==============================================================================
                                  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, 2002

                                                                  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,
$17,464,551  at March 14, 2003  (based on the  closing  sale price on the Nasdaq
National  Market on March 14, 2003. At March 14, 2003, the registrant had issued
and  outstanding  an aggregate  of 3,872,406  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 2003,  described in Part III hereof,  are
incorporated by reference in this report.

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


<PAGE>





                                     PART I

ITEM 1.  BUSINESS

General

CFC International,  Inc. ("CFC" or the "Company")  formulates,  manufactures and
sells  chemically-complex,  multi-layered  functional  coatings,  which  provide
superior  performance  under a wide range of operating  conditions.  The Company
applies  its  proprietary  coatings  to rolls of  plastic  film  from  which its
customers transfer or laminate the coatings to their products for protective and
informative  purposes.  The  Company  produces  five  primary  types  of  coated
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 products such as simulated wood grain patterns for furniture,
manufactured homes and home interiors; pharmaceutical pigmented coatings used as
heat transfer printing approved by the FDA for  pharmaceutical  products such as
intravenous  solution  bags;  security  products  such as  magnetic  stripes and
signature panels for credit cards,  intaglio printing for stocks, bonds and gift
certificates  (both paper and debit cards),  along with  printing,  encoding and
distributing  gift cards;  and 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  Europe,  together  with its  wholly-owned
French subsidiary, Oeser France S.A.R.L., after the acquisition called CFC Oeser
France S.A.R.L. In April 2002, the French subsidiary was merged into CFC Europe.
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.  These coatings when applied in multiple layers
and 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 or  laminated  directly on to  customer's  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 can 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.  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 in a secure production facility.  Sales of products in this market
represented  approximately  19.1% of the  Company's  net sales in 2002.  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,  picture  frames  and home  interiors.  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 film  transferable  coatings for the
Engineered  Board market.  This market is growing  throughout the world,  as the
environmental  problems  associated  with  paints and  stains,  and the cost and
environmental  consequences  of using real wood are becoming  more  significant.
Sales  of  products  in  this  market  represented  approximately  28.5%  of the
Company's net sales in 2002. See "-- Chemical Coatings -- Printed 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  tamper  evident
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.  The Company has also
entered the market for encoding  information on to gift cards, and has developed
a fulfillment system to distribute security products for global customers. Sales
of products in this market represented  approximately 18.3% of the Company's net
sales in 2002. See "-- Chemical Coatings -- Security 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  17.2% of the  Company's net sales in
2002. See "-- Chemical Coatings -- Pharmaceutical 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  digital and laser  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  16.9%  of the  Company's  net  sales in  2002.  See "--  Chemical
Coatings -- Specialty Pigmented and Simulated Products."

CFC's  products  are sold to more than 5,000  customers  worldwide.  The Company
generated  approximately  42.5% of its 2002  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  2002.  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.


<PAGE>







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.

You can obtain copies of our annual reports on Form 10-K,  quarterly  reports on
Form 10-Q,  current  reports on Form 8-K and  amendments  to those reports filed
with the U.S.  Securities and Exchange  Commission  (SEC) free of charge through
the Company's website:  www.cfcintl.com,  where we post these filings as soon as
practicable after they have been filed with the SEC.

You can also write to us at the  address of our  principal  office  above to the
attention of our Secretary and request copies of our SEC filings.

You may  also  read and copy any  materials  we file  with the SEC at the  SEC's
Public Reference Room which is located at 450 Fifth Street, NW,  Washington,  DC
20549.  Information  about the  operation  of the Public  Reference  Room can be
obtained by calling the SEC at  1-800-SEC-0330.  You can also access our filings
through the SEC's internet site: www.sec.gov.

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 global 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,  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 its previous  English joint venture  partner,  expanding  rights
previously  limited to North America.  The Company has recently created a global
marketing position to expand sales of existing products on a worldwide basis.

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  manufacturing  process.  The Company is  introducing a program to reduce
cycle times in the manufacturing process.


<PAGE>







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  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 Company's  ability to print in precise
registration  with its InMold technology that allows for decorating a part while
it is being molded.  The Company is introducing a new product  called  HoloCard.
This product is a specialty  coated film used to emboss  security  holograms for
credit  cards.  The  Company  has  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  has  developed a virtually
seamless holographic shim for its wide embossing machines.  The Company has also
developed a washable holographic authentication seal.

Overview of Products

The Company's principal product types include the following:

-    Holographic Products include the Company's high-technology holograms used
     as security markings on products such as computer microprocessors 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 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 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. The Company has also introduced a virtually seamless
     wide web packaging product, and a washable holographic authentication
     label.

-    Printed Products include specialized functional coatings used primarily as
     an alternative to painting or using liquid coatings on high-pressure
     laminates for 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
     precision layouts while being automatically transferred in the molding
     process.



<PAGE>






-    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 and certificates of authenticity. Other
     products in this group include encoding numbering and applying security
     devices to gift cards. The Company has developed a fulfillment system to
     distribute security products for global customers.

-    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 and after the sterilization process and have FDA approval,
     domestically.

-    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 digital and laser printing on
     plastic like surfaces.



<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     2002  Key Product Features
------         -----------              ---------     ----  --------------------

Holographic    Authentication seals,    Foreign       19.1%  - Fully integrated
Products       trophies, point-of-      Government             manufacturing
(product       purchase packaging,      AquaFresh,             process
authenti-      security labels          Colgate, Crest,      - AEGIS
cation,                                                      - Virtual Seamless
high-end                                                     - Washable labels
eye-catching                                                 - Patented dot
packaging)                                                     matrix

Printed        RTA furniture (bedroom,  Sauder         28.5% - 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,    - Precision
trophies/                               Progressive Furniture  Printing
awards)

Security       Magnetic stripes,        Visa,          18.3%  - 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
stocks and     cards, driver's          Best Buy,           - Intaglio printed
bonds, gift    licenses, passports,     Foreign Government    stocks, bonds,
certificates   intaglio printed                               birth certificates
and gift       security documents,                            and gift
cards)         gift cards, money                              certificates
               delivery pouches                             - Gift cards
                                                            - Sophisticated
                                                              distribution
                                                              system

Pharmaceutial  Intravenous solution     Baxter         17.2% - 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


Specialty      Beverage cases,          Rubbermaid,    16.9%  - 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,    Danaher Controls    - 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. Then on to
the  plastic  film  carrier is then  deposited  coatings  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
produced in a secure facility; and for eye-catching  point-of-purchase  displays
and consumer  packaging.  The Company has developed a virtual  seamless shim for
its wide web  embossing  capabilities.  The  Company  also  developed a washable
holographic authentication label.

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.



<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 equipment.  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 the 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.

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 has introduced
a holographic authentication label that is washable.

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 narrow web embossers.  An example of this type of product
application is the Company's  development of holographic  promotional  packaging
for personal healthcare products.

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.  The Company has also  developed a seamless
holographic process.

Holographic  products  represented  approximately  19.1%, 17.0% and 19.4% of the
Company's  net  sales  in the  years  ended  December  31,  2002,  2001 and 2000
respectively.

The Company  expects this product  line to continue to  experience  double digit
growth  in  2003,  due  to  companies  around  the  world  demanding   increased
security/authenticity  protection on their  products,  and  additional  consumer
holographic packaging opportunities.

Printed Products

The  Company's  printed  coatings  are  featured on numerous  consumer  products
manufactured by companies.  Printed Products  include  Engineered Board coatings
for RTA and  promotional  furniture,  picture frames,  manufactured  housing and
window treatments.


<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,  specialty  window
treatment 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
principal  challenges facing coatings for the plastic building products industry
are fade  resistance and adequate  adhesion.  CFC utilizes an erosion  resistant
polyvinylidene  fluoride polymer ("PVDF") system to produce one of the most fade
resistant coatings used in the industry.  The PVDF 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,  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 and picture frames 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. The transfer occurs in the mold as
the product is being molded, saving additional manufacturing steps.

Printed  products  represented  approximately  28.5%,  28.2%  and  25.6%  of the
Company's  net  sales in the  years  ended  December  31,  2002,  2001 and 2000,
respectively.

This product line is expected to decrease slightly in 2003, primarily due to the
sustained economic slowdown that the furniture and manufactured  housing markets
continue to experience.


<PAGE>






Security Products

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

Signature  panels  are  formulated  for  credit  and  transaction  cards and are
designed  to  accept a wide  variety  of  writing  instruments  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.

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,  certificates of authenticity and
vital records.  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 prints, numbers,  encodes and applies security devices to
gift cards. The Company has also developed a sophisticated fulfillment system to
distribute gift/debit type cards and certificates.

Security  products  represented  approximately  18.3%,  15.1%  and  11.6% of the
Company's  net  sales in the  years  ended  December  31,  2002,  2001 and 2000,
respectively.

The Company expects double digit growth in security products in 2003,  primarily
due to  significant  growth  opportunities  it has in the gift card market.  The
company  added  additional  equipment  and capacity in 2002 to better serve this
market,  and also  anticipates  producing a greater  volume of intaglio  printed
documents for foreign governments.


<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 and after the sterilization  process, and have FDA
approval,   domestically.   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 approved suppliers) that meet 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 until March 2007 in October 2002. 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. 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
17.2%,  17.2% and 13.0% of the Company's  net sales in the years ended  December
31, 2002, 2001 and 2000, respectively.

The  Company  expects  a  slight  decline  in this  product  line in 2003 due to
competitive pricing discounts,  which should be offset by the company securing a
substantial contract extension with one of its major pharmaceutical customers.

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.


<PAGE>








Specialty  pigmented and simulated  products  represented  approximately  16.9%,
22.3% and 30.3% of the Company's net sales in the years ended December 31, 2002,
2001  and  2000,   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 lower 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  69.2% of
specialty  pigmented and simulated metal sales for 2002. The Company's  strategy
is to add  technology  to the CFC Oeser  product  line and  enhance the value of
these products.

The  Company's  outlook for this  product line is modest  growth in 2003,  as it
expects to recapture business lost last year due to its capacity  constraints in
Germany, and continues to focus on higher-margin, growth-oriented markets.

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, 2002,  2001 and 2000,  net sales to Europe,
the  Pacific  Rim,  and  other  customers  outside  of the  United  States  were
$26,301,000,   $29,625,000  and  $35,249,000,   respectively,   and  represented
approximately 42.5%, 47.8% and 51.7%, 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 eleven people. The Company also maintains an art
origination studio in Countryside,  Illinois,  that is dedicated to holographics
and which employs five people who perform holographic  research and development.
In  addition,  the  Company  has an  engineering  and  chemistry  laboratory  in
Goppingen,  Germany that employs nine people.  The former  holographic  research
laboratory in Ventura, California was consolidated into Countryside, Illinois in
June 2001.  In the years ended  December  31, 2002,  2001 and 2000,  the Company
spent  approximately  $2,042,000,  $2,222,000 and $2,745,000,  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 and HoloLam,  a
full-face holographic laminate for credit, debit and loyalty cards.


<PAGE>





Marketing and Sales

As of December 31, 2002,  the Company had 22 full time sales people serving over
5,000 existing  customers.  Sales personnel include the Vice President of Global
Marketing, the Vice President of Sales, who is responsible for the Americas, and
two Product  Managers.  During 2002, the German Product  Manager was temporarily
responsible for all German and French sales.  Effective  February 1, 2003, a new
European  Sales  Manager was hired.  Additional  sales  personnel  include three
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 Export Manager
is  responsible  for all Europe export sales from Germany  (excluding the United
Kingdom)  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 up of a network of two distributors
who service small accounts in the United States,  and eighty-eight  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 2002 were Baxter  Healthcare,  Best Buy
and  Smurfit.  Sales  made to  Baxter  are  pursuant  to an  exclusive  provider
contract,  which was  renewed  for five years in  October  2002.  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 2002,  2001  and  2000,  were
$6,683,000, $6,926,000 and $5,558,000,  respectively. 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 2002,  2001 and  2000,  were
$3,768,000,  $1,976,000 and $733,000, respectively. Sales to Smurfit for each of
2002, 2001 and 2000, were $2,053,000,  $1,469,000 and $2,919,000,  respectively.
Sales to Smurfit are made on an individual purchase order basis.

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 2002.

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.  The Company is planning to
register to the new ISO standard  version 2000 in  mid-2003.  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, 2002, the Company had approximately 354 full-time  employees.
These included 178 in manufacturing, 71 in support services, 51 in marketing and
sales, 25 in research and development and 29 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 and a
25,000 square foot assembly and warehouse 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 79,000
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 was named by government  environmental agencies as a
"potentially responsible party" with respect to environmental liabilities at the
Fisher-Calo Superfund site in Kingsbury,  Indiana in 1991. The former parent and
other potentially  responsible parties entered into a settlement  agreement with
the governmental  agencies in 1991 that provides for remediation of the site and
estimated the cost to be  approximately  $39 million based upon 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 0.12%  each) of the total cost of
remediation that is ultimately  determined to be attributed to waste produced by
the Company's  former  parent.  There is no assurance  that  remediation  of the
Fisher-Calo  site can be  accomplished  for $39  million.  In 1992,  the Company
recorded a liability of  approximately  $300,000  related to these  matters,  of
which  approximately  $50,000 was paid in 1996. In 2000, the Company revised its
estimate and reduced the accrual by approximately $110,000. In January 2002, the
Company made a payment of approximately  $44,000 representing a progress payment
for  remediation  of this site. At December 31, 2002,  the remaining  accrual is
approximately  $96,000,  representing  in  management's  opinion its estimate of
expected future costs,  based upon  investigation of the quantities and types of
waste disposed and the other parties  involved in the  remediation of this site.
The adequacy of the accrued  liability is reviewed  periodically  as  additional
information becomes available.

In November 2001, the Company was notified from the former parent that 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, cannot be ascertained, however, management believes this will
not have a material effect on the financial statements and at December 31, 2002,
no reserve has been established.

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, 2002,  the last  reported  sale price of the
Common  Stock on the Nasdaq  National  Market was $4.45 per share.  At March 14,
2003, there were approximately 137 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, 2002
       1st Quarter................................. 5.00                  3.78
       2nd Quarter................................. 5.10                  3.95
       3rd Quarter................................. 4.70                  3.79
       4th Quarter................................. 5.45                  4.00
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.  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,
                                   --------------------------------------------
                                      2002     2001    2000     1999     1998
                                      ----     ----    ----     ----     ----

                                        (In thousands, except per share data)
Income Statement Data:
Net sales ......................... $61,878  $61,995  $68,240  $66,147  $51,047
Cost of sales
 (excluding
 depreciation
 and
 amortization) ....................  38,492   41,033   43,064   42,598   30,618
Selling,
 general and
 administrative ...................  13,118   13,333   15,822   14,010    9,964
Research and
 development ......................   2,042    2,222    2,745    2,022    1,585
Depreciation
 and
 amortization .....................   3,956    4,076    4,225    3,329    2,072
International
 consolidation
 expense ..........................      --       --      768       --       --
                                    -------  -------  -------  -------  -------
Operating income ..................   4,270    1,331    1,616    4,188    6,808
Interest expense ..................   1,241    1,484    1,336    1,030      570
Interest income ...................     (29)     (10)     (59)      --       --
Other expense .....................      --       16       --       20       17
Other income ......................    (219)     (29)    (163)     (29)     (30)
                                    -------  -------  -------  -------  -------
Income (loss) before taxes
 and minority interest.............   3,277     (130)     502    3,167    6,251
Provision (benefit) for
 income taxes .....................     998      (55)     180      922    2,260
Minority interest in net
 income of CFC Applied
 Holographics (1)..................       -        -        -        -      343
                                    -------  -------  -------  -------  -------
Net income (loss).................. $ 2,279  $   (75) $   322  $ 2,245  $ 3,648
                                    =======  =======  =======  =======  =======

Basic earnings (loss) per share.... $  0.51  $ (0.02) $  0.07  $  0.49  $  0.82

Diluted earnings (loss) per share.. $  0.51  $ (0.02) $  0.07  $  0.49  $  0.80
Other Data:
Capital expenditures............... $ 2,544  $ 2,359  $ 3,758  $ 2,958  $ 2,050
Depreciation and amortization (4)..   3,956    4,076    4,225    3,239    2,072
EBITDA (5).........................   8,445    5,420    6,004    7,526    8,550
Net cash provided by operating
 activities........................   7,257    7,696    2,066    3,095    6,168
Net cash used in investing
 activities........................  (2,088)  (2,359)  (7,290)  (7,048)  (2,050)
Net cash provided by (used in)
 financing activities..............  (1,888)  (2,182)   3,372      355     (513)

Balance Sheet Data:
Working capital.................... $12,178  $12,764  $14,940  $15,076  $15,306
Total assets.......................  58,607   55,197   56,401   55,362   39,280
Total debt (3).....................  21,486   22,134   24,418   21,029   10,624
Stockholders' equity...............  26,370   22,642   23,095   23,745   20,971
----------------

(1)     The Company purchased the minority partners share on October 1, 1998.
(2)     Includes current and long-term portions of debt.
(3)     The Company's debt agreements prohibit the payment of dividends.
(4)     Depreciation and amortization excludes amortization related to debt
        financing costs.
(5)     The Company believes earnings before interest expense, income taxes,
        depreciation and amortization (EBIDTA) is an useful measurement for its
        business because its enterprise value is more closely aligned with this
        measure and because of the continual investment the Company makes in
        long-lived assets. EBIDTA should not necessarily 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. The table following reconciles net income to EBIDTA as
        defined:




<PAGE>





                                                Year Ended December 31,
                                   --------------------------------------------

                                     2002     2001    2000     1999    1998
                                     ----     ----    ----     ----    ----
                                                 (in thousands)
Net income (loss) ................  $2,279  $  (75)  $  322   $2,245  $3,648
Add back (subtract):
Income taxes .....................     998     (55)     180      922   2,260
Interest, net ....................   1,212   1,474    1,277    1,030     570
Depreciation and amortization ....   3,956   4,076    4,225    3,329   2,072
                                     -----   -----    -----    -----   -----
EBITDA ...........................  $8,445  $5,420   $6,004    $7,526 $8,550
                                    ======  ======   ======    ====== ======

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

Overview

The Company formulates, manufactures and sells chemically-complex,  transferable
multi-layer  coatings for use in many diversified  markets such as furniture and
building products,  pharmaceutical products, transaction cards, including credit
cards,  debit  cards,  ATM cards and  access  cards,  intaglio  printing  and on
sophisticated  embossable coatings for holographic  packaging and authentication
seals. The Company has also developed a sophisticated fulfillment system. During
the period  from 1998 to 2002,  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  net  sales  increased  from  $8.9  million  in 1998 to  $11.8 in 2002,
primarily due to growth in authentication sales and consumer products packaging.
Printed  products net sales declined from $18.2 million in 1998 to $17.7 million
in 2002.  This  decline  in net sales is  primarily  due to the  decline  in the
manufactured  housing market.  Pharmaceutical  products net sales increased from
$8.9 million in 1998 to $10.6  million in 2002,  primarily  due to the growth of
European sales. Security products net sales increased from $10.1 million in 1998
to $11.3 million in 2002,  primarily due to the Company's  expansion in the gift
card market, which was offset by a decline in magnetic stripe sales due to lower
selling prices as a result of increased  competition  in this market.  Specialty
pigmented and simulated  metal products net sales increased from $4.9 million in
1998 to $10.5 million in 2002,  primarily due to the  acquisition  of CFC Oeser.
This  acquisition  occurred  in March  1999 and  added  total net sales of $17.8
million in 1999 of which  $15.5  million  represented  specialty  pigmented  and
simulated net sales.  The specialty  pigmented and simulated  metal products net
sales by CFC  Oeser in 2002  amounted  to $7.6  million.  Without  the CFC Oeser
acquisition,  net sales in this product category would have decreased in 2002 to
$3.1 million,  from $4.9 million in 1998, due to the Company's  focus on phasing
out 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 and excludes  depreciation  and  amortization
which are shown separately.  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.


<PAGE>







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,
                                               --------------------------
                                                2002     2001      2000
                                                ----     ----      ----

Net sales .................................     100.0%   100.0%    100.0%
Cost of goods sold (excluding
 depreciation and amortization) ...........      62.2     66.2      63.1
Selling, general and administrative .......      21.2     21.5      23.2
Research and development ..................       3.3      3.6       4.0
Depreciation and amortization .............       6.4      6.6       6.2
International consolidation expense .......        --       --       1.1
                                                 -----    -----     -----
Operating income ..........................       6.9      2.1       2.4
Interest expense and other (income) expense       1.6      2.3       1.6
                                                 -----    -----     -----
Income (loss) before taxes ................       5.3     (0.2)      0.8
Provision (benefit) for income taxes ......       1.6     (0.1)      0.3
                                                 -----    -----     -----
Net income (loss) .........................       3.7%    (0.1%)     0.5%
                                                 =====    =====     =====

2002 Compared to 2001

Net sales for the year ended  December 31, 2002  decreased 0.2% to $61.9 million
from $62.0 for the year ended December 31, 2001.  Holographic  product net sales
increased  12.0% to $11.8 million for the year ended  December 31, 2002 compared
to $10.5 million for the year ended December 31, 2001, primarily due to gains in
the packaging market offset by a decrease in sales of security labels to prevent
counterfeiting  to a major customer whose volume declined.  Printed products net
sales increased 0.8% to $17.7 from $17.5 million for the year ended December 31,
2002 and the year ended December 31, 2001. This was primarily due to an increase
in  market  share.  Security  products  (magstripe,  signature  panels,  tipping
products for credit cards,  intaglio printed documents and gift cards) net sales
increased  20.2% to $11.3  million  from  $9.4  million.  This  increase  is due
primarily  to the  Company's  entry into the gift card  market,  plus  increased
magnetic  stripe  sales due to new product  offerings,  offset by lower sales of
security  documents to a foreign  government.  Pharmaceutical  product net sales
decreased  0.3% to $10.6  million,  from $10.7 million  primarily as a result of
lower sales in Latin and South  America.  Net sales of specialty  pigmented  and
simulated  metal products  decreased  24.4% to $10.5 million from $13.9 million,
primarily due to the  disruption in servicing the Company's  European  customers
due to the February 2002 backfire on a coating press in Germany that constrained
capacity during the first three quarters of 2002. This press had five of the six
stations up and running on April 2, 2002. The sixth station became  operable the
middle of June  2002,  but did not reach full  efficiency  until  October  2002.
During the periods in which these stations were inoperable, many products had to
routed to alternative  machines for production,  resulting in strained capacity,
lower production, and, consequently lower sales.

Cost of goods sold for the year ended  December 31, 2002 decreased 6.2% to $38.5
million from $41.0 million for the year ended December 31, 2001. The decrease in
costs is primarily a result of lower  material  cost  percentage  on similar net
sales and insurance  interruption  proceeds in the amount of $2.6 million due to
the backfire on the coating press in Germany, which approximated lost margins on
sales. In 2002, the Company also benefited from volume  purchases which were not
achieved in 2001.  The cost of sales as a  percentage  of net sales for the year
ended  December  31,  2002 was 62.2% as  compared  to 66.2%  for the year  ended
December  31, 2001.  The  decrease in cost of goods sold as a percentage  of net
sales was due to the reasons noted above.


<PAGE>








Selling,  general and  administrative  expenses  decreased 1.6% in 2002 to $13.1
million  from $13.3  million in 2001.  The  decrease  in  selling,  general  and
administrative  expenses  is  primarily  due a  $300,000  benefit  related  to a
settlement  of past  sales  tax  liabilities  with the State of  Illinois.  As a
result, selling, general and administrative expenses for the year ended December
31, 2002 decreased as a percentage of net sales to 21.2% from 21.5% for the year
ended December 31, 2001.


Research and development expenses for the year ended December 31, 2002 decreased
8.1% to $2.0 million from $2.2 million for the year ended December 31, 2001. The
decrease in research and development expense was primarily due to the closing of
the Company's Optical Laboratory in Ventura,  California in the third quarter of
2001 and the  consolidation  of those functions into its  Countryside,  Illinois
facility. Research and development expenses for the year ended December 31, 2002
and  December  31,  2001 as a  percentage  of net  sales  were  3.3%  and  3.6%,
respectively.

Depreciation  and  amortization  expenses  for the year ended  December 31, 2002
decreased 2.9% to $4.0 million from $4.1 million for the year ended December 31,
2001.  This decrease was primarily due to the Company  adopting SFAS 142, and no
longer  amortizing   goodwill.   Depreciation  and  amortization  expense  as  a
percentage of net sales for the year ended  December 31, 2002  decreased to 6.4%
from 6.6% for the year ended December 31, 2001.

Total operating  expenses for the year ended December 31, 2002 decreased 5.0% to
$57.6  million  from $60.7  million  for the year ended  December  31,  2001 due
primarily to the reasons  noted  above.  Total  operating  expenses for the year
ended  December 31, 2002 and December 31, 2001 as a percentage of net sales were
93.1% and 97.9%, respectively, due to the reasons noted above.

Operating  income for the year ended December 31, 2002 increased  220.7% to $4.3
million from $1.3 million for the year ended December 31, 2001. Operating income
for the year ended December 31, 2002,  increased as a percentage of net sales to
6.9% from 2.1% for the year ended December 31, 2001.

Interest  expense for the year ended December 31, 2002  decreased  16.4% to $1.2
million from $1.5 million for the year ended  December 31, 2001. The decrease in
interest  expense was a result of a decrease  in the rate of  interest  paid and
decline in debt balances due to normally scheduled debt amortization.

Interest  income for the year ended  December 31, 2002 increased to $29,000 from
$10,000 for the year ended  December 31, 2001.  This  increase was primarily the
related to the  Company  receiving  interest on income tax refunds in the second
and fourth quarters of 2002.

Other  income for the year ended  December 31, 2002  increased to $219,000  from
$29,000 for the year ended  December 31, 2001.  This  increase was primarily the
result of the gain on sale of a manufacturing facility in Goppingen,  Germany in
the first quarter of 2002.

The change in provision (benefit) for income taxes is principally related to the
change in income (loss) before income taxes. In addition,  the effective  income
tax rate for the year ended  December 31, 2002 was 30.4%,  compared to 42.3% for
the year ended  December 31, 2001. The 2002 effective tax rate was lower because
of  approximately  $281,000 in research  and  experimentation  credits  received
during 2002 from amending the prior year tax returns and tax planning strategies
to reduce foreign taxes.

Net income (loss) for the year ended December 31, 2002 increased to $2.3 million
from a loss of $75,000 for the year ended  December 31, 2001.  This increase was
due to reasons discussed previously.


<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 net
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 net 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. Security products (magstripe,  signature panels,  tipping products
for credit cards, intaglio printed documents and gift cards) net 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.  Pharmaceutical  product net sales increased 20.0% to $10.7
million  from $8.9  million  primarily  as a result of an  increase  in sales in
Europe. Net 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 $43.1 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 in the third
quarter of 2001 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.

Depreciation  and  amortization  expenses  for the year ended  December 31, 2001
decreased 3.5% to $4.1 million from $4.2 million for the year ended December 31,
2000.  This decrease was primarily  due to a decrease in  depreciation  due to a
decrease  in  capital  spending  in 2001  compared  to  2000.  Depreciation  and
amortization  expense as a percentage  of net sales for the year ended  December
31,  2001  increased  to 6.6% from 6.2% for the year ended  December  31,  2000,
primarily due to the decrease in net sales in 2001 compared to 2000.

International consolidation expense for 2001 decreased to zero from $768,000 for
2000.  The  $768,000  represented  estimated  cost of severance in the amount of
$578,000,  representing a reduction of 25 employees, five from Japan and 20 from
Europe;  lease termination of $100,000;  and disposal of assets in the amount of
$90,000.  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.  The  $217,000   represented   $117,000  severance,   and  $100,000  lease
termination paid in the first two quarters of 2001.


<PAGE>











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.

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.

Interest  income for the year ended  December 31, 2001 decreased to $10,000 from
$59,000 for the year ended  December 31, 2000.  This  decrease was primarily the
related to the Company receiving interest on overdue accounts in Europe in 2000.

Other  expense for the year ended  December  31, 2001  increased to $15,600 from
zero for the year ended December 31, 2000. The expense in 2001  represented loss
on a sale of an asset.

Other  income for the year ended  December  31, 2001  decreased  to $29,000 from
$163,000 for the year ended  December 31, 2000.  This decrease was primarily the
result of the  recognizing  income when revaluing a prior periods EPA accrual to
actual liability.

The change in provision (benefit) for income taxes is principally related to the
change in income (loss) before income taxes.  The effective  income tax rate for
the year ended December 31, 2001 was a benefit of 42.3%,  and for the year ended
December 31, 2000 was a provision of 36.0%.

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.




<PAGE>






Annual Results of Operations

The following  table presents  unaudited  financial  information for each of the
quarters in the period  ended  December  31,  2002 and 2001.  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  annual  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
                 --------------------------------------------------------------

                 12/31   09/30   06/30   03/31   12/31   09/30   06/30   03/31
                  2002    2002    2002    2002    2001    2001    2001    2001
                  ----    ----    ----    ----    ----    ----    ----    ----
Net sales ......$15,956 $16,649 $14,431 $14,842 $16,451 $14,621 $14,614 $16,310
Cost of goods
 sold ..........  9,426   9,324   9,470  10,420  10,549  10,272  10,470   9,594
Selling, general
 and
 administrative.  3,218   3,485   3,208   3,207   3,268   3,322   3,367   3,376
Research and
 development ...    473     538     517     513     497     555     540     630
Depreciation and
 amortization ..  1,051   1,042     960     903   1,174     862     950   1,090
                ------- ------- ------- ------- ------- ------- ------- -------
Total operating
 expense ....... 14,168  15,337  14,009  14,093  15,359  15,209  14,451  15,645
Operating income
 (loss) ........  1,788   1,312     422     749   1,092    (588)    163     665
Interest expense.   255     330     326     330     256     418     408     402
Interest income .   (14)     --     (15)     --     (10)     --      --      --
Other expense ...    --      --      --      --      --      --      --      16
Other income ....    --     (11)     (7)   (200)     (7)     (7)     (7)     (7)
                ------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
 before taxes ..  1,546     993     118     619     853     (999)   (238)   254

Provision
 (benefit)
 for income
 taxes .........    459     318      23     197     286     (347)    (91)    97
Net income
 (loss) ........$ 1,088 $   675 $    95 $   422 $   567 $   (652) $ (147) $ 157
                ======= ======= ======= ======= ======= ========  ======  =====

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    61.7    64.6    63.8    63.3    71.6    65.7    64.7
Selling, general
 and
administrative.   20.2    20.9    22.2    21.6    19.9    22.7    23.0    20.7
Research and
 development...    3.0     3.2     3.6     3.5     3.0     3.8     3.7     3.9
Depreciation
 and
 amortization..    6.6     6.3     6.7     6.1     7.1     5.9     6.5     6.7
Total operating
 expense.......   88.8    92.1    97.1    95.0    93.3   104.0    98.9    96.0
Operating income
 (loss)........   11.2     7.9     2.9     5.0     6.7    (4.0)    1.1     4.0
Interest
 expense.......    1.6     2.0     2.3     2.2     1.6     2.8     2.8     2.5
Interest income.  (0.1)    0.0    (0.1)    0.0    (0.1)    0.0     0.0     0.0
Other expense...   0.0     0.0     0.0     0.0     0.0     0.0     0.0     0.1
Other income ...   0.0    (0.1)   (0.1)   (1.3)    0.0     0.0     0.0     0.0
                ------- ------- ------- ------- ------- ------- ------- -------
Income (loss)
 before taxes...   9.7     6.0     0.8     4.1     5.2    (6.8)   (1.7)    1.4
Provision
 (benefit) for
 income taxes...   2.9     1.9     0.1     1.3     1.7    (2.4)   (0.6)    0.6
                ------- ------- ------- ------- ------- ------- ------- -------
Net income
 (loss).........   6.8%    4.1%    0.7%    2.8%    3.5%   (4.4%)  (1.1%)   0.8%
                ======= ======= ======= ======= ======= ========  ======  =====

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.  The
increase  in  sales in the  fourth  quarter  of 2001  was due to the  gift  card
business,  as well as, the third and fourth quarters of 2002. The second quarter
of 2002 includes the settlement of the sales tax  liability.  The fourth quarter
of 2002 includes the majority of research and experimentation  credit and volume
purchase  discounts  earned from  suppliers  which the  Company  had  previously
estimated would not be earned.


<PAGE>







Significant Accounting Policies

Management's  discussion  and  analysis of  financial  condition  and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting  principles  generally accepted
in the U.S. The Company annually reviews its financial  reporting and disclosure
practices and  accounting  policies to ensure that its  financial  reporting and
disclosures provide accurate and transparent information relative to the current
economic and business environment.  The Company believes that of its significant
accounting  policies (see summary of significant  accounting policies more fully
described on pages 38 and 39), the following policies involve a higher degree of
judgment  and/or  complexity.   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.   Significant   estimates  include  an
assessment of the realization of future tax benefits, inventory reserves and the
allowances  for  doubtful  accounts.  Actual  results  could  differ  from these
estimates.

Net Operating  Losses.  The foreign net operating  loss carry  forwards  (NOL's)
totaling  $5,639,000  relate to income  taxation  in Germany  and may be carried
forward to offset future taxable  income in Germany.  The Company has recorded a
deferred tax asset of $2.1 million at December 31, 2002  relating to the benefit
of these  NOL's.  At present,  the unused  NOL's have no  expiration  dates.  No
valuation  allowance has been provided as currently  management believes that it
is more likely than not that the tax benefit will be realized.  However, changes
in German tax laws or the results of its operations in Germany could impact this
assessment in the future.

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.  Provisions  are made to reduce excess and
obsolete  inventories to their estimated net realizable  value.  The process for
evaluating  the value of excess and obsolete  inventory  requires the Company to
make  subjective   judgments  and  estimates  concerning  future  sales  levels,
quantities  and prices at which such inventory will be sold in the normal course
of business.

Intangible  Assets.  Intangible  assets include the excess of cost over the fair
value of net assets of businesses  acquired  (goodwill) of holographic base coat
and  worldwide  holographic  rights.  These  assets  are  being  amortized  on a
straight-line basis over periods of 10 to 15 years and assume no residual value.
Accumulated  amortization  amounted to $1,479,146 and $1,195,646 at December 31,
2002 and 2001,  respectively.  Amortization  expense was $283,500,  $410,612 and
$365,347 in 2002, 2001 and 2000,  respectively.  Beginning  January 1, 2002, the
Company  no  longer  amortizes   goodwill  (see  footnote  5  to  the  financial
statements) and will review it for impairment on an annual basis.

Depreciation.  Property and  equipment  are  amortized  using the straight  line
method  over  useful  lives that range  from  three to 25 years.  A  significant
portion of fixed  assets are  machinery  and  manufacturing  equipment  that are
depreciated over 10 to 15 year lives and assume no residual value.

Revenue recognition. Under the terms of its sales agreements with customers, the
Company  recognizes  revenue when title is  transferred,  generally upon product
shipment.  For  certain  transactions,   which  are  not  material,  revenue  is
recognized upon completion of manufacturing, or upon use by the customer.

Warranty  costs.   Certain  return  privileges  exist  for  the  possibility  of
sub-standard  goods.  Customers  have a right to inspect goods within 30 days of
receipt. The Company records an estimated provision for possible returns,  using
historical experience at the time revenue is recognized.  Historically,  returns
have been less than 0.5% of net sales.


<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 $7,257,000,  $7,696,000 and $2,066,000 for
the years ended December 31, 2002,  2001 and 2000,  respectively.  A significant
portion  of  cash  flow  from  operations  is  generated  by  depreciation   and
amortization  expense.  At December 31, 2002 and 2001,  the Company had cash and
cash equivalents totaling $6.0 million and $2.5 million, respectively.

The Company's capital  expenditures  were $2,544,000,  $2,359,000 and $3,758,000
for the years ended December 31, 2002, 2001 and 2000, 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:

Credit Arrangements.

The Company and its subsidiaries have a combination of revolving and term credit
arrangements.

Revolving  Credit  Agreements.  The Company and its  subsidiaries  have  various
revolving credit  arrangements  ("Credit  Agreements")  that provide for maximum
borrowings,   based  upon  available  inventory  and  receivables  balances,  of
approximately  $27.6 million.  Amounts available under these  arrangements as of
December 31, 2002 were $9.6 million. Borrowings under the credit agreements bear
interest  ranging from prime to 2.0% over  certain bank base rates.  At December
31, 2002,  the weighted  average  interest rate on  outstanding  borrowings  was
3.11%.  The revolving credit  arrangements  expire at various dates beginning in
2003 through 2008. Under the main credit line, the Company is required to pay an
annual fee for the unused  portion at an amount  equal to .125%  times the daily
average of the unused portion.

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 and  requires  the Company to  maintain a  compensating
balance  and  contain a  subjective  acceleration  clause.  The  borrowings  are
collateralized by substantially  all of the Company's assets.  The combined debt
agreement prohibits the payment of dividends.

Term Loans.  Term Loan "A" is for a face amount of $2,625,000 and as of December
31, 2002, was payable in monthly principal and interest (at 7.05%)  installments
of $20,431  with a final  principal  payment of $2.2  million due on 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
bears interest  payable monthly at a fixed rate of 6.0%, and the Company expects
to renew this  revolver  during 2003.  These various loans at December 31, 2002,
have annual  interest  payable at their  respective  interest rates ranging from
5.0% to 6.25%.  The term loans are payable in  quarterly  principal  payments of
$131,540.  Two of the term loans require total balloon payments of $2,698,000 on
March 31, 2004, which the Company anticipates rolling over.

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.  As of December 31, 2002,
this portion of Term Loan "B" is payable in monthly  principal  installments  of
$60,138  plus  interest at a fixed rate of 7.70%,  and this portion of Term Loan
"B" matures on September 18, 2005.


<PAGE>







2003 Amendments to Bank  Financings.  On January 31, 2003, the Company's  credit
agreement with its main bank, which provides for revolving  credits and the term
loans, was extended to April 1, 2005. The Company's main revolving loan was also
renewed  through  April 1, 2005.  Term Loan "A" monthly  principal  and interest
installments  remain at $20,431,  however the final balloon payment was extended
to  November  1,  2008,  and the  interest  rate now  floats at prime  (4.25% at
December 31, 2002) per annum.  Term Loan "B" was also  renewed.  The  prepayment
penalty of $122,000  was rolled into the  principal,  and the monthly  principal
payments and interest were changed to $81,117 and the final balloon  payment was
extended to February 1, 2008.  The  interest  rate was changed to float at prime
(4.25% at  December  31,  2002) per annum.  The Company has a one time option to
convert the above two loans to a fixed rate of interest.

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  in the United  States and the  purchase  of a new  printing  press for
printed products.

The bonds require annual  principal  payments of $200,250 through 2007, with the
principal  balance  payable on June 1, 2008.  The bonds bear  interest,  payable
monthly,  at rates which are  determined by the market and are reset weekly with
the maximum annual rate being 12%. The average annual rate was 1.47%,  2.74% and
4.24% for 2002, 2001 and 2000. The interest rate at December 31, 2002 was 1.22%.

Convertible  Subordinated  Debt.  On  September  3, 1997,  the Company  issued a
ten-year, 6% convertible  subordinated note (the "Note") in the principal amount
of $3,000,000. The Note is payable in nine annual principal payments of $333,333
commencing in September  1998. The Note was issued to the sellers of an acquired
business.  The Note is  convertible,  in whole or in part,  at the option of the
holder into  Common  Stock of the  Company at a  conversion  price of $14.00 per
share.  The Note  currently  is callable,  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.  Accordingly,  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.

Other debt  includes  amounts  owed under a  settlement  of a sales tax dispute,
which was resolved during 2002,  including the forgiveness of the unpaid balance
of $497,000.

Future minimum cash payments due under  contractual  obligations,  including our
revised credit  agreement and  non-cancelable  operating lease agreements are as
follows:

                                                          2008 and
        2003      2004      2005       2006       2007    Thereafter     Total
        ----      ----      ----       ----       ----    ----------     -----

Re-
vol-
ver $  750,000 $       -  $      -  $       -  $       -  $       -  $   750,000

Term
Loan A 150,875   150,875    150,875    150,875    150,875  1,594,787   2,349,162
Term
Loan
B    4,953,451 3,656,650    958,290  3,199,676    801,000    679,028  14,248,095

IIDRB  200,498   200,498    200,498  2,203,756          -          -   2,805,250

Conver-
 tible
 sub-
 ordin-
 ated
note   333,333   333,333    333,333    333,333          -          -   1,333,332

Opera-
 ting
 lease
obliga-
tions 880,380    781,996    662,252    587,310    472,501  1,270,336   4,654,775
    --------- ---------- ---------- ---------- ---------- ---------- -----------
To-
tal$7,268,537 $5,123,352 $2,305,248 $6,474,950 $1,424,376 $3,544,151 $26,140,614
   ========== ========== ========== ========== ========== ========== ===========





<PAGE>







At December 31, 2002, the Company was in compliance with or has obtained waivers
for the covenants of its various credit agreements.

The Company  believes it will continue to generate cash flow from operations and
expects to be  profitable in 2003.  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 2003.  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.  However  beginning in 2001, due to
the new gift card business,  the sales in the fourth quarter were much stronger.
Beginning in the third  quarter of 2002,  the Company also added new  customers,
which generated increased sales more then offsetting historical trends.

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

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets" and SFAS No. 144
("SFAS 144"),  "Impairment  or Disposal of  Long-Lived  Assets." The adoption of
SFAS No. 144 had no impact on the financial statements.

SFAS No. 142 addresses  accounting  and reporting for (i)  intangible  assets at
acquisition  and (ii) for  intangible  assets and goodwill  subsequent  to their
acquisition.  The Company's  goodwill and  intangible  assets relate to business
acquisitions,  and the purchase of production  processes and worldwide marketing
rights related to holography and the Company's holographic products.

The following are the major classes and useful lives of the Company's intangible
assets as of December 31, 2002 and 2001:

                         2002                      2001
            ---------------------------  ----------------------------
                      Accum-                         Accum-
                      ulated     Net                 ulated    Net
                      Amorti-    Book                Amorti-   Book     Useful
            Cost      zation     Value     Cost      zation    Value     Lives
            ----      ------     -----     ----      ------    -----     -----
                                                                          15
                                                                          Years
                                                                        pre-2002
                                                                          N/A
Goodwill  $1,436,456 $ 406,994 $1,029,462 $1,436,456 $406,994 $1,029,462  2002
Holo-
 graphic
 base
 coat
 processes  460,000    379,500     80,500    460,000  333,500    126,500  10
                                                                          Years
Worldwide
 holographic
 rights   3,562,059    692,652  2,869,407  3,562,059  455,152  3,106,907  15
                                                                          Years
         ----------  --------- ---------- ---------- -------- ----------  ------
Total    $5,458,515 $1,479,146 $3,979,369 $5,458,515$1,195,646$4,262,869
         ========== ========== ========== ========== ========= ==========



<PAGE>







In conjunction with the adoption of SFAS No. 142 during fiscal 2002,  management
initially  assessed  the  useful  economic  life for its  holographic  base coat
process and worldwide  holographic  rights to have an indefinite life.  However,
during  the third  quarter,  the  Company  concluded  that  amortization  should
continue to be recorded for those assets under SFAS No. 142. As a result, in the
third quarter of 2002 the Company recorded  amortization of $70,785,  or $43,376
net of income taxes, and has continued to record amortization over the remaining
useful  life.  The Company  filed  amended Form 10-Q/As for each of the quarters
ended March 31, 2002 and June 30, 2002 to reflect the  amortization  ($70,785 in
each quarter) of these  intangibles.  Other than the change in the  amortization
life of  goodwill  from 15  years  to  indefinite,  no  other  useful  lives  of
intangibles  were changed in  connection  with the adoption of SFAS No. 142. All
intangible  assets,  other than  goodwill are  amortized  using a straight  line
method and assume no residual values.  Goodwill and intangibles will be reviewed
for impairment on an annual basis.

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  adoption  of SFAS No. 143 is not  expected to have a
material  impact on the Company's cash flows,  financial  position or results of
operations.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or  Disposal  Activities,"  which is  effective  for exit or  disposal
activities  initiated  after  December 31, 2002. The adoption of SFAS No. 146 is
not expected to have a material  impact on the Company's  cash flows,  financial
position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness  of Others," which is effective for  guarantees  issued or modified
after December 31, 2002. The Company has not provided any guarantees  that falls
within the scope of this  pronouncement  and therefore  does not believe that it
will have any impact on its financial statements.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition  and  Disclosure,"  which is effective  for fiscal years
ending  after  December  31,  2002.  The Company  intends to  continue  with its
existing  accounting policy and therefore this  pronouncement  will not have any
impact.

Special Note on Forward-Looking Statements

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

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

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



<PAGE>







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 the impact on the Company's customers, the demand for
     the Company's products and services, and the Company's ordinary sources of
     supply in particular;

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 the costs and  availability  of raw materials and the Company's
     ability to adjust  selling prices to reflect those changes;

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 continue 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;

o    Control of the Company by a principal stockholder; and

o    The effects of acts of terrorism and armed conflicts on the Company's
     operations, demands for products and sources of supply.

The risks  included  here are not  exhaustive.  The  Company  operates in a very
competitive and rapidly changing environment.  New risk factors emerge from time
to time and it is not possible for the Company to predict all such risk factors,
nor can the Company  assess the impacts of all such risk factors on its business
or the extent to which any factor,  or combination of factors,  may cause actual
results  to  differ  materially  from  those  contained  in any  forward-looking
statements.  Given these  risks and  uncertainties,  investors  should not place
undue reliance on forward-looking  statements as a prediction of actual results.
The  Company  has no  obligation  to  revise  or  update  these  forward-looking
statements to reflect events or circumstances that arise after February 18, 2003
or to reflect the occurrence of anticipated events.

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


<PAGE>








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, 2002 and
2001 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, 2002 and December 31, 2001,  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.  Beginning  in
January  2003,  the  Company  renewed  its main  loan  agreements.  The two main
domestic  loans,  Term  Loan A and  Term  Loan B  (see  note 4 to the  financial
statement  beginning  on page 41 for more  details)  were  renewed at a floating
prime rate of interest with a one-time option to a fixed rate of interest. Based
on the  Company's  floating  rate loans,  a change in the  interest  rate of one
percent would equate to a change of $105,000 of interest on an annual basis.

Interest Expense

The Company's  exposure to interest rate risk is minimal due to the  composition
of its debt  instruments  which consist of fixed and variable rate  instruments.
Variable  rate debt  instruments  can also be  converted  to a fixed rate should
interest rates rise in the future.

Euro Conversion

Member countries of the European Union have  established  fixed conversion rates
between their existing currencies ("legacy currencies") and one common currency,
the Euro. Since January 1, 2002, the new Euro-denominated notes and coins are in
circulation  and legacy  currencies  have been withdrawn from  circulation.  The
Company has a manufacturing facility located in a member country (Germany),  and
the  conversion  to the Euro has  eliminated  currency  exchange  rate  risk for
transactions  among  the  member  countries,  which  for the  Company  primarily
consists  of payments  to  suppliers.  In  addition,  because  the Company  uses
foreign-denominated  debt to meet its financial  requirements  and to reduce its
foreign currency risks,  certain of these financial  instruments are denominated
in Euro to  finance  European  activities.  The  Company  addressed  all  issues
involved with converting to the new currency,  and the conversion did not have a
significant  impact on its  financial  position,  results of  operations or cash
flows.  At December 31, 2002,  the Company had total assets of $18.2 million and
net assets of $6.5 million invested in Europe.










<PAGE>






ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                          INDEX TO FINANCIAL STATEMENTS


                                                             Page
                                                             ----

Report of Independent Accountants .........................   33

Consolidated Balance Sheets at December 31, 2002 and 2001..   34

Consolidated Statements of Operations for the years
 ended December 31, 2002, 2001 and 2000 ...................   35

Consolidated Statements of Cash Flows for the years
 ended December 31, 2002, 2001 and 2000 ...................   36

Consolidated Statements of Stockholders' Equity
 for the years ended December 31, 2002, 2001 and 2000 .....   37

Notes to Consolidated Financial Statements ................   38-51






All other  schedules are omitted  because they are either 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  accompanying  consolidated  balance sheets and the related
consolidated  statements  of  operations,  cash flows and  stockholders'  equity
present  fairly,  in  all  material  respects,  the  financial  position  of CFC
International,  Inc. and its subsidiaries at December 31, 2002 and 2001, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2002 in  conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with 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.

As  discussed  in Note 2 to the  Consolidated  Financial  Statements,  effective
January  1, 2002,  the  Company  changed  the  manner in which it  accounts  for
goodwill  and  other  intangible  assets  upon the  adoption  of  Statements  of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."




PricewaterhouseCoopers LLP


Chicago, Illinois
February 12, 2003
(Except with respect to the last matter discussed in Note 4, as to which the
date is February 24, 2003)

<PAGE>




                             CFC INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS

                                          December 31,
                                  ----------------------------
                                       2002             2001
                                       ----             ----

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......   $ 5,990,077   $ 2,492,595
Accounts receivable, less
 allowance for doubtful accounts
 of $618,000 (2002) and
 $583,000 (2001) ...............     8,996,995     9,205,561
Inventories:
  Raw materials ................     3,234,290     2,638,602
  Work in process ..............     1,690,762     1,858,677
  Finished goods ...............     5,887,549     5,877,489
                                   -----------   -----------
                                    10,812,601    10,374,768
Prepaid expenses and
 other current assets ..........       638,571       760,081

Deferred income tax
 assets ........................       675,000       928,787
                                   -----------   -----------
 Total current assets ..........    27,113,244    23,761,792
                                   -----------   -----------
Property, plant and
 equipment, net ................    25,214,867    24,792,724
Deferred income
 tax assets ....................     2,143,584     2,058,626

Intangible assets ..............     4,263,500     3,980,000
Other assets ...................       154,861       320,764
                                   -----------   -----------
  Total assets .................   $58,606,556   $55,197,406
                                   ===========   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
 debt...........................   $ 6,388,157   $ 2,762,909
Accounts payable................     3,158,400     3,285,526

Accrued compensation
 and benefits...................     1,862,138     1,165,878
Accrued expenses and
 other current liabilities......     3,526,013     3,783,842
                                   -----------   -----------
 Total current liabilities......    14,934,708    10,998,155
                                   -----------   -----------
Deferred income tax
 liabilities....................     2,204,321     2,185,717
Long-term debt, net
 of current portion.............    15,097,682    19,371,422
                                   -----------   -----------
 Total liabilities..............    32,236,711    32,555,294
                                   -----------   -----------

COMMITMENTS AND 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;
 shares issued of 4,437,075 (2002)
 and 4,421,529 (2001).............      44,371         44,216
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........  12,130,587     11,968,980

Retained earnings.................  16,751,153     14,472,467
Accumulated other comprehensive
 income (loss)....................      97,007     (1,557,100)
                                   -----------    -----------
                                    29,028,248     24,933,693
Less 565,867 and 482,867
 treasury shares of common
 stock, at cost...................  (2,658,403)    (2,291,581)
                                   -----------    -----------
                                    26,369,845     22,642,112
 Total liabilities and
  stockholders' equity............ $58,606,556    $55,197,406
                                   ===========    ============

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


<PAGE>






                             CFC INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                              December 31,
                               ------------------------------------------------
                                  2002              2001             2000
                                  ----              ----             ----
Net sales ...................   $ 61,877,843    $ 61,995,410    $ 68,239,646
                                ------------    ------------    ------------
Cost of goods sold
 (excluding depreciation
 and amortization shown
 below) .....................     38,491,371      41,033,060      43,063,070
Selling, general and
 administrative expenses ....     13,118,020      13,333,409      15,822,175
Research and development
 expenses ...................      2,042,287       2,221,682       2,744,787
Depreciation and amortization
 expenses ...................      3,956,394       4,075,995       4,225,365
International consolidation
 expense ....................           --              --           768,000
                                ------------    ------------    ------------
Total operating expenses ....     57,608,072      60,664,146      66,623,397
                                ------------    ------------    ------------

Operating income ............      4,269,771       1,331,264       1,616,249
                                ------------    ------------    ------------

  Interest expense ..........      1,241,131       1,484,106       1,336,022
  Interest income ...........        (28,899)        (10,074)        (58,650)
  Other expense .............           --            15,600            --
  Other income ..............       (218,738)        (29,280)       (162,959)
                                ------------    ------------    ------------
                                     993,494       1,460,352       1,114,413
                                ------------    ------------    ------------
Income (loss) before
 income taxes ...............      3,276,277        (129,088)        501,836
Provision (benefit)
 for income taxes ...........        997,591         (54,554)        179,989
                                ------------    ------------    ------------

Net income (loss) ...........   $  2,278,686    $    (74,534)   $    321,847
                                ============    ============    ============

Basic earnings per share:
  Net income (loss)
   per share.................   $       0.51    $      (0.02)   $       0.07

Diluted earnings per share
 (which gives effect to the
 elimination of interest
 expense on convertible debt):
Net income (loss) per share...  $       0.51    $      (0.02)   $       0.07

Pro Forma Data:
Net income (loss) as reported.  $          -    $    (74,534)   $    321,847
Pro forma adjustment-
 elimination of goodwill
 amortization.................             -          95,764          95,764
                                ------------    ------------    ------------
Pro forma net income .........  $          -    $     21,230    $    417,611
                                ============    ============    ============

Pro forma earnings per share
 - basic and diluted
As reported...................  $          -    $      (0.02)   $       0.07
Effect of eliminating
 goodwill amortization........             -            0.03            0.02
                                ------------    ------------    ------------
Proforma......................  $          -    $       0.01    $       0.09
                                ============    ============    =============

Weighted Average Shares
 Outstanding to
 Compute Earnings Per Share:
Primary.......................    4,425,339        4,525,531       4,568,318
Effect of dilutive options
 and convertible debt.........      110,246              988           3,961
                                ------------    ------------    ------------
Diluted........................   4,535,585        4,526,519       4,572,279

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




<PAGE>




                             CFC INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                      December 31,
                                         --------------------------------------
                                              2002           2001        2000
                                              ----           ----        ----
Cash flow from operating activities:
 Net income (loss) ....................   $ 2,278,686  $   (74,534) $   321,847
  Adjustments to reconcile
   net income (loss) to
   net cash provided by
   operating activities:
    Depreciation and amortization .....     3,985,760    4,117,211    4,225,701
    Deferred compensation expense .....       102,656      111,987      111,987
    Settlement of sales tax liability .      (496,594)          --           --
    Gain on sale of land and building .      (191,158)          --           --
    Deferred income taxes .............       575,595     (280,624)  (1,134,980)
    Changes in assets and liabilities:
     Accounts receivable ..............       779,433    1,407,355      (43,514)
     Inventories ......................      (208,596)     268,940   (1,230,074)
     Prepaid expenses and
      other current assets ............       217,897           --           --
     Other assets .....................       136,517     (429,105)   1,509,694
     Accounts payable .................      (251,740)     418,214       55,346
     Accrued compensation & benefits ..       707,617      (77,200)      12,728
     Accrued expenses and other current
      liabilities......................      (379,331)   2,233,619   (1,538,654)
                                           -----------  -----------  -----------
Net cash provided by operating
 activities ...........................     7,256,742    7,695,863    2,066,107
                                          -----------   -----------  -----------

Cash flows from investing activities:
  Purchases of property, plant
   and equipment.......................    (2,543,635)  (2,359,388)  (3,757,789)
  Cash paid to acquire worldwide
   holographic business rights...                   -            -   (3,532,659)
  Proceeds from sale of land
   and building......................         455,334            -            -
                                          -----------   -----------  -----------
  Net cash used in investing
   activities........................      (2,088,301)  (2,359,388)  (7,290,448)
                                          -----------   -----------  -----------

Cash flows from financing activities:
  Proceeds from revolving credit
   agreements........................       2,800,770    5,110,962    2,650,000
  Repayments of revolving credit
   agreements........................      (2,106,218)  (8,873,011)  (1,150,000)
  Proceeds from term loans...........               -    2,690,598    3,938,816
  Repayments of long-term debt.......      (2,274,618)    (663,956)  (1,992,892)
  Proceeds from issuance of
   common stock......................          59,106       73,086       64,514
  Repurchase of common stock
   for treasury shares...............        (366,822)    (520,090)    (138,320)
                                          -----------   -----------  -----------
  Net cash provided (used in)
   by financing activities...........      (1,887,782)  (2,182,411)   3,372,118
                                          -----------   -----------  -----------
Effect of exchange rate changes
 on cash and cash equivalents........         216,823     (960,340)     242,105
                                          -----------   -----------  -----------
Increase (decrease) in cash
 and cash equivalents.................      3,497,482    2,193,724   (1,610,118)

 Cash and cash equivalents
  beginning of period................       2,492,595      298,871    1,908,989
                                          -----------   -----------  -----------
 Cash and cash equivalents
  end of period......................      $5,990,077   $2,492,595    $ 298,871
                                           ==========   ==========    =========

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

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

Net
income.                              321,847                            321,847
Foreign
currency
translation
adjustment......                            (1,009,962)              (1,009,962)
                                                                     -----------
Comprehensive
loss..............                                                     (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
     --------- ------ ---------- ----------- ----------- ------------ ----------
Bal-
ance
at
12/31/
2000.$44,033 $5,130 $11,784,090 $14,547,001 $(1,513,407)$(1,771,491)$23,095,356

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

Foreign
currency
translation
adjustment.                                    (43,693)                 (43,693)
                                                                       ---------
Comprehensive
loss....                                                               (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
     --------- ------ ---------- ----------- ----------- ------------ ----------
Bal-
ance
at
12/31/
2001.$44,216 $5,130 $11,968,980 $14,472,467 $(1,557,100)$(2,291,581) $22,642,112

Net
income..                          2,278,686                           2,278,686

Foreign
currency
translation
adjustment....                               1,654,107                1,654,107
                                                                     -----------

Comprehensive
income.....                                                           3,932,793
                                                                     -----------

Employee
stock
pur-
chases.155              58,951                                           59,106

Repurchase
of
common
                                                           (366,822)   (366,822)
Vesting of
restricted
shares
issued.........        102,656                                          102,656
     --------- ------ ---------- ----------- ----------- ------------ ----------
Bal-
ance
at
12/31/
2002. $44,371 $5,130 $12,130,587 $16,751,153   $97,007  $(2,658,403) $26,369,845
      ======= ====== =========== ===========   ======= ============ ===========


                                                        Class B
                                         Common         Common        Treasury
Number of shares                       Stock Issued      Stock          Stock
                                       ------------      -----          -----
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
Employee stock purchase plan ......         15,546           --             --
Repurchase of common stock ........           --             --           83,000
                                         ---------      ---------      ---------
                                         ---------      ---------      ---------
Balance at December 31, 2002 ......      4,437,075        512,989        565,867
                                         =========      =========      =========

               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 11, 11 and 8 percent of
net sales  during the years  2002,  2001,  and 2000,  respectively.  The Company
believes that it has no significant concentrations of credit risk based upon its
industry and geographic mix of customers.

The consolidated  financial statements include the accounts of the Company's and
its domestic and foreign subsidiaries. All significant intercompany transactions
have been eliminated.

Reclassifications.  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.  Provisions  are made to reduce excess and
obsolete  inventories to their estimated net realizable  value.  The process for
evaluating  the value of excess and obsolete  inventory  requires the Company to
make  subjective   judgments  and  estimates  concerning  future  sales  levels,
quantities  and prices at which such inventory will be sold in the normal course
of business.

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.  Gains and losses on the sales of equipment are
included in other income and expense in the statement of operations.

Intangible  Assets.  Intangible  assets include the excess of cost over the fair
value of net assets of businesses  acquired (goodwill) and holographic base coat
and  worldwide  holographic  rights.  These  assets  are  being  amortized  on a
straight-line basis over periods of 10 to 15 years and assume no residual value.
Accumulated  amortization  amounted to $1,479,146 and $1,195,646 at December 31,
2002 and 2001,  respectively.  Amortization  expense was $283,500,  $410,612 and
$365,347 in 2002, 2001 and 2000,  respectively.  Beginning  January 1, 2002, the
Company  no  longer   amortizes   goodwill  (see  Note  5).  Annual   intangible
amortization expense is expected to be $283,471,  $271,971,  $237,471,  $237,471
and $237,471 in 2003, 2004, 2005, 2006 and 2007, respectively.

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.

Revenue recognition. Under the terms of its sales agreements with customers, the
Company  recognizes  revenue when title is  transferred,  generally upon product
shipment.  For  certain  transactions,   which  are  not  material,  revenue  is
recognized upon completion of manufacturing, or upon use by the customer.

Shipping and handling  costs.  Shipping costs  included in selling,  general and
administrative expenses were $608,239, $670,001 and $932,940 for the years ended
December 31, 2002, 2001 and 2000,  respectively.  Handling costs are included in
cost of goods sold.


<PAGE>






Warranty  costs.   Certain  return  privileges  exist  for  the  possibility  of
sub-standard  goods.  Customers  have a right to inspect goods within 30 days of
receipt. The Company records an estimated provision for possible returns,  using
historical experience at the time revenue is recognized.  Historically,  returns
have been less than 0.5% of net sales.

Advertising costs. Advertising costs are expensed as incurred. Advertising costs
were approximately $108,000,  $135,000 and $232,000 for the years ended December
31, 2002, 2001 and 2000, respectively.

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

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"  for equity  issuances to employees.  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, 2002, 2001 and 2000, 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.

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. Significant estimates include an assessment of the realization
of future tax  benefits,  inventory  reserves  and the  allowances  for doubtful
accounts. Actual results could differ from these estimates.

Supplemental cash flow disclosures.

                                                 For Year Ended December 31,
                                         ---------------------------------------
                                             2002           2001          2000
                                             ----           ----          ----
Cash paid during the year for:
  Interest ...........................    $1,249,803    $1,445,737    $1,336,529
  Income taxes, excluding
   refunds of $348,113
   during 2002 .......................     1,266,429       354,274     1,005,580
Non-cash transactions:
  Sales tax settlement resulting
   in reduction in obligation ........       496,594          --            --


Note 2.  Recent Accounting Pronouncements and Quarterly Restatements

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 142,  "Goodwill and Other  Intangible  Assets" and SFAS No.
144 ("SFAS 144"), "Impairment or Disposal of Long-Lived Assets." The adoption of
SFAS No. 144 had no impact on the financial statements.

SFAS No. 142 addresses  accounting  and reporting for (i)  intangible  assets at
acquisition  and (ii) for  intangible  assets and goodwill  subsequent  to their
acquisition.  The Company's  goodwill and  intangible  assets relate to business
acquisitions,  and the purchase of production  processes and worldwide marketing
rights related to holography and the Company's holographic products.



<PAGE>






The following are the major classes and useful lives of the Company's intangible
assets as of December 31, 2002 and 2001:


                         2002                      2001
            ---------------------------  ----------------------------
                      Accum-                         Accum-
                      ulated     Net                 ulated    Net
                      Amorti-    Book                Amorti-   Book     Useful
            Cost      zation     Value     Cost      zation    Value     Lives
            ----      ------     -----     ----      ------    -----     -----
                                                                          15
                                                                          Years
                                                                        pre-2002
                                                                          N/A
Goodwill  $1,436,456 $ 406,994 $1,029,462 $1,436,456 $406,994 $1,029,462  2002
Holo-
 graphic
 base
 coat
 processes  460,000    379,500     80,500    460,000  333,500    126,500  10
                                                                          Years
Worldwide
 holographic
 rights   3,562,059    692,652  2,869,407  3,562,059  455,152  3,106,907  15
                                                                          Years
         ----------  --------- ---------- ---------- -------- ----------  ------
Total    $5,458,515 $1,479,146 $3,979,369 $5,458,515$1,195,646$4,262,869
         ========== ========== ========== ========== ========= ==========


In conjunction with the adoption of SFAS No. 142 during fiscal 2002,  management
initially  assessed  the  useful  economic  life for its  holographic  base coat
process and worldwide  holographic  rights to have an indefinite life.  However,
during  the third  quarter,  the  Company  concluded  that  amortization  should
continue to be recorded for those assets under SFAS No. 142. As a result, in the
third quarter of 2002 the Company recorded  amortization of $70,785,  or $43,376
net of income taxes, and has continued to record amortization over the remaining
useful life. The Company filed amended Form 10-Q/A's for the quarter ended March
31, 2002 and June 30, 2002 to reflect the amortization ($70,785 in each quarter)
of these intangibles. Other than the change in the amortization life of goodwill
from 15 years to indefinite,  no other useful lives of intangibles  were changed
in connection  with the adoption of SFAS No. 142. All intangible  assets,  other
than goodwill are amortized  using a straight line method and assume no residual
values.  Goodwill and  intangibles  will be reviewed for impairment on an annual
basis.

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  adoption  of SFAS No. 143 is not  expected to have a
material  impact on the Company's cash flows,  financial  position or results of
operations.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or  Disposal  Activities,"  which is  effective  for exit or  disposal
activities  initiated  after  December 31, 2002. The adoption of SFAS No. 146 is
not expected to have a material  impact on the Company's  cash flows,  financial
position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure  Requirements for Guarantees,  including  Indirect  Guarantees of
Indebtedness  of Others," which is effective for  guarantees  issued or modified
after December 31, 2002. The Company has not provided any guarantees  that falls
within the scope of this  pronouncement  and therefore  does not believe that it
will have any impact on its financial statements.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition  and  Disclosure,"  which is effective  for fiscal years
ending  after  December  31,  2002.  The Company  intends to  continue  with its
existing  accounting policy and therefore this  pronouncement  will not have any
impact.


<PAGE>







Note 3.  Property, Plant and Equipment

Property, plant and equipment consist of the following:

                                                December 31,
                                        ----------------------------
                                                                      Estimated
                                            2002              2001   Useful Life
                                            ----              ----   -----------
Land ................................   $  3,593,771    $  3,322,827
Buildings ...........................      6,510,696       6,289,799    25 years
Machinery and manufacturing equipment     36,207,238      33,582,283 10-15 years
Furniture and office equipment ......      4,687,044       4,208,957  3-10 years
Construction in process .............      1,193,897         274,300
                                        ------------    ------------
                                          52,192,646     47,678,166
Less - Accumulated depreciation .....    (26,977,779)   (22,885,442)
                                        ------------    -----------
                                        $ 25,214,867    $24,792,724
                                        ============    ===========

Depreciation  expense for the years ending  December 31, 2002, 2001 and 2000 was
$3,672,894, $3,693,427 and $3,862,587, respectively.

Note 4.  Long-Term Debt and Other Liabilities

Long-term debt consists of the following at December 31, 2002 and 2001:

                                                       2002               2001
                                                       ----               ----
Revolving credit arrangements ..............       $   750,000       $   750,000
Illinois Revenue Bonds .....................         2,805,250         3,052,416
Term Loan "A" ..............................         2,349,162         2,423,518
Term Loan "B" ..............................        14,248,093        13,263,977
Convertible Subordinated Note ..............         1,333,334         1,666,666
Note Payable ...............................              --             387,026
Other ......................................              --             590,992
                                                   -----------       -----------
                                                    21,485,839        22,134,595
Less - Current portion .....................         6,388,157         2,762,909
                                                   -----------       -----------
                                                   $15,097,682       $19,371,422
                                                   ===========       ===========

Credit  Arrangements.  The Company and its  subsidiaries  have a combination  of
revolving and term credit arrangements.

Revolving  Credit  Agreements.  The Company and its  subsidiaries  have  various
revolving credit  arrangements  ("Credit  Agreements")  that provide for maximum
borrowings,   based  upon  available  inventory  and  receivables  balances,  of
approximately  $27.6 million.  Amounts available under these  arrangements as of
December 31, 2002 were $9.6 million. Borrowings under the credit agreements bear
interest  ranging from prime to 2.0% over  certain bank base rates.  At December
31, 2002,  the weighted  average  interest rate on  outstanding  borrowings  was
3.11%.  The revolving credit  arrangements  expire at various dates beginning in
2003 through 2008. Under the main credit line, the Company is required to pay an
annual fee for the unused  portion at an amount  equal to .125%  times the daily
average of the unused portion.


<PAGE>







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 and  requires  the Company to  maintain a  compensating
balance  and  contain a  subjective  acceleration  clause.  The  borrowings  are
collateralized by substantially  all of the Company's assets.  The combined debt
agreement prohibits the payment of dividends.

Term Loans.  Term Loan "A" is for a face amount of $2,625,000 and as of December
31, 2002, was payable in monthly principal and interest (at 7.05%)  installments
of $20,431  with a final  principal  payment of $2.2  million due on 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
bears interest  payable monthly at a fixed rate of 6.0%, and the Company expects
to renew this  revolver  during 2003.  These various loans at December 31, 2002,
have annual  interest  payable at their  respective  interest rates ranging from
5.0% to 6.25%.  The term loans are payable in  quarterly  principal  payments of
$131,540.  Two of the term loans require total balloon payments of $2,698,000 on
March 31, 2004, which the Company anticipates rolling over.

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.  As of December 31, 2002,
this portion of Term Loan "B" is payable in monthly  principal  installments  of
$60,138  plus  interest at a fixed rate of 7.70%,  and this portion of Term Loan
"B" matures on September 18, 2005.

2003 Amendments to Bank  Financings.  On January 31, 2003, the Company's  credit
agreement with its main bank, which provides for revolving  credits and the term
loans, was extended to April 1, 2005. The Company's main revolving loan was also
renewed  through  April 1, 2005.  Term Loan "A" monthly  principal  and interest
installments  remain at $20,431,  however the final balloon payment was extended
to  November  1,  2008,  and the  interest  rate now  floats at prime  (4.25% at
December 31, 2002) per annum.  Term Loan "B" was also  renewed.  The  prepayment
penalty of $122,000  was rolled into the  principal,  and the monthly  principal
payments and interest were changed to $81,117 and the final balloon  payment was
extended to February 1, 2008.  The  interest  rate was changed to float at prime
(4.25% at  December  31,  2002) per annum.  The Company has a one time option to
convert the above two loans to a fixed rate of interest.

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  in the United  States and the  purchase  of a new  printing  press for
printed products.

The bonds require annual  principal  payments of $200,250 through 2007, with the
principal  balance  payable on June 1, 2008.  The bonds bear  interest,  payable
monthly,  at rates which are  determined by the market and are reset weekly with
the maximum annual rate being 12%. The average annual rate was 1.47%,  2.74% and
4.24% for 2002, 2001 and 2000. The interest rate at December 31, 2002 was 1.22%.

Convertible  Subordinated  Debt.  On  September  3, 1997,  the Company  issued a
ten-year, 6% convertible  subordinated note (the "Note") in the principal amount
of $3,000,000. The Note is payable in nine annual principal payments of $333,333
commencing in September  1998. The Note was issued to the sellers of an acquired
business.  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.  Accordingly,  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.


<PAGE>






Other debt  includes  amounts  owed under a  settlement  of a sales tax dispute,
which was resolved during 2002,  including the forgiveness of the unpaid balance
of $497,000.

On January 31, 2003, the Company's  credit  agreement with its main bank,  which
provides for revolving  credits and the term loans, was extended.  The Company's
main  revolving  loan was renewed  through April 1, 2005.  Term Loan "A" monthly
principal and interest installments remain at $20,431, however the final balloon
payment was extended to November 1, 2008,  and the  interest  rate now floats at
prime (4.25% at December 31, 2002). Term Loan "B" was also renewed. A prepayment
penalty of $122,000 was rolled into the principal on one of the terms loans, and
the monthly  principal  payments  and  interest  were changed to $81,117 and the
final balloon payment of $801,574 was extended to February 1, 2008. The interest
rate was changed to float at prime (4.25% at December 31, 2002). The Company has
a one time  option to convert  the above two loans to a fixed rate of  interest.
The other  Term  Loan "B"  consisting  of a  revolver  and  several  term  loans
associated with the Company's acquisition of Oeser did not change.

Aggregate minimum principal payments for long-term debt as of December 31, 2002,
after giving effect to the refinancing described above, are as follows:

2003..........................................................       $6,388,157
2004..........................................................        4,341,356
2005..........................................................        1,642,996
2006..........................................................        5,887,640
2007..........................................................          951,875
Thereafter....................................................        2,273,815
                                                               -----------------
                                                                    $21,485,839
                                                               =================

At December 31, 2002, the Company was in compliance with or has obtained waivers
for the covenants of its various credit agreements.

Note 5.  Plant Backfire

In February 2002, the Company's Germany operations were negatively impacted by a
backfire that limited the  availability  of a six-station  coating  press.  As a
result,  the press  operated at  suboptimal  levels until late summer 2002.  The
Company  filed a claim  with its  insurance  carrier  seeking  reimbursement  of
damages including business  interruption from margins lost due to the constraint
capacity.  During  2002,  the Company  received  $451,000 for  reimbursement  of
damages and $2.6 million for business  interruption  from the insurance  carrier
and has settled its claim. The $2.6 million of proceeds have been reflected as a
reduction of costs of goods sold in the 2002 statement of operations.

Note 6.  Income Taxes

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

                                          For Year Ended December 31,
                                   2002               2001               2000
                                   ----               ----               ----
Current:
  Federal .............       $   457,764        $   353,195        $   724,332
  State ...............            14,564             88,937            153,576
  Foreign .............           (47,332)          (140,564)           437,062

Deferred ..............           572,595           (356,122)        (1,134,981)
                              -----------        -----------        -----------
                              $   997,591        $   (54,554)       $   179,989
                              ===========        ===========        ===========



<PAGE>







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:

                                                    2002        2001      2000
                                                   Actual      Actual    Actual
                                                   ------      ------    ------
Statutory U.S. tax rate ....................        34.0%      (34.0)%    34.0%
Differences resulting from:
  State and local taxes ....................         2.4        (4.8)      4.8
  Effect of foreign taxes ..................         1.8        (4.5)     (4.8)
  Research & developmental credits .........        (8.4)        1.0       2.0
  Other, net ...............................         0.6         1.0       2.0
                                                    ----        ----      ----
Effective tax rate .........................        30.4%      (42.3)%    36.0%
                                                    ====        ====      ====

During 2002, the Company  amended prior year tax returns and collected  $218,000
from the Internal Revenue Service and $63,000 from the State of California, both
for research and  experimentation  credits which were recorded as a reduction in
the 2002 income tax provision.

Deferred tax  liabilities  (assets) at December 31, 2002 and 2001 consist of the
following:

                                                          December 31,
                                                      2002            2001
                                                      ----            ----
Deferred tax assets:
  Foreign net operating loss
   carry forward .........................       $ 2,143,584        $ 2,058,626
  Inventory ..............................           237,500            206,000
  Employee benefits ......................           213,500            259,600
  State sales tax ........................              --              231,000
  Other ..................................           224,000            232,187
                                                 -----------        -----------
          Total ..........................         2,818,584          2,987,413

Deferred tax liabilities
  - fixed assets .........................        (2,204,321)        (2,185,717)
                                                 -----------        -----------
Net deferred tax asset ...................       $   614,263        $   801,696
                                                 ===========        ===========

The foreign net operating loss carry forwards (NOL's) totaling $5,639,000 relate
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. No valuation allowance has been provided as currently management believes
that it is more likely than not that the tax benefit will be realized.  However,
changes in German tax laws or the  results of its  operations  in Germany  could
impact this assessment in the future.


<PAGE>






Note 7.  Commitments and Contingencies

The Company's former parent was named by government  environmental agencies as a
"potentially responsible party" with respect to environmental liabilities at the
Fisher-Calo Superfund site in Kingsbury,  Indiana in 1991. The former parent and
other potentially  responsible parties entered into a settlement  agreement with
the governmental  agencies in 1991 that provides for remediation of the site and
estimated the cost to be  approximately  $39 million based upon 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 0.12%  each) of the total cost of
remediation that is ultimately  determined to be attributed to waste produced by
the Company's  former  parent.  There is no assurance  that  remediation  of the
Fisher-Calo  site can be  accomplished  for $39  million.  In 1992,  the Company
recorded a liability of  approximately  $300,000  related to these  matters,  of
which  approximately  $50,000 was paid in 1996. In 2000, the Company revised its
estimate and reduced the accrual by approximately $110,000. In January 2002, the
Company made a payment of approximately  $44,000 representing a progress payment
for  remediation  of this site. At December 31, 2002,  the remaining  accrual is
approximately  $96,000,  representing  in  management's  opinion its estimate of
expected future costs,  based upon  investigation of the quantities and types of
waste disposed and the other parties  involved in the  remediation of this site.
The adequacy of the accrued  liability is reviewed  periodically  as  additional
information becomes available.

In November 2001, the Company was notified from the former parent that 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, cannot be ascertained, however, management believes this will
not have a material effect on the financial statements and at December 31, 2002,
no reserve has been established.

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.  During the fiscal  2002,  the State of
Illinois changed its position, and revised the terms of the settlement agreement
that resulted in a $497,000 reduction in the company's obligation.

At December 31, 2002, the Company has non-cancelable  operating leases for which
future minimum rental  commitments are estimated to total $4,654,776,  including
$880,380 in 2003, $781,996 in 2004, $662,252 in 2005, $587,310 in 2006, $472,501
in 2007 and $1,270,336 thereafter. Rental expense under non-cancelable operating
leases totaled $874,115 in 2002, $735,863 in 2001 and $889,039 in 2000.

Note 8.  Related Party Transactions

The  Company  purchased  50,000  shares of common  stock from its  former  chief
operating  officer for $4.51 per share (fair market  value) during 2002 upon the
executive's  departure  from  the  Company.  These  shares  were  issued  to the
executive under a Restricted  Stock Agreement in 1999. In addition,  the Company
also  purchased  25,000  shares from its chief  executive  officer for $4.35 per
share (fair market value) during 2002. All of these shares are held in treasury.


<PAGE>






Note 9.  Allowance for Doubtful Accounts

Activity of the allowance for doubtful accounts for the years ended December 31,
2002, 2001 and 2000 are as follows:

                                Balance            Additions
                                   at   Additions  Charged To            Balance
                                Beginning  To      Costs and             at end
                                Of Year  Reserve   Expenses Deductions* Of Year
                                -------  -------   -------- ----------- -------

Year Ended December 31, 2002 ... $  583   $ --     $ 1,466   ($1,431)   $   618

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

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

* Deductions represent credit memos and amounts written off.

Note 10.  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:

                                                   2002      2001        2000
                                                   ----      ----        ----
Holographic Products ....................        $  11.8   $  10.5      $  13.2
Printed Products ........................           17.7      17.5         17.5
Pharmaceutical Products
                                                    10.6      10.7          8.9
Security Products
                                                    11.3       9.4          7.9
Simulated Metal and Other
    Pigmented Products
                                                    10.5      13.9         20.7
                                                  ------    ------      -------
Total ...................................        $  61.9   $  62.0      $  68.2
                                                 =======   =======      =======

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

                              Sales                         Long-Lived Assets
                  -----------------------------------  ------------------------
                    2002          2001          2000         2002        2001
                  ----          ----          ----         ----        ----

United States  $35,576,545  $32,369,480   $32,990,961  $18,542,961  $19,973,439
Europe          18,398,991   20,220,510    27,407,372   10,806,767    9,403,549
Other Foreign    7,902,307    9,405,420     7,841,313            -            -
               -----------  -----------   -----------  -----------  -----------
               $61,877,843  $61,995,410   $68,239,646  $29,349,728  $29,376,988
               ===========  ===========   ===========  ===========  ===========

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



<PAGE>







Note 11.  International Operations and Export Sales

The Company has divisions in Europe and until April 2001 in Japan. The following
data in U.S. dollars is included in the accompanying  financial statements as of
and for the year ended December 31:

Europe
                                   2002              2001              2000
                                   ----              ----              ----

Assets .................      $ 18,206,393      $ 14,458,243       $ 15,653,695
Liabilities
                                11,704,913         9,938,719         12,021,024
Net sales
                                18,368,991        20,220,510         27,407,372
Net income (loss) ......           316,719        (1,032,213)          (839,484)

Japan
                                       2002          2001            2000
                                       ----          ----            ----
Assets .....................      $      --        $      --        $   914,879
Liabilities ................             --               --
                                                                        179,304
Net sales ..................        509,548          536,343          1,225,358
Net income (loss) ..........         63,795           17,000           (382,013)

Export  sales  from U.S.  operations  amounted  to  $7,902,307,  $9,405,420  and
$7,841,313 in 2002, 2001 and 2000, respectively.

Note 12.  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 contribute
a discretionary  profit sharing amount. The Company made no discretionary profit
sharing contributions in 2002, 2001 and 2000. The Company incurred approximately
$149,400, $139,400 and $174,100 of 401(K) matching expense during 2002, 2001 and
2000, respectively.

Note 13.  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.
The  Voting  Preferred  Stock is  entitled  to 1,000  votes  per  share,  annual
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.
Dividends and liquidation  preference shall be applied to the purchase price per
share. The Company's principal stockholder holds the only option to purchase 534
shares of voting preferred  stock,  subject to  anti-dilution  adjustments,  par
value  $.01  per  share.  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.  There  were no
conversions in 2002, 2001 or 2000.

In 1999, the Company  issued 50,000 shares of restricted  stock to an officer of
the Company.  The value of these shares  totaling  $559,935 has been recorded as
compensation expense over the five year vesting period.

The Company has repurchased shares of common stock from time to time. Management
expects that such repurchases (classified as treasury stock) will continue to be
made in the future subject to compliance  with bank covenants and regulations of
the Exchange.


<PAGE>







Note 14.  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 four year period.

Information under the Company's Stock Option Plan is summarized as follows:

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

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
  Granted.......................    67,250       $4.00 - $  4.55      $  4.52
  Forfeited.....................   (24,554)       $4.00 - $  9.50      $  8.76
                                ------------    -----------------    -----------


Balance, December 31, 2002         215,342         $3.85 - $15.25       $  9.63

Options  exercisable  at  December  31,  2002 and 2001 were  71,380 and  58,005,
respectively.

The  characteristics  of outstanding and of exercisable  stock options under the
Company's Stock Option Plan at December 31, 2002 were as follows:

                               Outstanding                      Exercisable
                     -------------------------------    ------------------------
                                         Weighted                     Weighted
Exercise Prices        Shares  Life     Avg. Price       Shares      Avg. Price
---------------        ------  ----     ----------       ------      ----------
$ 3.85 - $ 6.00      140,529    8.9      $ 4.26          22,680      $ 3.91
$ 6.01 - $10.00       17,500    7.8      $ 8.14          11,625      $ 8.30
$10.01 - $15.25       57,313    4.7      $12.33          37,075      $12.34



<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  100,000
shares of common stock are reserved for issuance  under these Plans,  subject to
anti-dilution  and other adjustment  provisions.  Options granted have a term of
ten years subject to earlier termination if the optionee's service as a director
terminates and vest over a four year period.

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, 1999            50,000         $5.81 - $9.50      $8.67
     Granted........................       -               -              -
                                      -------        --------------     --------

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
     Granted........................       -               -              -
                                      ------         --------------     --------

Balance, December 31, 2002            90,000         $4.87 - $9.50      $6.95
                                      ======         ==============     ========

Options  exercisable  at  December  31,  2002 and 2001 were  55,000 and  42,500,
respectively.

The  characteristics  of  outstanding  and  exercisable  stock options under the
Directors Stock Option Plan at December 31, 2002 were as follows:

                             Outstanding                      Exercisable
                   -------------------------------    ------------------------
                                          Weighted                    Weighted
Exercise Prices     Shares      Life    Avg. Price        Shares    Avg. Price
---------------     ------      ----    ----------        ------    ----------
$4.87               40,000       8.2        $4.87         10,000        $4.87
$5.81               10,000       7.4        $5.81          5,000        $5.81
$8.75               10,000       4.6        $8.75         10,000        $8.75
$9.50               30,000       2.9        $9.50         30,000        $9.50

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 weighted average Black-Scholes values of options granted under the Director
Stock Option Plan 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 and
risk free rates based on U.S. government strip bonds on the date of grant with
maturities equal to the expected option term.


<PAGE>







The weighted  average Black Scholes value of options granted under the Directors
Stock Option and Stock  Option Plans and  assumptions  used in  determining  the
value are as follows:

                         Directors Stock
                          Option Plan           Stock Option Plan
                        --------------------  ---------------------
                        2002     2001     2000     2002      2001      2000
                        ----     ----     ----     ----      ----      ----
Weighted average fair
value of option grants
during the year         $  -     $2.40     $  -    $1.88     $1.50     $2.51


Weighed average fair
value of all options
outstanding at year
end                     $2.58    $2.58     $3.93    $3.25    $3.87     $5.17

Assumptions:
  Volatility                -    30.00%        -    30.00%   30.00%    41.25%
  Risk free
   interest rate            -     4.33%        -     4.12%    4.08%     6.27%
  Expected lives            -     9.50 years   -  7.20 years  6 years  4 years
  Dividend rate             -        -         -        -        -         -

Had compensation  cost for the Company's Option Plans been determined based upon
the fair value  method,  as defined in SFAS No. 123, the  Company's net earnings
(loss) per share  would have been  reduced to the  pro-forma  amounts  indicated
below:

                                                   2002       2001       2000
                                                   ----       ----       ----
Pro-forma net income (loss) (dollars in 000's)    $2,202      $ (150)    $ 349
Pro-forma earnings (loss) per share (basic)       $  0.50     $(0.03)    $0.08
Pro-forma earnings (loss) per share (diluted)     $  0.49     $(0.03)    $0.08

Note 15.  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.  During 2002,  2001 and 2000,  respectively,
15,546,  18,264 and 10,565  shares of common  stock were issued  pursuant to the
Stock Purchase Plan. As of December 31, 2002,  there were 7,401 shares available
for grant under 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.


<PAGE>







Note 16. Selected annual financial data  (unaudited),  in thousands,  except per
share data

                                   Quarter Ended
               ----------------------------------------------------------------
                 12/31   09/30  06/30   03/31   12/31   09/30   06/30     03/31
                 2002    2002    2002    2002    2001    2001    2001      2001
                 ----    ----    ----    ----    ----    ----    ----      ----
Revenues.......$15,956 $16,649 $14,431 $14,842 $16,451 $14,621  $14,614  $16,310

Cost of
goods
sold
(excluding
depreciation
and
amortization)... 9,426  10,272   9,324   9,470   10,420 10,470    9,594   10,549

Operating
income
(loss) .......   1,787   1,312     421     749   1,092    (588)     163      665

Net
income
(loss) .......   1,088     675      95     422     567    (652)    (147)     157

Basic
earnings
(loss)
per share.....    0.25    0.15     0.02    0.10   0.13    (0.14)   (0.03)   0.03
Diluted
earnings
(loss)
per share...      0.25    0.15     0.02    0.10   0.13    (0.14)   (0.03)   0.03

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.  The
increase  in  sales in the  fourth  quarter  of 2001  was due to the  gift  card
business,  as well as, the third and fourth quarters of 2002. The second quarter
of 2002 includes the settlement of the sales tax  liability.  The fourth quarter
of 2002 includes the majority of research and experimentation  credit and volume
purchase  discounts  earned from  suppliers  which the  Company  had  previously
estimated would not be earned.

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 2003 (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, 2002,  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..........................      67    Chairman of the Board of
                                                     Directors, Chief Executive
                                                     Officer

Gregory M. Jehlik.......................      42    President, Chief Operating
                                                     Officer and Director

Dennis W. Lakomy........................      57    Executive Vice President,
                                                     Chief Financial Officer,
                                                     Secretary,
                                                     Treasurer and Director

Scott D. Coney..........................      36    Vice President of Operations

Mark A. Lamb............................      51    Vice President, Global
                                                     Marketing

William A. Herring......................      55    Senior Vice President of
                                                     Technology

Thomas Richards.........................      52    Vice President, Security
                                                     Sales

Friedrich Sommer........................      49    Managing Director, CFC
                                                     Europe

Edward Zelasko..........................      45    Vice President, Sales
                                                     North America


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.

Gregory M. Jehlik, President, Chief Operating Officer and a Director, joined the
Company in June 2002. Before joining the Company, Mr. Jehlik served from 1999 as
President and Chief Operating Officer of American  Engineered  Components,  Inc.
Prior  thereto,  he spent 17 years  with the  Brady  Corporation  in a number of
management   roles   including   sales,   marketing,   general   management  and
international  operations.  Mr.  Jehlik  earned a bachelors  degree from Indiana
University and a masters degree of business  administration  from the University
of Wisconsin.


<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 in
Mechanical  Engineering  from  Purdue  University  and  a  Masters  of  Business
Administration from Loyola University of Chicago.

Mark A. Lamb,  Vice President of Global  Marketing  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 at Northern
Bank Note in September  1997. In 2001, Mr. Lamb also became  responsible for the
Company's  holographic  sales.  In 2002, Mr. Lamb was appointed Vice  President,
Global Marketing. Mr. Lamb holds a B.S. Degree from Northern Illinois University
and  graduated  from the Printing  Industry of America's  Executive  Development
Program.

William A. Herring,  Senior Vice  President of Technology  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 through  August 31, 2002.  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.

Thomas  Richards,  Vice  President of Security  Sales joined  Northern Bank Note
Company in 1972, and has held various positions in production,  human resources,
sales and sales  management.  In 2000, Mr. Richards  became  responsible for all
security  sales in North America for  holographic,  retail and intaglio  printed
products. Mr. Richards holds a B.S. Degree from Carthage College, graduated from
the  Printing  Industry  of  America's  Executive  Development  Program  and the
University of Chicago's  Graduate School of Business  strategic sales management
program.

Dr.  Friedrich  Sommer,  Managing  Director of CFC Europe  joined the Company in
April  2002.  Prior to joining the  Company,  Dr.  Sommer  held the  position of
Managing Director of Vereinigte  Papierwarenfabriken GmbH. Dr. Sommer has a Ph.D
and BSc in Chemistry from Ruhr-Universitaet-Bochum.

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.

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.


<PAGE>







ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

William G. Brown,  a director of the Company since 1995,  currently is a partner
of Bell, Boyd & Lloyd LLC, Chicago,  Illinois, which was retained by the Company
to provide services prior to fiscal 2002.

Richard Pierce,  a director of the Company since 1995,  currently is a member of
Russell Reynolds Associates,  Inc., Chicago, Illinois, which was retained by the
Company to provide services in fiscal 2002.

The  Company  purchased  50,000  shares of common,  stock from its former  chief
operating  officer for $4.51 per share (fair market  value) during 2002 upon the
executive's  departure  from  the  Company.  These  shares  were  issued  to the
executive under a Restricted  Stock Agreement in 1999. In addition,  the Company
also  purchased  25,000  shares from Mr.  Hruby for $4.35 per share (fair market
value) during 2002. All of these shares are held in treasury.

Item 14.  CONTROLS AND PROCEDURES

Disclosure  controls and procedures are our controls and other  procedures  that
are  designed to ensure that  information  required to be disclosed by us in the
reports that we file or submit  under the  Exchange Act is recorded,  processed,
summarized and reported, within the time periods specified in the Securities and
Exchange  Commission's  rules and  forms.  Disclosure  controls  and  procedures
include,  without  limitation,  controls and procedures  designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and  communicated  to our management,  including our
principal  executive officer and principal  financial officer, as appropriate to
allow timely decisions regarding required disclosure.

Under the supervision and with the  participation  of our management,  including
our  principal  executive  officer  and  principal  financial  officer,  we have
evaluated  the  effectiveness  of the design  and  operation  of our  disclosure
controls and  procedures  upon which these  financial  statements and management
discussion are based.  Based on their evaluation,  which was completed within 90
days prior to this  request,  our  principal  executive  officer  and  principal
financial  officer  have  concluded  that  these  controls  and  procedures  are
effective and  appropriate to ensure the  correctness  and  completeness of this
annual report.  There were no significant changes in our internal controls or in
other factors that could  significantly  affect these controls subsequent to the
date our evaluation was completed.

<PAGE>



                                                                PART IV

ITEM 15.  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.

         10.3     Stock Option Plan of the Company
         10.4     Director Stock Option Plan of the Company
         10.5     Employee Stock Purchase Plan of the Company
         10.6     Stock Option Agreement with Roger Hruby
         10.7     2000 Stock Option Plan of the Company
         10.8     2000 Director's Stock Option Plan of the Company
         10.9     Employment Letter for Gregory M. Jehlik

(b)      Reports on Form 8-K
         The Company filed no Report on Form 8-K in the fourth quarter of 2002.

(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 Loan and Security Agreement dated May 17,
                  2001 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 June 30, 2001).

         10.1(b)  First Amendment dated January 31, 2003 to Amended and Restated
                  Loan and Security Agreement between LaSalle National Bank
                  National Association and the Company, and related documents
                  (filed herewith).

         10.1(c)  Eighth Amendment to Mortgage and Assignment of Rents and
                  Leases dated as of January 31, 2003 between the Company and
                  LaSalle National Bank National Association (filed herewith).


<PAGE>







         10.1(d)  Reimbursement Agreement dated March 19, 1999 between CFC
                  Europe GmbH and LaSalle Bank National Association, and related
                  documents (incorporated by reference to Exhibit 10.2(c) to the
                  Company's Quarterly Report on Form 10-Q for the quarterly
                  period ended March 31,1999); Amendment dated July 6, 2000 to
                  Reimbursement Agreement between CFC Europe GmbH and LaSalle
                  Bank National Association (incorporated by reference to
                  Exhibit 10.1C to the Company's Quarterly Report on Form 10-Q
                  for the quarterly period ended September 30, 2000); Amendment
                  dated May 17, 2001 to Reimbursement Agreement between CFC
                  Europe 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 June 30, 2001).

         10.2     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).

         10.3     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).

         10.4     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).

         10.5     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).

         10.6     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).

         10.7     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).

         10.8     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).

         10.9     Employment Letter dated May 7, 2002 issued by the Company to
                  Gregory M. Jehlik (filed herewith).

         10.10(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).

         10.10(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.



<PAGE>







         10.11         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).

         14.1     CFC International, Inc. Conflicts of Interest and Business
                  Ethics Policy (filed herewith).

         21.1     List of Subsidiaries of the Company.

         23.1     Consent of Independent Accountants.

         99.1     Certification of Chief Executive Office (filed herewith).

         99.2     Certification of Chief Financial Officer (filed herewith).

All other exhibits 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 21, 2003.

                           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 21, 2003.

      Signature                                           Title

 Principal Executive Officer:


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


Principal Financial/Accounting Officer:


     /s/ DENNIS W. LAKOMY                     Executive Vice President,
----------------------------------------      Chief Financial Officer,
Dennis W. Lakomy                              Secretary, 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/ GREGORY M. JEHLIK                                            Director
-----------------------------------------
Gregory M. Jehlik


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


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


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




<PAGE>




                                 Certifications


     I,  Roger F.  Hruby,  Chairman  of the Board and Chief  Executive  Officer,
     certify that:

     1. I have reviewed  this annual  report on Form 10-K of CFC  International,
     Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

     3. Based on my knowledge,  the  financial  statements,  and other financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
     on our most recent evaluation,  to the registrant's  auditors and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and


<PAGE>





     6. The registrant's other certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  March 21, 2003

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



<PAGE>





                                 Certifications


     I, Dennis W. Lakomy,  Executive Vice President,  Chief  Financial  Officer,
     certify that:

     1. I have reviewed  this annual  report on Form 10-K of CFC  International,
     Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

     3. Based on my knowledge,  the  financial statements,  and other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

     4. The  registrant's  other  certifying  officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
     on our most recent evaluation,  to the registrant's  auditors and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and


<PAGE>





     6. The registrant's other certifying  officers and I have indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  March 21, 2003




        /s/  Dennis W. Lakomy
        ------------------------------------------------------
        Dennis W. Lakomy
        Executive Vice President,
        Chief Financial Officer