         6.25           3.50
       2nd Quarter ...............................         5.13           4.10
       3rd Quarter ...............................         4.50           3.00
       4th Quarter ...............................         4.60           3.40


The Company intends to retain its earnings, if any, 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.


<PAGE>


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, 2001, have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose Report for the years
ended December 31, 1999, 2000, and 2001 appears elsewhere in this Report. 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,
                            --------------------------------------------------
                               1997      1998      1999     2000       2001
                               ----      ----      ----     ----       ----
                                   (In thousands, except per share data)
Income Statement Data:
Net sales ...............    $42,319   $51,047   $66,147   $68,240    $61,995
Cost of sales ...........     23,985    30,618    42,598    43,218     41,033

Selling, general and
  administrative .........     8,772     9,964    14,010    15,666     13,333
Research and development..     1,344     1,585     2,022     2,745      2,222

Depreciation and
  amortization ............    2,093     2,072     3,329     4,225      4,076

International consolidation
  expense ..................      --        --        --       768         --
                              -------   -------   -------   -------    -------
Operating income ............. 6,125     6,808     4,188     1,618      1,331

Interest expense .............   413       570     1,030     1,337      1,484
Interest income ..............    --        --        --       (58)       (10)
Other expense ................    --        17        20        --         16
Other income .................    (6)      (30)      (29)     (163)       (29)
                              -------   -------   -------   -------    -------
Income (loss) before
  taxes and minority
  interest.................... 5,718     6,251     3,167       502       (130)
Provision (benefit)
  for income taxes ........... 2,207     2,260       922       180        (55)
Minority interest in
  net income of CFC
  Applied Holographics (1) ...   290       343        --        --         --
                              -------   -------   -------   -------    -------
Income (loss)
  from continuing operations..  3,221     3,648    2,245       322        (75)
                              -------   -------  -------    -------    -------
Net income (loss) ............$ 3,221   $ 3,648  $ 2,245   $   322     ($  75)
                              =======   =======  =======   =======     ======

Basic earnings (loss)
  per share (see Note 12 in
  financial statements) ......$  0.71   $  0.82  $  0.49   $  0.07     ($0.02)
Diluted earnings (loss)
  per share (see Note 12
  in financial statements) ...$  0.71   $  0.80  $  0.49   $  0.07     ($0.02)

Other Data:
Capital expenditures .........$ 3,319   $ 2,050  $ 2,958   $ 3,758    $ 2,586
Depreciation and amortization   2,093     2,072    3,239     4,225      4,076
Adjusted EBITDA (2) ..........  8,218     8,880    7,517     6,611      5,407
Cash dividends declared (4) ..   None      None     None      None       None
Net cash provided by
  operating activities .......  4,690     6,168    3,095     2,066      7,696
Net cash used in
  investing activities ....... (3,566)   (2,050)  (7,048)   (7,290)    (2,359)
Net cash provided by
  (used in)
  financing activities ........  (214)     (513)     355     3,372     (2,182)

Balance Sheet Data:
Working capital ..............$12,993   $15,306   $15,076  $14,940    $14,822
Total assets ................. 35,498    39,280    55,362   56,401     55,197
Total debt (3) ...............  8,585    10,624    21,029   24,418     22,134
Stockholders' equity ......... 18,567    20,971    23,745   23,095     22,642

--------
(1)  The Company purchased the minority partners share on October 1, 1998.
(2)  The Company believes adjusted earnings before interest, taxes, depreciation
     and amortization, international consolidation expense, other expense, other
     income and minority interest (adjusted EBITDA) is a meaningful measurement
     for its business. It should be noted that adjusted EBITDA noted above is
     not comparable to the similarly titled measure "EBITDA" used by other
     entities. The adjusted EBITDA differs from EBITDA and should also not be
     considered as an alternative to net income or cash flows from operating
     activities, which are determined in accordance with generally accepted
     accounting principles, as an indicator of operating performance or as a
     measure of liquidity.
(3)  Includes current and long-term portions of debt.
(4)  The Company's debt agreements prohibit the payment of dividends.


<PAGE>





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. During the period 1997 to 2001, the Company has experienced, and expects
to continue experiencing, shifts in the relative sales and growth of its various
products. 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 13.4% in 1997 to 17.0% of net sales in 2001, primarily due to
authentication sales and consumer products packaging. Printed products sales
declined from 38.0% in 1997 to 28.2% of net sales in 2001. This decline as a
percentage is due to the growth in other product lines. Sales of printed
products increased from $16.1 million in 1997 to $17.5 million in 2001, or an
increase of 8.7%. Pharmaceutical products sales declined from 19.1% in 1997 to
17.2% of net sales in 2001 due to the growth of other product lines. Actual
pharmaceutical product sales increased from $8.1 million in 1997 to $10.7
million in 2001, or an increase of 32.1%. Security products sales decreased from
16.0% in 1997 to 15.1% of net sales in 2001. Sales of security products
increased from $5.2 million in 1997 to $9.4 million in 2001, an increase of
80.7%, primarily due to intaglio printing for a foreign government and entering
the gift card market. Specialty pigmented and simulated metal products sales
increased from 13.5% in 1997 to 22.4% of net sales in 2001, primarily due to the
acquisition of CFC Oeser. This acquisition occurred in March 1999 and added
total sales of $17.8 million in 1999 of which $15.5 million represented
specialty pigmented and simulated sales. Specialty pigmented and simulated metal
products sales increased from $5.7 million in 1997 to $13.9 million in 2001, or
an increase of 143.9%. The specialty pigmented and simulated metal products
sales by CFC Oeser in 2001 amounted to $11.3 million. Without the CFC Oeser
acquisition, sales in this product category would have decreased in 2001 to $2.6
million, compared to $4.8 million in 1999 and $5.7 million in 1997, a decrease
due to the Company's decision to phase out certain products with marginal
profitability.

The Company's cost of sales reflects the application of all direct product costs
and direct labor, quality control, shipping and receiving, maintenance, process
engineering and plant management. Selling, general and administrative expenses
are primarily composed of sales representatives' salaries and related expenses,
commissions to sales representatives, advertising costs and management
compensation. Research and development expenses include salaries of technical
personnel and experimental materials.

Results of Operations

The following table sets forth, for the periods indicated, certain income
statement data as a percentage of net sales for such periods:

                                  December 31,
--------------------------------------------------------------------------------
                                                      1999       2000      2001
                                                      ----       ----      ----

Net sales ..................................     100.0%      100.0%      100.0%
Cost of goods sold .........................      64.4        63.1        66.2
Selling, general and administrative ........      21.2        23.2        21.5
Research and development ...................       3.1         4.0         3.6
Depreciation and amortization ..............       5.0         6.2         6.6
International consolidation expense.........         -         1.1           -
                                                 ------      ------      -------
Operating income............................       6.3         2.4         2.1
Interest expense and other (income) expense.       1.5         1.6         2.3
                                                 ------      ------      -------
Income (loss) before taxes..................       4.8         0.8        (0.2)
Provision (benefit) for income taxes........       1.4         0.3        (0.1)
                                                 ------      ------      -------
Net income (loss)...........................       3.4%        0.5%       (0.1%)
                                                 ======      ======      =======
<PAGE>

2001 Compared to 2000

Net sales for the year ended December 31, 2001 decreased 9.2% to $62.0 million
from $68.2 million for the year ended December 31, 2000. Holographic product
sales decreased 20.3% to $10.5 million for the year ended December 31, 2001
compared to $13.2 million for the year ended December 31, 2000, primarily due to
the decrease in sales of security labels to prevent counterfeiting to a major
customer whose volume declined, and another major customer who was in an over
inventory position of packaging at the end of December 31, 2000. Printed
products sales remained even at $17.5 million for the year ended December 31,
2001 and the year ended December 31, 2000. This was primarily due to a slow down
in the manufactured housing market offset by the Company's increase in market
share. Pharmaceutical product sales increased 20.0% to $10.7 million from $8.9
million primarily as a result of an increase in sales in Europe. Security
products (magstripe, signature panels, tipping products for credit cards,
intaglio printed documents and gift cards) sales increased 18.2% to $9.4 million
from $7.9 million. This increase is due primarily to the Company's entry into
the gift card market and sales of security documents to a foreign government.
Sales of specialty pigmented and simulated metal products decreased 33.0% to
$13.9 million from $20.7 million, primarily due to the Company's decision to
phase out products with marginal profitability.

Cost of goods sold for the year ended December 31, 2001 decreased 4.7% to $41.0
million from $43.0 million for the year ended December 31, 2000. The decrease in
costs is primarily a result of lower sales volume. The cost of sales as a
percentage of net sales for the year ended December 31, 2001 was 66.2% as
compared to 63.1% for the year ended December 31, 2000. The increase in cost of
goods sold as a percentage of net sales was due to the cost of using
subcontractors on a foreign government security documents job.

Selling, general and administrative expenses for the year ended December 31,
2001 decreased 15.7% to $13.3 million from $15.8 million for the year ended
December 31, 2000. The decrease in selling, general and administrative expenses
is primarily a result of the impact of the worldwide reduction in workforce
which was initiated during the third quarter of 2000. As a result, selling,
general and administrative expenses for the year ended December 31, 2001
decreased as a percentage of net sales to 21.5% from 23.2% for the year ended
December 31, 2000.

Research and development expenses for the year ended December 31, 2001 decreased
19.1% to $2.2 million from $2.7 million for the year ended December 31, 2000.
The decrease in research and development expense was primarily due to the
closing of the Company's Optical Laboratory in Ventura, California and the
consolidation of those functions into its Countryside, Illinois facility.
Research and development expenses for the year ended December 31, 2001 and
December 31, 2000 as a percentage of net sales were 3.6% and 4.0%, respectively.

International consolidation expense for 2001 decreased to zero from $768,000 for
2000. The fiscal year end 2000 expense was the result of activities undertaken
in August of 2000 to consolidate international operations. During 2001 the
$217,000 of costs accrued as of December 31, 2000 were paid and activities to
consolidate operations had been completed under the August 2000 plan.

Total operating expense for the year ended December 31, 2001 decreased 8.9% to
$60.7 million from $66.6 million for the year ended December 31, 2000 due
primarily to the Company's cost reduction activities. Total operating expenses
for the year ended December 31, 2001 and December 31, 2000 as a percentage of
net sales were 97.9% and 97.6%, respectively, with the percentage being
relatively flat because of the sales decline in 2001.

Operating income for the year ended December 31, 2001 decreased 17.6% to $1.3
million from $1.6 million for the year ended December 31, 2000. Operating income
for the year ended December 31, 2001 decreased as a percentage of net sales to
2.1% from 2.4% for the year ended December 31, 2000.

<PAGE>

Interest expenses for the year ended December 31, 2001 increased 11.1% to $1.5
million from $1.3 million for the year ended December 31, 2000. The increase in
interest expense was a result of an increase in interest expense resulting from
interest on loans outstanding to fund the purchase of the worldwide rights in
certain holographic technology. The purchase in January 2000 included eight
months of non-interest bearing debt financing held by the seller, which was
converted to interest bearing bank debt in September 2001, which was further
offset by lower interest due to scheduled principal payments of debt.

Net income (loss) for the year ended December 31, 2001 decreased to a loss of
$75,000 from net income of $322,000 for the year ended December 31, 2000. This
decrease was due to reasons discussed previously.


2000 Compared to 1999

Net sales for the year ended December 31, 2000 increased 3.2% to $68.2 million
from $66.1 million for the year ended December 31, 1999. Holographic product
sales increased 27.0% to $13.2 million for the year ended December 31, 2000
compared to $10.4 million for the year ended December 31, 1999, primarily due to
the increase in sales of security labels to prevent counterfeiting and
eye-catching packaging. Printed products sales decreased 0.4% to $17.46 million
from $17.53 million primarily due to a slow down in the manufactured housing
market offset partially by the Company's increase in market share.
Pharmaceutical product sales decreased 2.4% to $8.9 million from $9.1 million
primarily as a result of a competitive non-FDA approved product introduced in
Latin America and the adverse affect on sales due to weaker European currencies.
Security products (magstripe, signature panels, tipping products for credit
cards and intaglio printed security documents) sales decreased 9.2% to $7.9
million from $8.8 million. This decrease is due primarily to pricing pressures
in signature panel and magnetic stripes. Sales of specialty pigmented and
simulated metal products increased 1.8% to $20.7 million from $20.3 million,
primarily due to the CFC Oeser acquisition. In 1999, sales included nine and
one-third months of Oeser sales after acquisition compared with twelve months
sales activity in fiscal 2000. The Company acquired Oeser on March 19, 1999. The
Oeser acquisition provided sales of $16.6 million in 2000 and sales of $17.8
million in 1999, primarily in specialty pigmented and simulated metal products.

Cost of goods sold for the year ended December 31, 2000 increased 1.1% to $43.0
million from $42.6 million for the year ended December 31, 1999. The cost of
goods sold as a percentage of net sales for the year ended December 31, 2000 was
63.1% as compared to 64.4% for the year ended December 31, 1999. With the Oeser
acquisition, cost of goods sold increased to $15.2 million in 2000, compared to
$14.2 million in 1999 due to a full year of Oeser manufacturing costs offset by
lower sales volume.

Selling, general and administrative expenses for the year ended December 31,
2000 increased 12.9% to $15.8 million from $14.0 million for the year ended
December 31, 1999. This increase is primarily due to the increase in selling,
general and administrative expenses attributable to having a full 12 months of
CFC Oeser activity for 2000 of $4.2 million; compared to nine and one-third
months of activity in 1999, for $3.8 million, plus adding sales and marketing
resources globally to penetrate the markets served. Selling, general and
administrative expenses for the year ended December 31, 2000 increased as a
percentage of net sales to 23.2% from 21.2% for the year ended December 31,
1999.

Research and development expenses for the year ended December 31, 2000 increased
35.8% to $2.7 million from $2.0 million for the year ended December 31, 1999.
The increase in research and development expense was primarily due to the CFC
Oeser acquisition and additional research resources at the Company's facility in
Chicago Heights, Illinois. Research and development expenses for the year ended
December 31, 2000 and December 31, 1999 as a percentage of net sales were 4.0%
and 3.1%, respectively.

<PAGE>

International consolidation expense of $768,000 in 2000 represents non-recurring
expense  incurred  for  activities   undertaken  to  consolidate   international
operations.  In August 2000 the  Company's  executive  management  approved  and
committed to a plan to substantially change the structure of and consolidate its
foreign  operations,  including an involuntary  termination plan with respect to
Company  employees  whose  jobs were  downsized.  The  change in  structure  and
consolidation resulted in workforce reductions from the closure of the Company's
Tokyo sales office,  the closure of the Company's Paris office and reductions in
workforce in the Company's locations in England,  Germany and the United States.
The  components  of the  international  consolidation  expense were  $578,000 of
severance  expenses,  $100,000 for lease termination costs and $90,000 for asset
disposals.  At December 31, 2000,  approximately $217,000 of the estimated costs
were unpaid and accrued for. These costs were paid in 2001.

Total operating expense for the year ended December 31, 2000 increased 7.5% to
$66.6 million from $62.0 million for the year ended December 31, 1999. Total
operating expenses for the year ended December 31, 2000 and December 31, 1999 as
a percentage of net sales were 97.6% and 93.7%, respectively.

Operating income for the year ended December 31, 2000 decreased 61.8% to $1.6
million from $4.2 million for the year ended December 31, 1999. Operating income
for the year ended December 31, 2000 decreased as a percentage of net sales to
2.4% from 6.3% for the year ended December 31, 1999. This decrease was due to
increased selling, general and administrative expenses and non-recurring
international consolidation expense discussed above.

Interest expense for the year ended December 31, 2000 increased 29.7% to $1.3
million from $1.0 million for the year ended December 31, 1999. The increase in
interest expense was a result of an increase in the interest on loans
outstanding to fund the CFC Oeser acquisition in March 1999.

Net income for the year ended December 31, 2000 decreased 85.7% to $322,000 from
$2.2 million for the year ended December 31, 1999. This decrease was primarily
due to an increase in cost of goods sold and an increase in operating expenses
discussed previously.

<PAGE>

Quarterly Results of Operations

The following table presents unaudited financial information for each of the
quarters in the period ended December 31, 200 1. 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
               -----------------------------------------------------------------
                  Mar.    June    Sept.   Dec.    Mar.    June    Sept.   Dec.
                   31      30      30      31      31      30      30      31
                  2000    2000    2000    2000    2001    2001    2001   2001
                  ----    ----    ----    ----    ----    ----    ----   ----

Net sales ......$ 8,258 $17,801 $17,281 $14,900 $ 6,310 $14,614 $14,621 $16,451
Cost of goods
  sold ......... 10,778  10,624  11,163  10,498  10,549   9,594  10,470  10,420
Selling, general
  and adminis-
   trative .....  4,334   4,401   3,609   3,478   3,376   3,367   3,322   3,268
Research and
  development...    741     668     705     630     630     540     555     497
Depreciation and
  amortization..    873     801   1,396   1,155   1,090     950     862   1,174
International
  consolidation
  expense ......     --      --     768      --      --      --      --      --
Total operating
  expense ...... 16,726  16,494  17,641  15,761  15,645  14,451  15,209  15,359
Operating income
 (loss) ........  1,574   1,307    (360)   (861)    665     163    (588)  1,092
Interest
  expense ......    294     243     301     497     402     408     418     256
Interest income.     --      --      --     (59)     --      --      --     (10)
Other income ...     (9)     (9)     (9)   (136)     (7)     (7)     (7)     (7)
                -------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
  before taxes..  1,247   1,073    (652) (1,162)    254    (238)   (999)    853
Provision
  (benefit)
  for income
  taxes.........    435     341    (210)   (386)     97     (91)   (347)    286
                -------- ------- ------- ------- ------- ------- ------- -------
Net income
  (loss)........  $ 812   $ 732  $ (442) $ (776)  $ 157  $ (147) $ (652)  $ 567
                ======== ======= ======= ======= ======= ======= ======= =======

Percentage of Net Sales
Net sales ......  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%  100.0%
Cost of goods
  sold .........   59.0    59.7    64.6    70.5    64.7    65.6    71.6    63.3
Selling, general
  and adminis-
  trative ......   23.7    24.7    20.9    23.3    20.7    23.0    22.7    19.9
Research and
  development ..    4.1     3.8     4.1     4.2     3.9     3.7     3.8     3.0
Depreciation and
  amortization .    4.8     4.5     8.1     7.8     6.7     6.5     5.9     7.1
International
  consolidation
  expense ......    0.0     0.0     4.4     0.0     0.0     0.0     0.0     0.0
Total operating
  expense ......   91.6    92.7   102.1   105.8    95.9    98.9   104.0    93.3
Operating income
  (loss) .......    8.4     7.3    (2.1)   (5.8)    4.1     1.1    (4.0)    6.6
Interest expense    1.6     1.4     1.7     3.3     2.5     2.8     2.8     1.6
Interest income.    0.0     0.0     0.0    (0.4)    0.0     0.0     0.0    (0.1)
Other income ...    0.0     0.0    (0.1)   (0.9)    0.0     0.0     0.0     0.0
                -------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
  before taxes..    6.8     6.0    (3.8)   (7.8)    1.6    (1.7)   (6.8)    5.1
Provision
  (benefit) for
  income taxes..    2.4     1.9    (1.2)   (2.6)    0.6    (0.6)   (2.4)    1.7
                -------- ------- ------- ------- ------- ------- ------- -------
Net income
  (loss)........    4.4%    4.1%   (2.6%)  (5.2%)   1.0%   (1.1%)  (4.4%)   3.4%
                ======== ======= ======= ======= ======= ======= ======= =======

The third and fourth quarters of 2000 and the second and third quarters of 2001
include benefits 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.


<PAGE>





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 $3,095,000, $2,066,000 and $7,696,000 for
the years ended December 31, 1999, 2000 and 2001 respectively.

The Company's capital expenditures were $2,958,000, $3,758,000 and $2,359,000
for the years ended December 31, 1999, 2000 and 2001 respectively. The Company
has no material commitments to purchase equipment.

The Company has used the following financing arrangements to fund the growth of
its business:

o        To finance expansion of its primary production facility and related
         equipment purchases, in June 1996 the Company received $4,005,000 from
         the issuance of Illinois Industrial Development Bonds. The bonds bear
         interest at a floating rate not to exceed 12% (1.70% at December 31,
         2001). Principal payments of $200,250 are due annually through 2007,
         and the principal balance of $1,802,250 will be due at maturity of the
         bonds on June 1, 2008.

o        To finance the acquisition of its CFC-Northern Bank Note business, in
         September 1997 the Company issued the seller a ten year, 6%
         subordinated note in the principal amount of $3,000,000.  The Company's
         stock price was $10.50 at the date of issuance.  The note is
         convertible into the Company's common stock at the option of the holder
         at $14.00 per share. The Company's stock has not closed at or in excess
         of $14.00 since issuance of the option, through the year end 2001.  The
         conversion feature was not "in the money" nor was conversion possible
         at the date of issuance of the note.  No beneficial conversion feature
         existed at the date of issuance.  In accordance with paragraph 12 of
         APBI No. 14, no portion of the proceeds from the issuance was accounted
         for as attributable to the conversion feature at issuance.  The Company
         had no other business relationship with the seller.

o        In connection with the refinance of its owned property in November
         1998, the Company paid off its then existing loan and mortgage and
         entered into a new five year loan and mortgage in the principal amount
         of $2,625,000, with a fixed annual interest rate of 7.05%.

o        To finance its acquisition of CFC Oeser in March 1999, the Company
         entered into a term loan, and revolving loans in the aggregate
         principal amount of $9,525,000, with annual interest rates ranging from
         5.0% to 8.0%.

o        To finance the acquisition of the CFC Applied Holographic worldwide
         technology rights in January 2000, the Company entered into a term loan
         in the amount of $3,200,000, with a fixed annual interest rate of
         9.09%. On June 1, 2001, the Company refinanced the term loan in the
         amount of $5,770,000, to finance 2001 capital expenditures at a fixed
         annual interest rate of 7.7%.

o        The Company and its  subsidiaries  have  various  revolving  credit
         arrangements  that  provide  for  maximum  borrowings  of approximately
         $31,300,000 as of December 31, 2001.  Amounts  available under these
         arrangements as of December 31, 2001 were $9.2  million.  Under these
         revolving  credit  arrangements,  interest is payable at either the
         respective  banks prime rate (4.75% and 9.50% at December  31, 2001 and
         2000,  respectively)  or in the United  States at LIBOR plus 1.5% at
         the  Company's option.  At December 31, 2001,  the Company  elected
         LIBOR and the effective  interest rate was 3.375%.  The revolving
         credit arrangements  expire at various  dates  beginning  in 2003.  The
         Company is  required  to pay a  quarterly  fee for the unused portion
         on one of its  facilities at an amount equal to .125% times the daily
         average of the unused  portion.  Those  payments in 2001, 2000 and 1999
         were not  significant.  In February 2002, the bank waived the default
         of a financial  covenant  related to pretax income for 2001.



<PAGE>





The Company believes it will continue to generate cash flow from operations and
expects to be profitable in 2002. The Company will continue to consider other
avenues to improve profitability such as further cost containment measures or
other changes in operations. 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 operations through 2002. Additionally, the
Company historically has obtained financing on normal commercial terms to fund
acquisitions and major equipment purchases, and anticipates it will be able to
continue to do so in the future if opportunities or needs arise.

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 has been primarily due to year-end depletion of inventory levels
by the Company's customers and due 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. In
previous years, sales of fourth quarter printed products for use in the
ready-to-assemble furniture market have been generally greater than third
quarter sales in each of the previous years. This was not true in 2000 because
of the general softness in the economy the company serves. Fourth quarter sales
in 2001 were bolstered by the new gift card business.

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 was effective for
all fiscal years beginning after June 15, 1998. In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities" which amended SFAS No. 133 for all fiscal quarters of fiscal years
beginning after June 15, 2000. These statements additionally required 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's adoption of these pronouncements had no impact on the Company's
results of operations, financial position or cash flows.

In June 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142) "Goodwill and Other Intangible
Assets". The statement addresses accounting and reporting for (i) intangible
assets at acquisition and (ii) for intangible assets and goodwill subsequent to
their acquisition. As it relates to the Company's goodwill and intangible assets
in existence at December 31, 2001, the statement requires that management
reassess the useful lives and amortization period of such assets. For those with
an indefinite useful life, periodic amortization is to be discontinued and an
annual impairment test is to be established beginning January 1, 2002. The
Company does not expect the adoption of this pronouncement to have a material
impact on its statement of financial condition or cash flows upon adoption, and
is currently assessing the impact that the pronouncement may have on its results
of operations in fiscal 2002 and thereafter.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. This statement is effective for fiscal years beginning
after June 15, 2002. The Company is currently assessing the impact of this new
standard.

In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001. The provisions of this statement provide a single accounting model for
impairment of long-lived assets. The Company is currently assessing the impact
of this new standard.


<PAGE>





Special Note on Forward-Looking Statements

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

The words and phrases "looking ahead," "is confident," "should be," "will,"
"predicted," "believes," "plans," "intends," "estimates," "likely," "expects"
and "anticipates" and similar expressions identify forward-looking statements.

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

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

o    The effect of continuing unfavorable economic conditions on market growth
     trends in general and on the Company's customers and the demand for the
     Company's products and services in particular;

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

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

o    Changes in raw material costs and the Company's ability to adjust selling
     prices;

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

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

o    The Company's ability to successfully identify and implement productivity
     improvements and cost reduction initiatives;

o    The Company's reliance on a small number of significant customers;

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

o    Control of the Company by a principal stockholder.


<PAGE>





The risks included here are not exhaustive. Other sections of this report may
describe additional factors that could adversely impact our business and
financial performance. Moreover, we operate in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for us to predict all such risk factors, nor can we assess the impacts
of all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.

The Company has no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after March 12, 2002 or
to reflect the occurrence of anticipated events.

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

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 their fair value
because of the short maturity of those instruments. The estimated fair value of
accounts receivable approximated its carrying value at December 31, 2001 and
2000 based upon analysis of their collectability and net realizable value. The
estimated fair value of the Company's long-term debt approximated its carrying
value at December 31, 2001 and December 31, 2000, based upon market prices for
the same or similar type of financial instrument. The Company minimizes its
exposure to the impact of fluctuation in foreign exchange rates in situations
for certain sales for products sold in Europe but manufactured in the U.S.
through the movement of production of those products to Europe. There are no
other activities of the Company where management believes exchange rates have a
material impact with respect to the underlying transactions. The Company does
not believe its exposure to changes in interest rates is significant due to the
Company's debt consisting primarily of fixed rates and terms.



<PAGE>






ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                          INDEX TO FINANCIAL STATEMENTS



                                                                  Page
                                                                  ----

Report of Independent Accountants...........................       28

Consolidated Balance Sheets at December 31, 2001 and 2000...       29

Consolidated Statements of Operations for the years
  ended December 31, 2001, 2000 and 1999....................       30

Consolidated Statements of Cash Flows for the years
  ended December 31, 2001, 2000 and 1999....................       31

Consolidated Statements of Stockholders' Equity for
  the years ended December 31, 2001, 2000 and 1999..........       32

Notes to Consolidated Financial Statements..................       33-43



Financial Statement Schedule

Schedule II --- Valuation and Qualifying Accounts...........       48



All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.




<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 on page 27 present fairly, in all material respects, the financial
position of CFC International, Inc. and its subsidiaries at December 31, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index on page 27 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 the financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, 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 our opinion.




PricewaterhouseCoopers LLP


Chicago, Illinois
February 14, 2002


<PAGE>


                             CFC INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                             December 31,
                                                      --------------------------
                                                          2001           2000
                                                          ----           ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 2,492,595   $   298,871
Accounts receivable, less
  allowance for doubtful accounts
  of $583,000 (2001) and $537,000 (2000) ............   9,205,561    10,522,503
Inventories:
    Raw materials ...................................   2,638,602     3,379,534
    Work in process .................................   1,858,677     1,442,497
    Finished goods ..................................   5,877,489     6,251,791
                                                      ------------  ------------
                                                       10,374,768    11,073,822
Prepaid expenses and other current assets............     760,081       313,871
Deferred income tax assets...........................   2,987,413     2,806,060
                                                      ------------  ------------
  Total current assets...............................  25,820,418    25,015,127
Property, plant and equipment, net...................  24,792,724    26,402,365
Other assets ........................................   4,584,264     4,983,729
                                                      ------------  ------------
  Total assets....................................... $55,197,406   $56,401,221
                                                      ============  ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.................... $ 2,762,909   $ 3,384,173
Accounts payable.....................................   3,285,526     2,563,536
Accrued compensation and benefits....................   1,165,878     1,240,811
Accrued expenses and other current liabilities.......   3,783,842     2,886,468
                                                      ------------  ------------
  Total current liabilities..........................  10,998,155    10,074,988
Deferred income tax liabilities......................   2,185,717     2,197,160
Long-term debt, net of current portion...............  19,371,422    21,033,717
                                                      ------------  ------------
  Total liabilities..................................  32,555,294    33,305,865

CONTINGENCIES (Note 13)..............................

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; 4,421,529 (2001) and 4,403,265 (2000)
  shares issued respectively.........................      44,216        44,033
Class B common stock, $.01 par value,
  750,000 shares authorized; 512,989 shares issued
  and outstanding ...................................       5,130         5,130
Additional paid-in capital...........................  11,968,980    11,784,090
Retained earnings....................................  14,472,467    14,547,001
Accumulated other comprehensive income...............  (1,557,100)   (1,513,407)
                                                      ------------  ------------
                                                       24,933,693    24,866,847
Less 482,867 and 374,746 treasury shares
  of common stock, at cost..........................   (2,291,581)   (1,771,491)
                                                      ------------  ------------
                                                       22,642,112    23,095,356
                                                      ------------  ------------
  Total liabilities and stockholders' equity........  $55,197,406   $56,401,221
                                                      ============  ============


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


<PAGE><PAGE>






                             CFC INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                      December 31,
                                          --------------------------------------
                                              2001         2000         1999
                                              ----         ----         ----

Net sales ................................$61,995,410  $68,239,646  $66,147,299
                                          -----------  -----------  -----------
Cost of goods sold ....................... 41,033,060   43,063,070   42,598,521
Selling, general and
  administrative expenses ................ 13,333,409   15,822,175   14,009,615
Research and development expenses ........  2,221,682    2,744,787    2,021,555
Depreciation and amortization expenses ...  4,075,995    4,225,365    3,329,021
International consolidation expense ......         --      768,000           --
                                          -----------  -----------  -----------
Total operating expenses ................. 60,664,146   66,623,397   61,958,712
                                          -----------  -----------  -----------
Operating income .........................  1,331,264    1,616,249    4,188,587
  Interest expense .......................  1,484,106    1,336,022    1,029,755
  Interest income ........................    (10,074)     (58,650)          --
  Other expense ..........................     15,600           --       20,101
  Other income ...........................    (29,280)    (162,959)     (28,800)
                                          -----------  -----------  -----------
                                            1,460,352    1,114,413    1,021,056
Income (loss) before income taxes ........   (129,088)     501,836    3,167,531
Provision (benefit) for income taxes .....    (54,554)     179,989      922,219
                                          -----------  -----------  -----------
Net income (loss).........................($   74,534) $   321,847  $ 2,245,312
                                          ============ ===========  ============
Basic earnings per share
  Net income (loss) per share.............($     0.02) $      0.07  $      0.49
Diluted earnings per share
  Net income (loss) per share.............($     0.02) $      0.07  $      0.49



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




<PAGE>




                             CFC INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     December 31,
                                      -----------------------------------------
                                           2001           2000          1999
                                           ----           ----          ----
Cash flow from operating activities:
  Net income (loss) .................. ($   74,534)    $  321,847    $2,245,312
    Adjustments to reconcile
      net income (loss)to net
      cash provided by operating
      activities:
       Depreciation and amortization..   4,094,095      4,225,701     3,233,021
       Deferred income taxes..........    (280,624)    (1,134,980)     (715,218)
       Changes in assets and liabilities:
         Accounts receivable..........   1,407,355        (43,514)      868,925
         Inventories..................     268,940     (1,230,074)    1,248,918
         Prepaid expenses and
          other current assets........    (405,989)     1,509,694    (1,115,609)
         Accounts payable.............     418,214         55,346    (2,255,535)
         Accrued compensation
          & benefits..................     (77,200)        12,728      (313,317)
         Accrued expenses and
           other current liabilities..   2,345,606     (1,650,641)     (101,028)
                                       ------------   ------------   -----------
Net cash provided by
  operating activities.................  7,695,863      2,066,107     3,095,469
                                       ------------   ------------   -----------

Cash flows from investing activities:
  Additions to property, plant
    and equipment...................... (2,359,388)    (3,757,789)   (2,957,717)
  Cash invested in acquired business...          -              -    (4,090,210)
  Cash paid to acquire worldwide
    holographic business rights........          -     (3,532,659)            -
                                       ------------   ------------   -----------
Net cash used in investing activities.. (2,359,388)    (7,290,448)   (7,047,927)
                                       ------------   ------------   -----------
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.........................  5,110,962      2,650,000     5,321,313
  Repayments of revolving credit
    agreements......................... (8,873,011)    (1,150,000)            -
  Proceeds from term loans.............  2,690,598      3,938,816             -
  Repayment of term loans..............   (463,706)    (1,750,577)     (811,008)
  Repayment of IRB.....................   (200,250)      (200,250)     (200,250)
  Repayment of capital lease...........          -        (42,065)     (187,601)
  Proceeds from issuance of
    common stock.......................     73,086         64,514        72,049
  Repurchase of common stock
    for treasury shares................   (520,090)      (138,320)     (242,000)
                                       ------------   ------------   -----------
Net cash provided (used in)
  by financing activities.............. (2,182,411)     3,372,118       354,603
                                       ------------   ------------   -----------
Effect of exchange rate changes
  on cash and cash equivalents.........   (960,340)       242,105        72,249
                                       ------------   ------------   -----------
Increase (decrease) in cash
  and cash equivalents.................  2,193,724     (1,610,118)   (3,525,606)

Cash and cash equivalents:
  Beginning of period..................    298,871      1,908,989     5,434,595
                                       ------------   ------------   -----------
  End of period........................ $2,492,595     $  298,871    $1,908,989
                                       ============   ============  ============

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


<PAGE>




                             CFC INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                              Accumu-
                                              lated
                                              other                 Total
              Class B  Additional             compre-               stock
       Common  common  paid-in    Retained    hensive  Treasury     holders'
        stock  stock   capital    earnings    income     stock      equity
        -----  -----   -------    --------    ------     -----      ------

Balance
at
12/31/
1998..$42,264 $5,182 $10,551,371 $11,979,842 ($216,852)($1,391,171) $20,970,636

Compre-
hen-
sive
income:

Net
income..                           2,245,312                          2,245,312

Foreign
currency
trans-
lation
adjust-
ment...                                       (286,593)                (286,593)
                                  ----------- ---------               ----------
Total
comprehensive
income.                            2,245,312  (286,593)               1,958,719
       ------- ------ ----------- ----------- --------- ------------ -----------

Employee
stock
pur-
chases.   111              71,938                                        72,049

Shares
issued
for Oeser
acquisi-
tion... 1,000             876,600                                       877,600

Restricted
shares
issued..  500             107,786                                       108,286

Repurchase
of
common
stock...                                                   (242,000)   (242,000)

Class B
converted
to common
shares...  52     (52)                                                        -
       ------- ------ ----------- ----------- --------- ------------ -----------

Balance
at
12/31/
1999...43,927   5,130  11,607,695  14,225,154 (503,445)  (1,633,171) 23,745,290

Compre-
hensive
income:

Net
income.                              321,847                            321,847

Foreign
currency
translation
adjust-
ment...                                      (1,009,962)             (1,009,962)
                                    -------- -----------             -----------
Total
comprehensive
income..                             321,847 (1,009,962)               (688,115)
       ------- ------ ----------- ----------- --------- ------------ -----------

Employee
stock
purchases  106             64,408                                        64,514

Repurchase
of common
stock...                                                   (138,320)   (138,320)

Vesting of
restricted
shares
issued...                 111,987                                       111,987
       ------- ------ ----------- ----------- --------- ------------ -----------

Balance
at
12/31/
2000...44,033   5,130  11,784,090 14,547,001 (1,513,407) (1,771,491) 23,095,356

Compre-
hensive
income:

Net
loss...                             (74,534)                            (74,534)

Foreign
currency
trans-
lation
adjust-
ment...                                          (43,693)               (43,693)
                                   ---------- -----------            -----------
Total
compre-
hensive
loss....                             (74,534)    (43,693)              (118,227)
       ------- ------ ----------- ----------- --------- ------------ -----------
Employee
stock
pur-
chases..  183             72,903                                         73,086

Repurchase
of
common
stock...                                                    (520,090)  (520,090)

Vesting
of
restricted
shares
issued...                111,987                                        111,987
       ------- ------ ----------- ----------- --------- ------------ -----------
Balance
at
12/31/
2001..$44,216 $5,130 $11,968,980 $14,472,467($1,557,100)($2,291,581)$22,642,112
      ======= ====== =========== =========== =========== ========== ===========


                                                         Class B
                                         Common          Common        Treasury
Number of shares                       Stock Issued       Stock          Stock
----------------                       ------------       -----          -----

Balance at December 31, 1998......       4,226,469       518,169        331,346
Employee stock purchase plan......          11,051             -              -
Shares issued for Oeser
  acquisition.....................         100,000             -              -
Restricted shares issued..........          50,000             -              -
Class B converted to common.......           5,180        (5,180)             -
Repurchase of common stock........               -             -         22,000
                                         ---------       --------      --------
Balance at December 31, 1999......       4,392,700       512,989        353.346
Employee stock purchase plan......          10,565             -              -
Repurchase of common stock........               -             -         21,400
                                         ---------       --------      --------
Balance at December 31, 2000......       4,403,265       512,989        374,746
Employee stock purchase plan......          18,264             -              -
Repurchase of common stock........               -             -        108,121
                                         ---------       --------      --------
Balance at December 31, 2001......       4,421,529       512,989        482,867
                                         =========       ========       =======

               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 10, 9 and 8 percent of
net sales during the years 2001, 2000 and 1999. The Company believes that it has
no  significant  concentrations  of credit  risk  based  upon its  industry  and
geographic mix of customers.

All significant intercompany transactions have been eliminated. 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. Cash equivalents consist of overnight
investments in government securities.

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.

Advertising costs. Advertising costs are expensed as incurred. Advertising costs
were $135,000, $232,000 and $219,000 in calendar years 2001, 2000 and 1999,
respectively.

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

Revenue recognition. Revenue is recognized after products are shipped and billed
to customers.

Warranty costs. Warranty costs are accrued for using estimates based upon the
previous 12 months actual experience. The Company's policy is to allow customers
a 90-day period to test the Company's products.

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 are
recorded in the other comprehensive income section of stockholders' equity.

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, 2001, 2000 and 1999, the
carrying amount of the Company's financial instruments approximates the
estimated fair value based upon market prices for the same or similar type of
financial instruments.


<PAGE>





Use 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.

Other Assets. Other assets include $1.5 million which represents the excess of
cost over the fair value of net assets of businesses acquired at December 31,
2001 and 2000, and $3.6 million represents the acquisition of certain
holographic worldwide rights at December 31, 2000. These other assets are being
amortized on a straight-line basis over periods of up to 15 years. Accumulated
amortization amounted to $1,305,913 and $895,301 at December 31, 2001 and 2000,
respectively. Amortization expense was $410,612, $365,347 and $159,837 in 2001,
2000 and 1999, respectively.

Statements of cash flows.
                            SUPPLEMENTAL DISCLOSURES

                                               For Year Ended December 31,
                                           ------------------------------------
                                               2001        2000         1999
                                               ----        ----         ----
Cash paid during the year for:
     Interest paid..........................$1,445,737  $1,336,529   $1,088,092
     Income taxes paid......................   354,274   1,005,580    2,180,755
Non-cash investing and financing activities:
     Assumption of debt and issuance of
       securities for acquisition ..........         -           -   16,800,000


Note 2.  Acquisitions

On March 19, 1999, the Company acquired substantially all of the assets and
assumed substantially all of the liabilities of Ernst Oeser & Son KG for
approximately $20.8 million including cash, issuance of common shares, direct
costs and assumption of debt. CFC Oeser 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, all of which have been paid. The Company financed the
acquisition with $4.1 million cash and the issuance of 100,000 shares of
restricted common stock, and assumed approximately $10.0 million of Ernst Oeser
& Son KG's debt. The Company also incurred approximately $800,000 of fees
associated with the acquisition. The results of operations of CFC Oeser 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 assumes the acquisition had occurred on
January 1, 1999.

                                      1999
                 Net sales..............................  $69,480,000
                 Net income.............................    1,193,000
                 Earnings per share:
                     Diluted............................  $    0.27

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 and does not reflect any benefits for actions taken subsequent
to the acquisition.


<PAGE>





During 2000 the Company acquired the worldwide rights of the holographic
technology of its former joint venture partner Applied Holographics PLC for $3.6
million, financed by a nine-month non-interest installment note issued by the
Company and $400,000 in cash. The note was paid in September 2000. The rights
are being amortized on a straight-line basis over a 15-year period.

Note 3.  Property, Plant and Equipment

Property, plant and equipment consist of the following:

                                                      December 31,
                                          --------------------------------------
                                                                      Estimated
                                              2001           2000    Useful Life
                                              ----           ----    -----------

Land..................................... $ 3,322,827   $ 2,481,650
Building.................................   6,289,799     6,125,560    25 years
Machinery and manufacturing equipment....  33,582,283    32,580,025    10 years
Furniture and office equipment...........   4,208,957     4,199,716    10 years
Construction in process..................     274,300       532,599
                                         ------------   -----------
                                           47,678,166    45,919,550
Less - Accumulated depreciation.......... (22,885,442)  (19,517,185)
                                         ------------   -----------
                                          $24,792,724   $26,402,365
                                          ===========   ============

Note 4.  Long-Term Debt and Other Liabilities

Long-term debt consists of the following:

                                                      2001               2000
                                                      ----               ----
Revolving credit arrangements ..............       $   750,000       $ 1,500,000
Illinois Revenue Bonds .....................         3,052,416         3,205,000
Term Loan "A" ..............................         2,423,518         2,492,762
Term Loan "B" ..............................        13,263,845        13,270,685
Convertible Subordinated Note ..............         1,666,666         2,000,000
Capital Leases .............................              --             224,692
Note Payable ...............................           387,026           774,052
Other ......................................           590,992           950,699
                                                   -----------       -----------
                                                    22,134,463        24,417,890
Less - Current portion .....................         2,762,909         3,384,173
                                                   -----------       -----------
                                                   $19,371,422       $21,033,717
                                                   ===========       ===========

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 reset
weekly, the maximum annual rate being 12%. The annual rate was 2.74%, 4.24% and
3.65% for 2001, 2000 and 1999. Annual principal payments of $200,250 are
required through 2007, with the principal balance payable on June 1, 2008.
Interest is paid monthly.


<PAGE>







Term Loans. Term Loan "A" is payable in monthly principal and interest (at
7.05%) installments of $20,431 with a final principal payment due November 1,
2003.

Term Loan "B" consists of a revolver and several loans, associated with the
Company's acquisition of CFC Oeser. The revolver expires on April 15, 2004, and
interest is payable monthly at a fixed rate of 6.0%. The various loans have
quarterly interest payable at their respective interest rates ranging from 5.0%
to 7.0%. These loans contain certain financial covenants.

Also included in Term Loan "B" are proceeds of a $3.2 million note issued on
September 6, 2000 associated with the Company's purchase of the worldwide rights
to market holographic products. The note was refinanced in the amount of $5.8
million on June 1, 2001 to fund capital expenditures. This loan is payable in
monthly principal installments of $60,138 plus interest at a fixed rate of
7.70%. This portion of Term Loan "B" matures on September 18, 2005.

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 nine annual principal payments of $333,333 commencing in September 1998.
The Note was issued to the seller in the Company's acquisition of Northern Bank
Note Company. 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 has been
callable, since September 3, 2000, at premiums starting at 102% of face value
and declining thereafter. In addition, the Note is callable if the Company's
stock price exceeds 110% of the conversion price for twenty consecutive days.
The Company's stock price since the date of issuance of the debt has been below
the conversion price and no beneficial conversion feature existed at the date of
issuance, thus no portion of the proceeds from issuance was accounted for as
attributable to the conversion feature. The Note agreement contains covenants
that include certain financial tests, including restrictions on indebtedness.

Note Payable. 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 in the amount of $1,548,103 on a quarterly basis over 4 years
for its minority interest.

Revolving Credit Arrangements. The Company and its subsidiaries have various
revolving credit arrangements that provide for maximum borrowings of
approximately $31.3 million. Amounts available under these arrangements as of
December 31, 2001 were $9.2 million. Interest under the credit agreements range
from prime to 2.0% over certain bank base rates. The revolving credit
arrangements expire at various dates beginning in 2003 through 2008. Under the
main credit line, the Company is required to pay a quarterly fee for the unused
portion at an amount equal to .125% times the daily average of the unused
portion. Such payments in 2001, 2000 and 1999 were not significant.

The credit agreements contain covenants which, among other things, restrict new
indebtedness and dividend declarations and include a requirement of a minimum of
$1,000 of pretax income. The credit agreement also requires the Company to
maintain a compensating balance and contains a subjective acceleration clause.
In February 2002 the bank waived the default of the financial covenant related
to annual pretax income for 2001. The borrowings are collateralized by
substantially all of the Company's assets.


<PAGE>





Other. Other long-term debt is primarily the balance of a settlement of a sales
tax dispute, payable in monthly installments of $12,313 through December 31,
2005, with interest at 9.0%.

Aggregate minimum principal payments for long-term debt as of December 31, 2001
are as follows:

2002..........................................................       $2,762,909
2003..........................................................        4,955,784
2004..........................................................        6,657,593
2005..........................................................        1,524,031
2006..........................................................        4,174,322
Thereafter....................................................        2,059,692
                                                               -----------------
                                                                    $22,134,331
                                                               =================

Note 5.  Income Taxes

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

                                       For Year Ended December 31,
                                  2001               2000               1999
                                  ----               ----               ----
Current:

 Federal ..............       $   353,195        $   724,332        $ 1,266,583
 State ................            88,937            153,576            255,097
 Foreign ..............          (140,564)           437,062            115,757

Deferred ..............          (356,122)        (1,134,981)          (715,218)
                              -----------        -----------        -----------
                              ($   54,554)       $   179,989        $   922,219
                              ============       ============       ============

The income tax provision (benefit) differs from the amounts of income tax
determined by applying the applicable U.S. statutory federal income tax rate to
income (loss) before taxes as a result of the following differences:

                                                2001         2000         1999
                                               Actual       Actual       Actual
                                               ------       ------       ------
Statutory U.S. tax rate .................      (34.0%)       34.0%        34.0%
Differences resulting from:
  State and local taxes .................       (4.8%)        4.8%         4.4%
  Effect of foreign taxes ...............       (4.5%)       (4.8%)       (4.6%)
  Other, net ............................        1.0%         2.0%        (4.7%)

Effective tax rate ......................      (42.3%)       36.0%        29.1%
                                               =====         ====         ====


Deferred tax liabilities (assets) result from the following:

                                                          December 31,
                                                      2001            2000
                                                      ----            ----
Depreciation....................................    $2,185,718      $2,199,995
Foreign net operating loss carryforward.........    (2,058,626)     (1,547,639)
Other primarily reserves and accruals...........      (928,788)     (1,261,256)
                                                  -------------   -------------
                                                     ($801,696)      ($608,900)
                                                  =============   =============

The foreign net operating loss carryforwards (NOL's) are primarily related to
income taxation in Germany and may be carried forward to offset future taxable
income in Germany. At present, the unused NOL's have no expiration dates.


<PAGE>





Note 6.  Business Segment and International Operations

The Company and its subsidiaries operate in a single business segment, the
formulating and manufacturing of chemically-complex, multi-layered functional
coatings within this business segment, the Company produces five primary coating
products, with annual sales of these products (in millions) as follows:

                                                  2001      2000      1999
                                                  ----      ----      ----
Holographic Products............................  $10.5     $13.2     $10.4
Printed Products................................   17.5      17.5      17.5
Pharmaceutical Products.........................   10.7       8.9       9.1
Security Products...............................    9.4       7.9       8.8
Simulated Metal and Other
    Pigmented Products..........................   13.9      20.7      20.3
                                                   ----      ----      ----
Total...........................................  $62.0     $68.2     $66.1
                                                  =====     =====     =====


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

                                Sales                        Net Fixed Assets
                -------------------------------------  -------------------------
                    2001         2000         1999         2001         2000
                    ----         ----         ----         ----         ----

United States   $32,369,480  $32,990,961  $34,540,298  $15,389,175   $16,209,501
Europe           20,220,510   27,407,372   24,549,859    9,403,549    10,161,791
Other Foreign     9,405,420    7,841,313    7,057,142            -        31,073
                -----------  -----------  -----------  -----------   -----------
                $61,995,410  $68,239,646  $66,147,299  $24,792,724   $26,402,365
                ===========  ===========  ===========  ===========   ===========


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 until April 2001 in 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
                                    2001             2000             1999
                                    ----             ----             ----
Assets.......................    $14,458,243     $ 15,653,695     $ 21,845,393
Liabilities..................      9,938,719       12,021,024       14,686,398
Net sales....................     20,220,510       27,407,372       24,549,859
Net (loss)...................     (1,032,213)        (839,484)        (429,142)

Asia
                                    2001             2000             1999
                                    ----             ----             ----
Assets........................   $         -     $    914,879     $    447,881
Liabilities...................             -          179,304          176,630
Net sales.....................       536,343        1,225,358        1,154,671
Net income (loss).............        17,000         (382,013)        (117,673)

Export  sales  from U.S.  operations  amounted  to  $9,405,420,  $7,841,313  and
$7,057,142 in 2001, 2000 and 1999, respectively.


<PAGE>





Note 8.  Profit Sharing Plan

The Company maintains a profit sharing 401(K) plan for the benefit of all
eligible employees in the United States, as defined under the plan agreement.
Eligible employees may 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 contribution. As a part of the 401(K) the Company can determine a
discretionary profit sharing amount. The Company had no discretionary profit
sharing expense for the three years presented. The Company incurred
approximately $139,400, $174,100 and $97,500 of 401(K) matching expense during
2001, 2000 and 1999, 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 there
were 5,180 shares of Class B common stock converted into shares of common stock,
and there were no conversions in 2001 or 2000.

Note 10.  Stock Option Plans

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

Stock Option Plan. The Stock Option Plan consists of two arrangements - the
"1995 Plan" and the "2000 Plan." A total of 400,000 shares of common stock are
reserved for issuance under the Plans, subject to anti-dilution and adjustment
provisions. No options may be granted after August 15, 2005 (1995 Plan), or
after November 6, 2009 (2000 Plan). If an option expires or is terminated or
cancelled unexercised, the shares related to such options are returned to total
shares reserved for issuance.

Options granted under the Plan have a term of ten years and generally vest over
a period of four years.


<PAGE>





Information on stock options under the Stock Option Plan is summarized as
follows for the years 1999 to 2001:

                                                         Price Per Share
                                                    ----------------------------
                                                                       Weighted
                                      Shares           Range            Average
                                      ------           -----            -------

Balance, December 31, 1998            167,571       $10.87 - $15.25      $11.86
     Granted.......................    89,800       $ 8.50 - $10.70      $ 9.43
     Forfeited.....................    (9,500)      $ 9.00 - $15.25      $11.54
                                     ---------      ---------------      -------

Balance, December 31, 1999            247,871       $ 8.50 - $15.25      $11.11
     Granted.......................    92,000       $ 5.25 - $ 6.94      $ 6.28
     Cancelled.....................  (178,777)      $ 5.50 - $12.75      $ 9.38
     Forfeited.....................   (11,000)      $ 5.38 - $12.50      $ 9.60
                                     ---------      ---------------      -------

Balance, December 31, 2000            150,094       $ 5.25 - $15.25      $ 7.45
     Granted.......................    68,500       $ 3.85 - $ 4.20      $ 3.98
     Forfeited.....................    45,948)      $ 4.20 - $10.88      $ 8.66
                                     ---------      ---------------      -------

Balance, December 31, 2001            172,646       $3.85 -  $15.25      $11.49

No options were cancelled or exercised in 1999 to 2001 except as indicated in
the table above.

The characteristics of outstanding and of exercisable stock options under the
Stock Option Plan at December 31, 2001 were as follows:

                                  Outstanding                      Exercisable
                       ----------------------------------    -------------------
                                            Weighted                   Weighted
Exercise Prices        Shares      Life     Avg. Price       Shares   Avg. Price
---------------        ------      ----     ----------       ------   ----------
$ 3.85 - $ 6.00        77,279      9.7      $ 4.07           5,805      $ 3.50
$ 6.01 - $10.00        38,054      8.7      $ 8.88          15,250      $ 8.98
$10.01 - $15.25        57,313      5.7      $12.33          36,950      $12.35

The weighted average Black-Scholes value of options granted under the Stock
Option Plan during 1999, 2000 and 2001 was $3.93, $3.93 and $4.00. The weighted
average remaining contractual lives at December 31, 1999, 2000 and 2001 was 7.1
years, 7.6 years and 8.0 years.


<PAGE>





Director Stock Option Plan. The Company's Director Stock Option Plan consists of
two arrangements - the "1995 Plan" and the "2000 Plan". A total of 50,000 shares
of common stock are reserved for issuance under each of the 1995 and 2000 Plans,
subject to anti-dilution and other adjustment provisions. Options granted have a
term of ten years subject to earlier termination if the optionee's service as a
director terminates. Options granted become exercisable at 25% of the shares
each successive twelve-month period after the date of the grant.

Information on stock options under the Company's Directors Stock Option Plan is
summarized below:

                                                         Price Per Share
                                                    ----------------------------
                                                                        Weighted
                                      Shares             Range           Average
                                      ------             -----           -------

Balance, December 31, 1998            40,000         $8.75 - $9.50      $9.31
     Granted........................  10,000         $5.81              $5.81
                                      ----------     --------------     ------

Balance, December 31, 1999            50,000         $5.81 - $9.50      $8.67
                                      ----------     --------------     ------

Balance, December 31, 2000            50,000         $5.81 - $9.50      $8.67
     Granted........................  40,000         $4.87              $4.87
                                      ----------     --------------     -------

Balance, December 31, 2001            90,000         $4.87 - $9.50      $6.95
                                      ==========     ==============     =======

No options were cancelled, forfeited or exercised in 1999 to 2001.

The characteristics of outstanding and of exercisable stock options under the
Directors Stock Option Plan at December 31, 2001 were as follows:

                                  Outstanding                      Exercisable
                       ----------------------------------    -------------------
                                            Weighted                   Weighted
Exercise Prices        Shares      Life     Avg. Price       Shares   Avg. Price
---------------        ------      ----     ----------       ------   ----------
$4.87                  40,000      9.2      $4.87                 -     $   -
$5.81                  10,000      8.4      $5.81             2,500     $5.81
$8.75                  10,000      5.6      $8.75            10,000     $8.75
$9.50                  30,000      3.9      $9.50            30,000     $9.50

The weighted average Black-Scholes value of options granted under the Directors
Stock Option Plan during 1999, 2000 and 2001 was $3.93, $3.93 and $4.00. The
weighted average remaining contractual lives at December 31, 1999, 2000 and 2001
was 7.1 years, 7.6 years and 7.8 years.

The weighted average Black-Scholes values of options granted under the Plans and
the Stock Option Plan are estimated at the date of 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
rates based on U.S. government strip bonds on the date of grant with maturities
equal to the expected option term (5.16% to 6.74%). The expected lives were
determined to be 6 years for employee options and 9.5 years for options under
the Performance Plan and dividends are assumed to be zero.


<PAGE>





Options granted under the Directors Stock Option Plan and the Stock Option Plan
have exercise prices equal to the fair market value of the shares on the date of
grant.

The Company applies APB 25 and related Interpretations in accounting for the
aforementioned Plans. Accordingly, no compensation cost has been recognized for
the Stock Option Plan or the Director Stock Option Plan. Had compensation cost
for the Company's Plans been determined based upon the fair value 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:

                                                2001       2000       1999
                                                ----       ----       ----

Pro-forma net income (loss) (dollars in 000's) ($244)      $349      $2,067
Pro-forma earnings (loss) per share (basic)    ($0.05)     $0.08     $0.45
Pro-forma earnings (loss) per share (diluted)  ($0.05)     $0.08     $0.45

Note 11.  Employee Stock Purchase Plan

In August 1995, the Company's stockholders approved an Employee Stock Purchase
Plan (the "Stock Purchase Plan") which is administered by a committee appointed
by the Board of Directors. Pursuant to the Stock Purchase Plan, 100,000 shares
of common stock are reserved for issuance, which may be offered for sale to
employees through annual options to be granted in the five-year period
commencing January 1, 1996. During 2001, 2000 and 1999 respectively, 18,264,
10,565 and 11,051 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 purchase 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 12.  Earnings (Loss) Per Share

                                                  2001
                                     ------------------------------
                                       Income/               Per
                                       (Loss)     Shares    Share
Basic
Earnings
per Share:

Income (loss)
available to
Common Stockholders..................($74,534)   4,525,531   ($0.02)

Effect of Dilutive Securities:
     Options exercisable.............                  988
                                     ---------   ---------   -------
                                     ($74,534)   4,526,519   ($0.02)
                                     ========    =========   ======

                                                  2000
                                     ------------------------------
                                       Income/               Per
                                       (Loss)     Shares    Share

Income (loss)
available to
Common Stockholders..................$321,539   4,568,318    $0.07

Effect of Dilutive Securities:
     Options exercisable.............               3,961
                                    ---------   ---------   -------
                                     $321,539   4,572,279    $0.07
                                     ========   =========   ======

                                                  1999
                                     ------------------------------
                                       Income/               Per
                                       (Loss)     Shares    Share
Income (loss)
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
                                     ---------- ---------   ------
                                   $2,338,312   4,724,586   $0.49
                                     ========    =========  ======





<PAGE>





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 0.24% (or .12% 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 $140,937 at December 31,
2001. The adequacy of this reserve is reviewed periodically as more definitive
information becomes available. The Company made a payment of $44,027, which
represented a progress payment for remediation of this site in January 2002. The
Company's former parent has been notified it may be a potential responsible
party with respect to environmental liabilities at the Galaxy Superfund site in
Elkton, Maryland. At this time, the Company's liability, if any, can not be
ascertained, however, the Company's management believes this will not have a
material effect on the financial statements.

During fiscal 2000, the Company reached a settlement with the State of Illinois
relating to sales tax owed on purchases for the period 1992 to 1999. Pursuant to
the terms of the settlement, the Company agreed to pay $738,616 plus interest
evenly over a five-year period. Accruals for this matter had been established in
prior years and under the terms of the settlement such accruals were
reclassified to long-term liabilities.

At December 31, 2001, the Company has non-cancelable operating leases for which
future minimum rental commitments are estimated to total $4,565,050, including
$597,083 in 2002, $494,232 in 2003, $468,394 in 2004, $383,792 in 2005, and
$1,885,685 thereafter. Rental expense under non-cancelable operating leases
totaled $735,863 in 2001, $889,039 in 2000 and $626,850 in 1999.

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

                                       Quarter Ended
                ---------------------------------------------------------------
                  Dec.   Sept.   June     Mar.    Dec.   Sept.   June     Mar.
                   31      30      30      31      31      30      30      31
                  2001    2001    2001    2001    2000    2000    2000    2000
                  ----    ----    ----    ----    ----    ----    ----    ----

Revenues....... $16,451 $14,621 $14,614 $16,310 $14,900 $17,281 $17,801 $18,258

Cost of
 goods sold....  10,420  10,470   9,594  10,549  10,498  11,163  10,624  10,778

Operating
 income (loss).   1,092    (588)    163     665    (861)   (360)  1,286   1,553
Net income
 (loss)........     567    (652)   (147)    157    (776)   (442)    732     812
Basic earnings
 (loss) per
 share.........    0.13   (0.14)  (0.03)   0.03   (0.17)  (0.10)   0.16    0.18
Diluted earnings
 (loss)
 per share.....    0.13   (0.14)  (0.03)   0.03   (0.16)  (0.10)   0.15    0.18

The third and fourth quarters of 2000 and the second and third quarters of 2001
include benefits 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.

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 2002 (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, 2001, 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.........    66    Chairman of the Board of Directors,
                                   Chief Executive Officer

Richard L. Garthwaite..    51    President, Chief Operating Officer and Director

Dennis W. Lakomy.......    56    Executive Vice President, Chief Financial
                                    Officer, Secretary, Treasurer and Director

Scott D. Coney.........    35    Vice President of Operations

William A. Herring.....    54    Senior Vice President of Research
                                   and Development, Acting Managing Director
                                   Europe

Edward Zelasko.........    44    Vice President, Sales North America

Mark A. Lamb...........    50    Vice President and General Manager - Holography


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.


<PAGE>





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.

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.

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.  On December 31, 2001, Mr.
Herring  became  Acting  Managing  Director of CFC Europe.  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.

Edward Zelasko, Vice President,  Sales North America, joined the Company in June
25, 1990 as a Technical Sales Representative. Mr. Zelasko has held several sales
management  positions with the Company. Mr. Zelasko earned a Bachelor of Science
in Commerce,  and a Masters of Business  Administration in Marketing from DePaul
University of Chicago, Illinois.

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. In 2001, Mr. Lamb also became  responsible  for the
Company's holographic sales. Mr. Lamb holds a B.S. Degree from Northern Illinois
University  and  graduated  from the Printing  Industry of  America's  Executive
Development Program.



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

William G. Brown, a director of the Company since 1995, currently is a member of
Bell, Boyd & Lloyd LLC, Chicago, Illinois, which was retained by the Company to
provide services in fiscal 2001.

<PAGE>



                                     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
          10.5     Stock Option Agreement with Roger Hruby
          10.6     2000 Stock Option Plan of the Company
          10.7     2000 Director's Stock Option Plan of the Company

(b)      Reports on Form 8-K
         The Company filed no Report on Form 8-K in the fourth quarter of 2001.

(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).



<PAGE>


          10.1(f)   Third Amendment to Amended and Restated Loan Agreement dated
                    July 6, 2000 between the Company and LaSalle Bank National
                    Association, and related documents (incorporated by
                    reference to Exhibit 10.1(a) to the Company's Quarterly
                    Report on Form 10-Q for the quarterly period ended
                    September 30, 2000).

          10.1(g)   Fourth Amendment to Amended and Restated Loan Agreement
                    dated September 5, 2000 between the Company and LaSalle Bank
                    National Association, and related documents (incorporated by
                    reference to Exhibit 10.1(b) to the Company's Quarterly
                    Report on Form 10-Q for the quarterly period ended
                    September 30, 2000).

          10.1(h)   Amendment to Reimbursement Agreement dated July 6, 2000
                    between CFC Europe GmbH (f/k/a Sesvenna 20.
                    Vermogensverwaltungs GmbH) and LaSalle Bank National
                    Association, and related documents (incorporated by
                    reference to Exhibit 10.1(c) to the Company's Quarterly
                    Report on Form 10-Q for the quarterly period ended September
                    30, 2000).

          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      2000 Stock Option Plan of the Company  (incorporated  by
                    reference to Appendix A to the Company's  Definitive
                    Proxy Statement filed with the Commission on March 24, 2000,
                    Commission File No. 0-27222).

          10.7      2000 Director Stock Option Plan of the Company (incorporated
                    by reference to Appendix B to the Company's  Definitive
                    Proxy Statement filed with the Commission on March 24, 2000,
                    Commission File No. 0-27222).

          10.8(a)   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).

          10.8(b)   CFC Applied  Holographics  Joint  Venture  Termination
                    Agreement  dated  November  29, 1999 among the  Company,
                    CFC Management, Inc., Applied Holographics PLC, and Applied
                    Holographics Inc., filed herewith.

          10.9      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); Contract renewal agreement dated as of
                    February 15, 1998 (incorporated by reference to Exhibit
                    10.6 to the Company's Report on Form 10-K for the year
                    ended December 31, 1998); Contract renewal agreement
                    dated as of March 1, 2001 (filed herewith).

          10.10     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 Independent Accountants

All other exhibits are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.




<PAGE>










                             CFC INTERNATIONAL, INC.


                          FINANCIAL STATEMENT SCHEDULES
                  SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS



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

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

Year Ended
 December 31, 2000
 Allowance for Doubtful
 Accounts..................  $1,209   $    -      $1,708     ($2,380)    $  537

Year Ended
 December 31, 2001
 Allowance for Doubtful
 Accounts..................  $  537   $    -      $1,258     ($1,212)    $  583

-------------------------
* Deductions represent credit memos and amounts written off.


All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.







<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 18, 2002.


                                       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 18, 2002.

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

Principal Executive Officer:


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


Principal Financial/Accounting Officer:


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


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