===============================================================================
                                  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, 2003

                                       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  whether  the  registrant  is an  accelerated  filer (as
defined by Rule 12b-2 of the Exchange Act).

                                YES (   )      NO ( X )

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,
$22,844,277  at March 12, 2004  (based on the  closing  sale price on The NASDAQ
Stock  Market  on March  12,  2004.  At  March  12,  2004,  the  registrant  had
outstanding an aggregate of 3,878,485  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 2004,  described in Part III hereof,  are
incorporated by reference in this report.

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<PAGE>





                                     PART I

ITEM 1.  BUSINESS

General

CFC International,  Inc. ("CFC" or the "Company")  formulates,  manufactures and
sells  chemically-complex,  multi-layered  functional  coatings,  which  provide
superior  performance  under a wide range of operating  conditions.  The Company
applies  its  proprietary  coatings  to rolls of  plastic  film  from  which its
customers  transfer  the  coatings or with which they  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 or
brand of proprietary  products and documents  susceptible to  counterfeiting  or
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
registered with the FDA for pharmaceutical products such as intravenous solution
bags and  syringes;  security  products  such as magnetic  stripes and signature
panels  for  credit  cards,   intaglio  printing  for  stocks,  bonds  and  gift
certificates,  along with  printing,  encoding  gift  cards and a  sophisticated
fulfillment system to distribute security products;  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.
In June 2003,  the United  Kingdom  operations  were  merged  into CFC Europe in
Germany.  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 other types
of 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").  Prior to the acquisition, the Company's market
was limited to North America.  CFC now 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 23.7% of the Company's net sales in 2003.
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 was one of
only two  significant  suppliers of printed film  transferable  coatings for the
Engineered  Board market.  In October  2003, a major  competitor in this segment
announced it was not going to service this market as of February 1, 2004, and in
fact  exited the  market at that time.  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 27.3% of
the Company's net sales in 2003. See "-- Chemical Coatings -- Printed Products."

The Company  also  focuses 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 13.3% of the Company's net
sales in 2003. 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 has
recently  developed a product  which allows bar codes to be read on  intravenous
solution bags. 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 growing market and
is the sole supplier to Baxter Healthcare Corporation for these products.  Sales
of products in this market represented  approximately 17.6% of the Company's net
sales in 2003. See "-- Chemical Coatings -- Pharmaceutical Products."

The Company's Specialty Pigment and Simulated Metal Products 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.  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  18.1% of
the  Company's  net  sales in  2003.  See "--  Chemical  Coatings  --  Specialty
Pigmented and Simulated Products."

CFC's  products  are sold to more than 5,000  customers  worldwide.  The Company
generated  approximately  51.9% of its 2003  revenues  from sales outside of the
United States and has sales offices in the United Kingdom and France, 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   to  the  newer  2000  version  in  August  2003.   The  Company's
ISO9001/2000   Registered  Quality  Management  System  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. Our telephone number is (708) 891-3456, and our website
is  www.cfcintl.com.  All references to the "Company," "CFC" or the "Registrant"
in this report mean CFC International,  Inc. and its consolidated  subsidiaries,
unless the context  requires  otherwise.  The  information on our website is not
incorporated into and is not intended to be a part of this report.

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,  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,  as well as
copies of our  Conflicts of Interest and  Business  Ethics  Policy and our Audit
Committee's charter.

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,  be the
lowest cost producer,  continually improve efficiencies and quality, and 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  through  alliances  with  foreign  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  United Kingdom joint
venture  partner,  expanding  rights  previously  limited to North America.  The
Company has  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 specialty  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 more efficiently  utilize the Company's  production  facilities and
limit  waste.  The  Company  uses its Visual  Process  Control  (VPC)  system to
identify and map some of its key manufacturing processes, address non-productive
steps and minimize  work in process  between  manufacturing  steps.  The Company
continues to focus on solving  non-conformancies  in the manufacturing  process.
The  Company  has  also  introduced  a  program  to  reduce  cycle  times in the
manufacturing process utilizing a lean manufacturing technique. The Company also
is transferring printed products manufacturing of products sold in Europe to its
German  facility  to create  necessary  capacity to serve the  domestic  market,
necessitated  by the major  competitor  announcing  in October  2003 that it was
ceasing production in January 2004.


<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  achieved  ISO9001/2000
certification from an approved  ISO9001/2000  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  technical  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  during the last two years  include the  Company's
special  version  of the  HoloLaser  product  that  will  be  used  in  currency
applications  and high  security  documentation.  The  Company  has  developed a
morphing  security hologram that with simple movement of the hologram allows for
instant  authentication.  By combining two high security,  complex stereographic
images,  consumers  can easily  check for  authenticity  by simply  rolling  the
holographic image from  side-to-side to see one image change into another.  This
new development  addresses what had previously been identified as a weakness for
holography  as an  authentication  device,  namely its  dependence  upon  covert
(forensic)  elements  that only  someone  with a  microscope  or other  types of
analytical  tools  would  be  able  to  identify  and  authenticate  as  a  real
hologram/product. The Company has also developed a two-sided embossed strippable
holographic material to manufacture holographic pigments for use in coatings and
inks (i.e.,  cosmetics  and  decorative  paints).  The  Company has  developed a
pressure  sensitive  security  label with  sophisticated  features  that include
double-layer  voiding and  registered  demetalization  for use on packaging  and
brand protection.  This complex  construction can be used on both boardstock and
plastic  surfaces  over a wide  range  of  temperatures.  The  Company  has also
developed a special  woodgrain  product for inmold  decorating  of  interlocking
floor tiles with both  functional and decorative  attributes.  This product will
fully cover and bond to the top surface of the tile and the contours of the tile
during the molding process.  The Company also has developed a series of magnetic
stripes  at  different  coercivities  and a clear  signature  panel for  in-line
laminating  to  plastic  card  substrates  as they  are  being  extruded.  These
substrates are extruded as a continuous web, and are then converted into process
size sheets (of 50 to 80 cards).  This approach saves  considerable costs in the
downstream  processing of the cards where  magnetic  stripes  would  normally be
applied to sheets and  signature  panels to  individual  cards.  The Company has
developed a thermal  transfer  ribbon  that is the first of its kind.  This is a
FDA-registered  product for  application on intravenous  solution bags to render
them  bar-code  readable.  The Company  has  developed  a  FDA-acceptable,  cold
transfer  holographic foil for the packaging  industry that is used for indirect
food  contact and  cigarette  packaging.  The  Company  has  developed a virtual
seamless holographic shim up to 40" for its wide embossing machines. The Company
has also developed an enhanced printed pattern laminate called  NeoClad(TM) that
is  thermoformable  and wrappable  with superior  durability  and  appearance to
existing plastic laminates.

Overview of Products

The Company's principal product types include the following:

o    Holographic Products include the Company's high-technology holograms used
     as security markings on products such as 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 contain both overt and
     covert data. The Company uses 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 introduced a virtual seamless, up to 40", web
     packaging product. The Company also has developed a morphing security
     hologram that with simple movement of the hologram allows for instant
     authentication. By combining two high security, complex stereographic
     images, consumers can easily check for authenticity by simply rolling the
     holographic image from side-to-side to see one image change into another.
     This new development addresses what had previously been identified as a
     weakness for holography as an authentication device, namely its dependence
     upon covert (forensic) elements that only someone with a microscope or
     other analytical tools would be able to identify and authenticate as a real
     hologram/product.
<PAGE>

o    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. The newly enhanced
     NeoClad(TM) is a thermoformable, wrappable, 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
     veneer, 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 register with the
     Company's InMold decorating technology to produce precision layouts while
     being automatically transferred in the molding process.

o    Security Products include tamper-evident signature panels and abrasion
     resistant tipping foils for transaction cards, as well as specialized
     multi-coercivity magnetic stripe products applied to both plastic
     transaction cards and disposable fibrous substrates, such as driver's
     licenses, student identification cards, airline tickets, mass-transit
     tickets, bank books 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
     sophisticated fulfillment system to distribute security products for global
     customers.

o    Pharmaceutical Products consist of specialized functional coatings for heat
     transfer printing on pharmaceutical products, such as intravenous solution
     bags, syringes and other uses requiring non-toxic ingredients, adhesion
     during and after the sterilization process and is FDA regulated,
     domestically. The Company has recently developed a thermal transfer ribbon,
     which the Company believes is the first of its kind. It is a FDA-registered
     product for application on intravenous solution bags to render them
     bar-code readable.

o    Specialty Pigmented and Simulated Metal Products. Specialty Pigmented
     Products include automobile batteries, cosmetics containers, industrial
     signage and other markets requiring a particularly durable specialized
     functional coating. Specialty Simulated Metal Products incorporate a
     microscopically thin layer of aluminum resulting in a metallic look that
     includes bright-simulated metal and reflective coatings used in the
     appliance, automotive and cosmetic markets. Most of these coatings are
     produced with state-of-the-art ultra-violet curing processes, which result
     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     2003  Key Product Features
------         -----------              ---------     ----  --------------------

Holographic    Authentication seals,    Foreign       23.7%  - Fully integrated
Products       trophies, point-of-      Government,            manufacturing
(product       purchase packaging,      Computer               process
authenti-      security labels          Component            - AEGIS
cation,                                 Manufacturers,       - Morphing security
high-end                                Aquafresh,             image
eye-catching                            Colgate, Crest       - Virtual Seamless
packaging)

Printed        RTA furniture (bedroom,  Sauder        27.3% - Scratch/mar
Products       office, entertainment    Woodworking,          resistant
(Engineered    centers), promotional    Ameriwood,            finishes
Board,         furniture (hotel and     Lazy Boy, Guisto      (Amorite
building       office), cabinets,       Manetti Battiloro     Plus (TM))
products,      manufactured home        S.p.A. (Italy),     - Match to any
consumer       interiors, picture       Ashley Furniture,     pattern
electronics,   frames, award plaques,   Harden Furniture      or color
home           tropy bases, InMold                          - NeoClad(TM)
decorating,    products
trophies/
awards)

Security       Magnetic stripes,        Visa,         13.3% - 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  - Magnetic stipes
cation cards,  ATM cards, access        Express, Sears,       and clear
stocks and     cards, driver's          Best Buy,             signature panel
bonds, gift    licenses, passports,     Domestic and          for in-line
certificates   intaglio printed         Foreign               extrusion
and gift       security documents,      Governments         - Intaglio printed
cards)         gift cards, money                              stocks, bonds,
               delivery pouches                               birth certificates
                                                              and gift
                                                              certificates
                                                            - Gift cards
                                                            - Sophisticated
                                                              fulfillment and
                                                              distribution
                                                              system

Pharmaceutial  Intravenous solution     Baxter        17.6% - 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,   - Thermal transfer
                                        C.R. Bard,            ribbon to enable
                                        Fresenius,            bar code reading
                                        Bieffe Medital


Specialty      Beverage cases,          Rubbermaid,   18.1% - 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         Danaher Controls      alternative
(injection     inserts, toys,                               - Ability to color
molded and     cosmetic                                       match
extruded       containers                                   - Non-toxic
plastics)



<PAGE>



Chemical Coatings

The manufacture of the Company's  chemical  functional  coatings is a multi-step
process that involves pigments, solvents, resins and additives which are blended
into  one of  more  than  2,500  proprietary  formulations.  The  first  step in
production  most  commonly is the  application  of a release  agent to a roll of
plastic film carrier. The release agent allows the subsequent coatings to easily
separate  from the plastic  film  carrier and adhere to the  customer's  product
during their manufacturing  process.  Following the release coating, a series of
subsequent  coatings  are  deposited to achieve the desired  color,  pattern and
physical  characteristics.  These characteristics  include resistance to general
abrasion,  ultra-violet light exposure,  contact with solvents or other reactive
household  chemicals,  contact  with  acids,  size  of area  of the  coating  is
transferred, 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.  Products
that do not contain a release coating are typically  laminated to the customer's
products.  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 (now called Applied  Optical  Technologies),  for $3.6 million.  The Company
develops  and  exploits  those  rights,  as well  as  manufactures  and  markets
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.  Another proprietary technology, a morphing
hologram,  allows  for  easy  identification  without  the  need  for  expensive
equipment.  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-formed  or 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  also  can  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  developed a morphing  security  hologram that with
simple movement of the hologram allows for instant authentication.  By combining
two high security,  complex stereographic images, consumers can easily check for
authenticity  by simply rolling the holographic  image from  side-to-side to see
one  image  change  into  another.  This  new  development  addresses  what  had
previously  been  identified as a weakness for  holography as an  authentication
device,  namely its dependence upon covert (forensic) elements that only someone
with a  microscope  or other  analytical  tools  would be able to  identify  and
authenticate  as a  real  hologram/product.  The  Company  has  also  introduced
HoloBase,  which is a product that  customers  can use to emboss a wide range of
security  images  including  security  holograms  for use on  credit  cards  and
identification  cards.  The Company  also has HoloLam,  a full-face  holographic
pattern laminate for the full front and back of credit cards.

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 personal
care, 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 narrower 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  23.7%, 19.1% and 17.0% of the
Company's  net  sales  in the  years  ended  December  31,  2003,  2002 and 2001
respectively.

The Company  expects this product  line to continue to  experience  double digit
growth  in  2004,  due  to  companies  around  the  world  demanding   increased
security/authenticity  protection on their  products,  and  additional  consumer
holographic packaging opportunities.


<PAGE>



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.

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. The newly enhanced NeoClad(TM)
is a thermoformable,  wrappable,  non-PVC laminate that is more  environmentally
friendly than competitive  vinyl  laminates.  It also has the look of real wood.
This specially formulated film is a durable,  thermoformable 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  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 Europe.
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 resin system to produce
one of the most fade resistant  coatings used in the industry.  The resin 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  silver
coating on many consumer  electronics and appointments 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-step  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  27.3%,  28.5%  and  28.2%  of the
Company's  net  sales in the  years  ended  December  31,  2003,  2002 and 2001,
respectively.

This product line is expected to increase  significantly in 2004,  primarily due
to the exit of a major competitor from this market in early 2004.


<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  sophisticated  fulfillment  system to  distribute
security items

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
do  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 Countryside 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
Countryside 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  13.3%,  18.3%  and  15.1% of the
Company's  net  sales in the  years  ended  December  31,  2003,  2002 and 2001,
respectively.

The Company  expects  this  product  area to be flat in 2004.  The company  also
anticipates  producing  a  greater  volume of  intaglio  printed  documents  for
domestic  consumption  to which  will  offset the  decrease  in sales to 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 are FDA
approved,   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.  In 2003, the Company introduced a
new  white  thermal  transfer  ribbon  that  is  FDA-registered   and  used  for
application on intravenous solution bags to render them bar-code readable.

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. In October 2002, this contract was renewed until March 2007. 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, and has maintained this  distinction  through 2003. 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
17.6%,  17.2% and 17.2% of the Company's  net sales in the years ended  December
31, 2003, 2002 and 2001, respectively.

The Company  expects a slight  increase in this product line in 2004 as an aging
global population is projected to require more medical services.

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  a special  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  18.1%,
16.9% and 22.3% of the Company's net sales in the years ended December 31, 2003,
2002  and  2001,   respectively.   The  market  for  simulated  metal  coatings,
particularly  for  use  in  graphics,   is  highly   competitive  and  has  been
experiencing  generally  declining gross margins.  Accordingly,  the Company has
determined to not actively pursue 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  75.3% of
specialty  pigmented and simulated metal sales for 2003. 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 2004,  as it
continues to focus on  higher-margin,  growth-oriented  markets,  and expects to
better service this business by better  utilization of the two coaters installed
in Germany in 2003.

International Sales

The Company  maintains  sales  offices in the United  Kingdom  and  France,  and
manufacturing,  warehouse,  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   ninety-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, 2003,  2002 and 2001,  net sales to Europe,
the  Pacific  Rim,  and  other  customers  outside  of the  United  States  were
$32,560,000,   $26,301,000  and  $29,625,000,   respectively,   and  represented
approximately 51.9%, 42.5% and 47.8%, respectively, of the Company's net sales.

Research and Development

Management believes that a major factor contributing to the Company's growth has
been continued  investment in research and development.  The Company's  Research
and  Development  department  has  contributed  to the  development of formulae,
proprietary  know-how,  modifications to existing equipment,  and specifications
for both new equipment  and new raw  materials.  Tangible  results have included
improved ease of coating application, abrasion resistance, functionality and the
expansion of the market for the Company's holographic products.

Recent  developments in holographics  products  include a new morphing  security
hologram that combines two high security,  complex stereographic images, so that
consumers can easily check for  authenticity  by simply rolling the  holographic
image  from  side-to-side  to see  one  image  change  into  another.  This  new
development  addresses  what has been  previously  identified  as a weakness for
holography  as an  authentication  device,  namely its  dependence  upon  covert
(forensic)  elements  that only someone with a  microscope  or other  analytical
tools would be able to identify and authenticate as a real hologram/product. The
Company has also  developed  the  following  holographics  products:  HoloLaser,
holographic  pigment, a holographic pressure sensitive label and a FDA-qualified
cold  transfer  holographic  foil.  HoloLaser  offers high  durability  and heat
resistance as compared to current offerings.  The Company developed this special
version for use in currency  applications  and on high  security  documentation.
Holographic  pigment is a two-sided  embossed  strippable  holographic  material
developed for use in the manufacture of holographic pigments in coatings in inks
that is then used in such items as cosmetics and decorative  paints. The Company
also has developed a holographic pressure sensitive security label with built-in
sophisticated   features  that  include  double-layer  voiding,  and  registered
demetalization  for use on  packaging  and to  provide  brand  protection.  This
complex  construction can be used on both boardstock and plastic surfaces over a
wide range of  temperatures.  The Company has developed a  FDA-acceptable,  cold
transfer  holographic foil for the packaging industry that is used indirectly on
food and cigarette packaging.


<PAGE>





The Company has developed a highly flexible vinyl EB product for decorating edge
banding.  This product allows for metalized components and can be used on uneven
contours of a  decorative  piece.  The Company  recently  developed  an enhanced
version of NeoClad(TM), a thermoformable, wrappable printed product which allows
the Company's customers to use an environmentally friendly laminate that has the
look and feel of real wood. The Company has also  developed a patterned  printed
product for use in inmold decorating of interlocking floor tiles. This woodgrain
product delivers both functional and decorative  attributes for full coverage of
the tile and contours of the tile during the application process.

The Company has also  developed a series of laminate  foil  products for in-line
magnetic  stripe and clear  signature  panels  used on a variety of  transaction
cards. This development saves our customers considerable costs in the downstream
production of plastic  transaction  cards. In addition,  the Company developed a
series  of  high   performance   magnetic  stripes  for  use  on  polyester  and
polycarbonate  based  identification  and security  cards.  The Company has also
developed  an  in-line  method of  decorating  extruded  premium  plastics  with
patterns such as argents,  brushed metals and  woodgrains.  Lastly,  the Company
developed a FDA  registered  white thermal  transfer  ribbon for  application on
intravenous solution bags to render them bar-code readable.

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 fifteen 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 six people.  In the years ended  December 31,
2003, 2002 and 2001, the Company spent approximately $2,167,000,  $2,042,000 and
$2,222,000, respectively, on research and development.

Marketing and Sales

As of December 31, 2003,  the Company had 24 full time sales people serving over
5,000 existing  customers.  Sales personnel include the Vice President of Global
Marketing,  two Product Managers and the Vice President of Sales,  Americas, who
is responsible for the Americas. From February 1, 2003 to December 15, 2003, the
European Sales Manager was  responsible  for all German and French sales.  As of
December 16, 2003, the European Managing  Director is temporarily  managing this
function.  Additional sales personnel  include three Regional  Managers,  a Vice
President of Intaglio and  Holographic  Security  sales and sixteen  Field Sales
Engineers  who are  compensated  on a salary  plus  commission  basis.  The Vice
President of Global  Marketing  also  supervises two Product  Managers,  one for
Holographics  and the other who handles Card and Specialty Films and Foils.  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 the third  Regional  Manager is  responsible  for the Pacific Rim (including
Japan).  The Vice President of CFC Countryside Sales is responsible for intaglio
security products and domestic  holographic  security and authentication  sales.
The  majority  of  CFC's  products  are  sold  directly  to  original  equipment
manufacturers who incorporate the Company's products into their own products. In
addition,   limited  use  is  made  of  a  distributor  network,  including  one
distributor  who  services  small  accounts  in the  United  States  and  ninety
distributors who service  international  markets. All Japanese sales are handled
by a distributor.

The Company markets a combination of standard  products and specialty items on a
minimum  order  basis.  Most of the  Company's  sales are not made  pursuant  to
long-term sales contracts,  since most customers  require prompt turnaround from
order to delivery.  The Company  typically sells based upon a specific  customer
purchase order.  The Company  typically  monitors open orders due in the next 60
days.  Comparisons  of these 60 day periods are not  necessarily  indicative  of
long-term sales trends.

The Company's three largest customers in 2003 were Baxter Healthcare,  Intel and
Unifoil.  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 2003,  2002  and  2001,  were  $6,920,000,
$6,683,000 and $6,926,000,  respectively. Sales to Intel and Unifoil are made on
an individual  purchase order basis.  Sales to Intel for each of 2003,  2002 and
2001, were $4,132,000, $1,638,000 and $1,206,000, respectively. Sales to Unifoil
for each of  2003,  2002 and  2001,  were  $2,860,000,  $930,000  and  $101,000,
respectively.


<PAGE>




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  has  significantly
increased 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  to the  newer  standards
ISO9001/2000 in August 2003.

ISO9001/2000  registration  requires  continuing  compliance  with a  series  of
generic standards that provide quality  management  direction as well as quality
assurance requirements,  guidelines and the Company's customers must acknowledge
satisfaction  with the  Company's  products.  These  standards  were  originally
published  in  1987  by  the  International  Standards  Organization.  The  same
standards  apply  to  all  service  and  manufacturing  companies.  To  maintain
ISO9001/2000  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
ISO9001/2000  standards  will be required in the future to sell  products in the
European  Union.  In  addition,  many United  States  customers,  including  the
Company's  largest  client,  Baxter  Healthcare  Corporation  and  others,  have
acknowledged the value of registration.

Product Protection

The Company's  success is heavily  dependent upon its  proprietary  formulae and
scientific  and  manufacturing  know-how.  Accordingly,  the Company relies upon
trade  secrets  and other  unpatented  proprietary  information  in its  product
development.  All employees sign an 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  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.  This
competitor announced to its customers in October 2003 that they were exiting the
printed pattern  products market early in 2004, and did in fact exit this market
in February 2004.  Customer  criteria for purchase of products  include  product
quality, innovation and engineering capability, price, availability and service.
The Company believes that it competes favorably on these factors.

Competitors  range from small  enterprises to divisions or subsidiaries of large
multi-national  conglomerates  with greater  financial and management  resources
than the Company.  CFC uses a  partnership  approach in its  relations  with its
major  customers.  This approach  includes the Company  becoming an extension of
their customer's R&D.

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  of 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.


<PAGE>




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  catalytic  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.  The Company  received  approval from the Illinois EPA in
August 2003 to install two thermal  regenerating  oxidizers,  which increase the
Company's  production capacity and reduce its operating costs primarily due to a
more  efficient  heat  exchange  system.  The new  oxidizers  were  successfully
switched on in December 2003.

Employees

As of December 31, 2003, the Company had approximately 357 full-time  employees.
These included 190 in manufacturing, 67 in support services, 49 in marketing and
sales, 26 in research and development and 25 in  administration  and management.
Certain  manufacturing  employees  of the  Company's  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 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. The Company
signed a term sheet in December 2003 to acquire the property immediately west of
its Chicago Heights,  Illinois property. This property is 5.7 acres and contains
a 58,000 square foot building that is suitable for the Company's business. There
is  approximately  80,000 square feet of green space for future  expansion.  The
Company completed the acquisition in February 2004.


<PAGE>



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, 2003,  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, 2003,
no reserve has been established.

In September 2003, the Company was notified by Clariant Corporation ("Clariant")
that  certain  lots  of  pigment  Clariant  provided  to the  Company  contained
polychlorinated  biphenyls  ("PCB's")  in excess  of  Federal  regulations.  The
Company immediately  quarantined all material containing this pigment and ceased
production  using this pigment.  Samples of products  produced with this pigment
were  sent  to an  outside  independent  laboratory  for  testing.  The  results
indicated that in the Company's  product,  the pigment with the PCB's is encased
in a strong  organic matrix that can only be broken with a highly polar solvent.
The Company's  customers came to the conclusion that their  respective  products
did not need to be recalled based upon their further testing and  investigation.
The customers did want to return all products  containing  the suspect  pigment.
The Company  has issued  credits to  affected  customers,  and as a result has a
receivable  from  Clariant in the amount of $355,000  as of December  31,  2003,
which it collected in March 2004.

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, 2003,  the last  reported  sale price of the
Common  Stock on the Nasdaq  National  Market was $5.30 per share.  At March 12,
2004, there were approximately 136 record holders of the Common Stock. The table
below sets forth the high and low sales  prices of shares of Common Stock on the
Nasdaq National Market as reported by Nasdaq for the periods indicated.


                               Market Information
                                                           Price per Share of
                                                              Common Stock
                                                             High       Low
                                                             ----       ---
Year Ended December 31, 2003
       1st Quarter.........................................  4.75       4.25
       2nd Quarter.........................................  6.15       4.33
       3rd Quarter.........................................  6.50       4.34
       4th Quarter.........................................  7.00       4.75
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


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 Annual Report.

                                             Year Ended December 31,
                              --------------------------------------------------
                                 2003       2002     2001      2000      1999
                                 ----       ----     ----      ----      ----
                                   (In thousands, except per share data)
Income Statement Data:
Net sales ...................  $ 62,788  $ 61,878  $ 61,995  $ 68,240  $ 66,147
Cost of sales
  (excluding depreciation
  and amortization) .........    42,455    38,492    41,033    43,064    42,598
Selling, general and
  administrative ............    13,301    13,118    13,333    15,822    14,010
Research and development ....     2,167     2,042     2,222     2,745     2,022
Depreciation and amortization     4,193     3,956     4,076     4,225     3,329
International consolidation
  expense ...................        --        --        --       768        --
                               --------  --------  --------  --------  --------
Operating income ............       672     4,270     1,331     1,616     4,188
Interest expense ............     1,110     1,241     1,484     1,336     1,030
Interest income .............        --       (29)      (10)      (59)       --
Other expense ...............        --        --        16        --        20
Interest rate swap
  valuation provision .......        48        --        --        --        --
Other income ................       (26)     (219)      (29)     (163)      (29)
                               --------  --------  --------  --------  --------
(Loss) income before taxes ..      (460)    3,277      (130)      502     3,167
(Benefit) provision for
  income taxes ..............      (298)      998       (55)      180       922
                               --------  --------  --------  --------  --------
Net (loss) income ...........  $   (162) $  2,279  $    (75) $    322  $  2,245
                               ========  ========  ========  ========  ========

Basic and diluted (loss)
  earnings per share.........  $  (0.04) $   0.51  $  (0.02) $   0.07  $   0.49


Other Data:
Capital expenditures.........  $  4,067  $  2,544  $  2,359  $  3,758  $  2,958
Depreciation and
  amortization (1)...........     4,193     3,956     4,076     4,225     3,329
EBITDA (2)...................     4,865     8,226     5,407     5,841     7,517
Net cash provided by
  operating activities........    3,034     7,257     7,696     2,066     3,095
Net cash used in
  investing activities........   (4,067)   (2,088)   (2,359)   (7,290)   (7,048)
Net cash provided by
  (used in) financing
  activities..................      693    (1,888)   (2,182)    3,372       355

Balance Sheet Data:
Working capital............... $ 10,524  $ 12,178  $ 12,764  $ 14,940  $ 15,076
Total assets..................   65,515    58,607    55,197    56,401    55,362
Total debt (3 & 4)............   24,782    21,486    22,134    24,418    21,029
Stockholders' equity..........   27,929    26,370    22,642    23,095    23,745
----------------
(1)  Depreciation and amortization excludes amortization related to debt
     financing costs.
(2)  The Company believes earnings before interest expense, income taxes,
     depreciation and amortization (EBIDTA) is an useful measurement for its
     business because management understands that such information is considered
     by certain investors as an additional basis on which to evaluate the
     Company's ability to pay interest, repay debt and make capital
     expenditures. 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:

                                             Year Ended December 31,
                              --------------------------------------------------
                                 2003       2002     2001      2000      1999
                                 ----       ----     ----      ----      ----
                                                  (In thousands)
     Net (loss) income.......  $  (162)  $  2,279   $  (75)  $   322   $  2,245
     Add back (subtract):
     Income taxes (benefit)
       provision.............     (298)       998      (55)      180        922
     Interest, net...........    1,110      1,212    1,474     1,277      1,030
     Depreciation and
       amortization .........    4,193      3,956    4,076     4,225      3,329
     Interest rate swap
       valuation
       provision..                  48          -        -         -          -
     Other (loss) income,
       net...................      (26)      (219)     (13)     (163)        (9)
                               --------  --------  --------  --------  --------
     EBITDA                    $ 4,865   $  8,226  $ 5,407   $ 5,841   $  7,517
                               ========  ========  ========  ========  ========

(3)  Includes current and long-term portions of debt.
(4)  The Company's debt agreements prohibit the payment of dividends.


<PAGE>



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

Overview

The Company formulates, manufactures and sells chemically-complex,  transferable
multi-layer  coatings for use in many diversified  markets such as furniture and
building products,  pharmaceutical products, transaction cards, including credit
cards,  debit  cards,  ATM cards and  access  cards,  intaglio  printing  and on
sophisticated  embossable coatings for holographic  packaging and authentication
seals. The Company also has developed a sophisticated fulfillment system. During
the period  from 1999 to 2003,  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. The strength
of European  currencies  in 2003  caused an  increase  in sales of $2.5  million
compared to 1999. Holographic products net sales increased from $10.4 million in
1999 to $14.9 in 2003,  primarily  due to  growth  in  authentication  sales and
consumer  products  packaging.  Printed  products net sales  declined from $17.5
million in 1999 to $17.1 million in 2003. This decline in net sales is primarily
due to the decline in the manufactured  housing market, and competition from low
priced imports from Asia.  Pharmaceutical products net sales increased from $9.1
million  in 1999 to  $11.1  million  in 2003,  primarily  due to the  growth  of
European sales and an aging  population.  Security  products net sales decreased
from $8.8 million in 1999 to $8.4 million in 2003, primarily due to a decline in
magnetic  stripe sales and  signature  panels due to lower  selling  prices as a
result  of  increased  competition  in this  market,  which  was  offset  by the
Company's entry into the gift card business.  Specialty  pigmented and simulated
metal  products net sales  decreased from $20.3 million in 1999 to $11.3 million
in 2003, primarily due to the Company exiting low margin business.

In October 2003, a major competitor in printed woodgrain  patterns  announced it
was not going to service its United  States  market as of February 1, 2004,  and
did in fact exit the market at this time. As a result, the Company anticipates a
substantial sales increase in this product line. Due to the anticipated increase
in domestic production, the Company is in the process of transferring production
of printed woodgrain  products sold in Europe to its German operations to create
additional  domestic  capacity,  maximize European  production and, as part of a
business  strategy,  to  utilize  our tax net  operating  loss  carryforward  in
Germany.  The Company anticipates  mid-single digit growth in its pharmaceutical
products due to the aging of the world population, and the projected increase in
demand  for  medical  services.  The  evolving  gift card  market  appears to be
favoring companies that can perform the backroom bookkeeping,  which the Company
is not currently involved in, as well as produce the cards themselves,  and such
movement will hold back growth in this product line.

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,
                                                ------------------------------
                                                2003         2002        2001
                                                ----         ----        ----
Net sales ................................      100.0%       100.0%      100.0%
Cost of goods sold
  (excluding depreciation
  and amortization) ......................       67.6         62.2        66.2
Selling, general and administrative ......       21.2         21.2        21.5
Research and development .................        3.5          3.3         3.6
Depreciation and amortization ............        6.6          6.4         6.6
                                                -----        -----       -----
Operating income .........................        1.1          6.9         2.1
Interest expense and other
  (income) expense .......................        1.8          1.6         2.3
                                                -----        -----       -----
(Loss) income before taxes ...............       (0.7)         5.3        (0.2)
(Benefit) provision for
  income taxes ...........................       (0.5)         1.6        (0.1)
                                                -----        -----       -----
Net (loss) income ........................       (0.2%)        3.7%       (0.1%)
                                                ======       ======      ======

2003 Compared to 2002

Net sales for the year ended  December  31,  2003  increased  1.5% to $62.8 from
$61.9  million for the year ended  December  31, 2002.  Holographic  product net
sales  increased  25.8% to $14.9 from $11.8 million for the year ended  December
31, 2002,  primarily  due to gains in the  packaging  market plus an increase in
sales of security labels due to increased penetration and new security features.
Printed  products net sales for the year ended  December 31, 2003 decreased 3.0%
to $17.1 million from $17.7 million for the year ended  December 31, 2002.  This
was  primarily  due to a decrease in volume due to  competition  from low priced
Asian imports. Security products (mag stripe, signature panels, tipping products
for credit cards, intaglio printed documents and gift cards) net sales decreased
25.8% to $8.4 from $11.3  million.  This decrease is due primarily to a decrease
in volume of gift card business  associated with a customer that was working off
excess  inventory  it  purchased  last year.  Pharmaceutical  product  net sales
increased  4.0% to $11.1 from $10.6  million,  primarily as a result of sales to
existing  European  customers in the first half of 2003.  Net sales of specialty
pigmented  and  simulated  metal  products  increased  8.4% to $11.3  from $10.5
million,  primarily due to the  appreciation  of the Euro,  somewhat offset by a
decrease in domestic sales due to the Company exiting lower margin business.

Cost of goods sold for the year ended December 31, 2003 increased 10.3% to $42.5
from  $38.5  million  for  the  year  ended  December  31,  2002.  Higher  scrap
domestically,  coupled  with the  strength  of the Euro in  converting  European
manufacturing  costs into U.S.  dollars and a decrease in the gift card business
sales volume which has a lower  percent cost (as the material is provided by the
customer),  resulted in the increased  costs. In addition,  the Company incurred
costs  necessary  to retain  trained  production  people in  anticipation  of an
increase  in  its  printed  woodgrain  patterned  products  because  of a  major
competitor  exiting the market.  The Company also  incurred  costs in hiring and
training new printed woodgrain patterns  production  personnel in the mid-fourth
quarter 2003. Lastly, in 2002, the Company benefited from volume purchases which
were not as high in 2003. The cost of sales as a percentage of net sales for the
year ended  December  31, 2003 was 67.6% as compared to 62.2% for the year ended
December  31, 2002.  The  increase in cost of goods sold as a percentage  of net
sales was due to the reasons noted above.


<PAGE>


Selling,  general and  administrative  expenses  increased 1.4% in 2003 to $13.3
from $13.1 million in 2002. The increase in selling,  general and administrative
expenses  is  primarily  due to the  strength  of the  Euro,  in the  amount  of
approximately  $800,000,  and a $300,000 benefit related to a settlement of past
sales tax liabilities  with the State of Illinois in 2002 that did not repeat in
2003, offset by open employment positions in 2003. As a result, selling, general
and administrative expenses for the year ended December 31, 2003 and 2002 stayed
at 21.2% as a percentage of net sales.


Research and development expenses for the year ended December 31, 2003 increased
6.1% to $2.2 from  $2.0  million  for the year  ended  December  31,  2002.  The
increase in research and development expense was primarily due to cost of living
adjustments.  Research and development  expenses for the year ended December 31,
2003 and  December  31,  2002 as a  percentage  of net sales were 3.5% and 3.3%,
respectively.

Depreciation  and  amortization  expense  for the year ended  December  31, 2003
increased  6.0% to $4.2 from $4.0 million for the year ended  December 31, 2002.
This increase was primarily  due to the strength of the Euro.  Depreciation  and
amortization  expense as a percentage  of net sales for the year ended  December
31, 2003 increased to 6.6% from 6.4% for the year ended December 31, 2002.

Operating  income for the year ended December 31, 2003  decreased  84.3% to $0.7
from $4.3 million for the year ended December 31, 2002. Operating income for the
year ended  December  31, 2003,  decreased as a percentage  of net sales to 1.1%
from 6.9% for the year ended  December  31, 2002 due to the reasons  noted above
with respect to changes in revenues and expenses.

Interest  expense for the year ended December 31, 2003  decreased  10.6% to $1.1
from $1.2 million for the year ended December 31, 2002. The decrease in interest
expense was a result of a decrease in the rate of interest paid.

Interest  income for the year  ended  December  31,  2003  decreased  to $0 from
$29,000 for the year ended  December 31, 2002.  This  decrease was primarily the
result of the Company receiving interest on income tax refunds in the second and
fourth quarters of 2002 that was not repeated in 2003.

Other  income for the year ended  December  31, 2003  decreased  to $25,000 from
$219,000 for the year ended  December 31, 2002.  This decrease was primarily the
result of the one-time  gain on sale of a  manufacturing  facility in Goppingen,
Germany in the first quarter of 2002.

The change in (benefit) provision for income taxes is principally related to the
change in (loss) income  before income taxes.  Because of the amount of the loss
generated  in 2003,  permanent  tax items had a more  significant  effect on the
taxable income and the tax provision recorded during the year.

Net (loss) income for the year ended  December 31, 2003  decreased to ($161,900)
from  $2,278,700 for the year ended December 31, 2002. The net loss for the year
was due to reasons discussed  previously with respect to changes in revenues and
expenses.


<PAGE>


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  (mag stripe,  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 the  Company's  German
operations  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  be  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.

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.



<PAGE>



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>


Annual Results of Operations

The following  table presents  unaudited  financial  information for each of the
quarters in the period  ended  December  31,  2003 and 2002.  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
                  -------------------------------------------------------------
                  Dec.    Sept.   June    Mar.    Dec.    Sept.   June    Mar.
                   31,     30,     30,     31,     31,     30,     30,     31,
                  2003    2003    2003    2003    2002    2002    2002    2002
                  ----    ----    ----    ----    ----    ----    ----    ----
Net sales ......$15,314 $15,074 $16,690 $15,710 $15,956 $16,649 $14,431 $14,842
Cost of goods
  sold ......... 10,841  10,467  10,967  10,180   9,426  10,272   9,324   9,470
Selling, general
  and adminis-
  trative.......  3,289   3,191   3,513   3,308   3,218   3,485   3,208   3,207
Research and
  development...    543     540     555     530     473     538     517     513
Depreciation and
  amortization .    936   1,094   1,084   1,078   1,051   1,042     960     903
Total operating
  expense....... 15,609  15,292  16,119  15,096  14,168  15,337  14,009  14,093
Operating (loss)
  income........   (295)   (218)    571     614   1,788   1,312     422     749
Interest expense.   287     314     242     267     255     330     326     330
Interest income..    --      --      --      --     (14)     --     (15)     --
Interest rate swap
  valuation
  (benefit)
  provision ...     (59)    (71)    178      --      --      --      --      --
Other income ..      (6)     (6)     (7)     (7)     --     (11)     (7)   (200)
                 ------- ------- ------- ------- ------- ------- ------- -------
(Loss) income
  before
  taxes .......    (517)   (455)    158     354   1,547     993     118     619
(Benefit)
  provision
  for income
  taxes .......    (315)   (139)     48     108     459     318      23     197
                 ------- ------- ------- ------- ------- ------- ------- -------
Net (loss)
  income ......  $ (202) $ (316) $  110  $  246  $1,088  $  675  $   95  $  422
                 ======= ======= ======= ======= ======= ======= ======= =======

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.........    70.8    69.4    65.7    64.8    59.0    61.7    64.6    63.8
Selling, general
  and
  administrative.  21.5    21.1    21.1    21.0    20.2    20.9    22.2    21.6
Research and
  development..     3.5     3.6     3.3     3.4     3.0     3.2     3.6     3.5
Depreciation and
  amortization.     6.1     7.3     6.5     6.9     6.6     6.3     6.7     6.1
Total operating
  expense......   101.9   101.4    96.6    96.1    88.8    92.1    97.1    95.0
Operating (loss)
  income.......    (1.9)   (1.4)    3.4     3.9    11.2     7.9     2.9     5.0
Interest expense.   1.9     2.1     1.4     1.6     1.6     2.0     2.3     2.2
Interest income..   0.0     0.0     0.0     0.0    (0.1)    0.0    (0.1)    0.0
Interest rate
  swap valuation
  (benefit)
  provision ...    (0.4)   (0.5)    1.1     0.0     0.0     0.0     0.0     0.0
Other income ..     0.0     0.0     0.0     0.0     0.0    (0.1)   (0.1)   (1.3)
                 ------- ------- ------- ------- ------- ------- ------- -------
(Loss) income
  before taxes..   (3.4)   (3.0)    0.9     2.3     9.7     6.0     0.8     4.1
(Benefit)
  provision
  for income
  taxes........    (2.1)   (0.9)    0.3     0.7     2.9     1.9     0.1     1.3
                 ------- ------- ------- ------- ------- ------- ------- -------
Net (loss)
  income.......    (1.3%)  (2.1%)   0.6%    1.6%    6.8%    4.1%    0.7%    2.8%
                 ======= ======= ======= ======= ======= ======= ======= =======

Gross  margin in the third and fourth  quarters of 2003 are lower than the prior
year  because of the lower  volume of gift card  business  in 2003,  which has a
higher margin because no material costs are associated  with this product group.
The  increase  in sales in the third and  fourth  quarter of 2002 was due to the
gift card business.  In the first quarter of 2002,  other income  includes gains
from a sale of an older manufacturing facility in Germany. 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  refund.  In
addition,  the fourth  quarter of 2003 and 2002 had  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.

Deferred  Income  Taxes.  Deferred  income  taxes  are  provided  for  temporary
differences  between the basis of assets and liabilities for financial reporting
purposes  and the basis of such assets and  liabilities  as measured by tax laws
and  regulations,  as  well  as net  operating  losses,  tax  credit  and  other
carryforwards.  SFAS 109,  "Accounting for Income Taxes," requires that deferred
tax assets be reduced by a valuation  allowance if, based on available evidence,
it is more likely than not that some portion or all of the recorded deferred tax
assets  will  not be  realized  in  future  periods.  This  assessment  requires
significant judgment.

The  Company  evaluates  the  recoverability  of its  deferred  tax assets on an
ongoing basis. In making this evaluation during 2003, the Company considered all
available positive and negative evidence, including past results in the U.S. and
Germany,  the  existence of losses in Germany since the  acquisition  of the CFC
Oeser  business,  and the  Company's  forecast  of future  taxable  income.  The
forecast of future  taxable income in Germany  exceeds the Company's  historical
performance and reflects the Company's best assumptions  about the likely impact
of several  major 2003 events and other  items that are  expected to improve the
German operation's future profitability, including:

o  The movement of production of printed woodgrain products from U.S. operations
   to German operations.

o  Realization of anticipated cost savings for actions taken which include
   employee terminations, reductions in material procurement prices, and
   the closing of the U.K. finishing and warehouse operations.

o  Additional sales volume from new customers as a result of a printed
   woodgrain competitor which exited the U.S. market.

The foreign net operating loss carry forwards (NOL's) totaling 6.7 million Euros
at  December  31,  2003  relate to taxable  losses in Germany and may be carried
forward to offset future taxable income in Germany. At present, the unused NOL's
have no expiration  dates.  In December  2003, new German tax  regulations  with
regards to NOL's were  approved and became  effective  January 1, 2004.  The new
regulations limit the annual  utilization of the NOL carryforward to one million
Euros of taxable income and 60% of the amount of taxable income in excess of one
million  Euros.  During  the third  quarter of 2003,  the  Company  developed  a
business strategy to shift production of certain printed woodgrain products sold
in Europe to its German  operations.  This has the benefit of creating  capacity
domestically to serve the  anticipated  increase in printed  woodgrain  patterns
caused by the major  competitor  announcing  its  exiting of the  United  States
market.


<PAGE>



In  determining  the amount of future  taxable  income,  a number of  additional
assumptions were made, including the amount of U.S. and German pre-tax operating
income.  While  these  assumptions  require  significant   judgment,   they  are
consistent  with the plans and  estimates  the  Company  is using to manage  the
underlying  business.  The Company  believes  that it is more likely than not to
recover its net  deferred  tax asset of $1.5  million  (including  $3.3  million
related to the German NOL carryforward) at December 31, 2003. However,  recovery
is dependent on the achievement of forecasted future taxable income. The Company
will review its forecast in relation to actual results and expected trends on an
ongoing  basis.  Failure to achieve its business plan targets,  particularly  in
Germany,  may change its  assessment  regarding  the  recoverability  of the net
deferred tax asset and would result in the need to record a valuation  allowance
which  would  result  in   additional   income  tax  expense,   a  reduction  in
stockholders'  equity  and could  have a  significant  impact  on the  Company's
earnings. Further, changes to the German tax laws could also affect the level of
the Company's deferred tax assets.

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  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) 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.
Beginning  January  1,  2002,  the  Company no longer  amortizes  goodwill  (see
footnote 3 to the  financial  statements)  and reviews 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 persuasive  evidence of an arrangement  exists,
title has  transferred,  generally  upon product  shipment  based upon  shipping
terms,  price is  fixed  and  collection  is  reasonably  assured.  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. Beginning in early 2004, the Company expanded the warranty period to 60
days for selected printed  patterns,  to meet changes in customer  expectations.
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.

Liquidity and Capital Resources

The Company's  primary sources of working capital have been net cash provided by
operating activities and net borrowings under various loan agreements.  Net cash
provided by operating  activities was $3,040,000,  $7,257,000 and $7,696,000 for
the years ended December 31, 2003,  2002 and 2001,  respectively.  A significant
portion of cash flow from  operations is generated by income from operations and
depreciation  and  amortization  expense.  At December  31,  2003 and 2002,  the
Company had cash and cash  equivalents  totaling  $5.7 million and $6.0 million,
respectively.

The Company's capital  expenditures  were $4,064,000,  $2,544,000 and $2,359,000
for the years ended December 31, 2003, 2002 and 2001, respectively.  The Company
purchased the land and building  adjacent to the West of the  Company's  Chicago
Heights,  Illinois  facility for $1.6 million on February 12, 2004.  The Company
financed the purchase with  borrowings  under its revolving loan. The Company is
pursuing  interest  favorable  financing which it anticipates  closing  mid-year
2004.  In addition,  the Company  anticipates  capital  expenditures  in 2004 of
approximately  $4.0 million to be funded with cash flows generated by operations
and available lines of credit.


<PAGE>



Credit Arrangements.

The Company and its subsidiaries have a combination of revolving and term credit
arrangements  (collectively  the "Credit  Agreements")  for total  borrowings of
$32.5 million. The credit agreements also provide for $16,412,912 in the form of
standby  letters of credit to guarantee the foreign  borrowing.  At December 31,
2003 outstanding borrowings consisted of:

                                                                          2003
                                                                          ----
Revolving borrowings:
  Domestic .....................................................     $ 1,550,000
  Europe .......................................................       5,126,494

Mortgage Note Payable, face amount of $2,625,000;
  bearing interest fixed at 4.82% at December 31, 2003
  (see interest rate swap discussion below), payable
  in monthly principal and interest of $20,431 with a
  final payment of $2.2 million on November 1, 2008,
  secured by related property ..................................       2,199,432

Term Loan payable, face amount of $5,800,000;
  bearing interest at fixed 4.43% at
  December 31, 2003 (see interest rate swap
  discussion below), payable in monthly principal
  and interest payments of $81,117, due on
  February 1, 2008, secured by assets of the
  U.S. operations ..............................................       4,072,323

Equipment Note Payable, face amount of $2,000,000,
  $1,098,617 drawn at December 31, 2003; bearing
  interest at prime (4.0% at December 31, 2003),
  payable in 84 monthly principal installments
  of $15,500, balance due on December 26, 2010,
  secured by two oxidizers .....................................       1,098,617

Industrial Revenue Bond, face amount of $4,005,000,
  bearing interest at a floating weekly rate and
  payable monthly (1.35% at December 31, 2003),
  such rate capped at 12%, requiring annual principal
  payments of $200,250 through 2007 with the final
  balance due on June 1, 2008, secured by a standby
  letter of credit .............................................       2,602,738

Convertible Subordinated Note Payable, face
  amount of $3,000,000; bearing interest at 6%,
  payable in nine annual principal payments of $333,333
  through September 2006 .......................................       1,000,000

Term Loan Payable, face amount of 3,000,000 Euro;
  bearing interest at 6.25%, payable monthly,
  requiring quarterly principal installments of
  37,500 Euro, final balance due April 30,2006,
  secured by standby letter of credit ..........................       3,260,509

Term Loan Payable, face amount of 4,243,723 Euro;
  bearing interest at 5.0%, requiring quarterly
  principal installments of 87,942 Euro, interest
  payable quarterly, this loan is due March 30, 2004
  and the Company is in the process of renewing,
  secured by standby letter of credit ..........................       3,242,012

Two local European bank accommodation loans,
  face amount 560,226 Euro, bearing interest at 2.95%,
  payable monthly, maturing February 23, 2004
  which the Company expects to rollover in 2004 ................         630,050
                                                                     -----------
                                                                     $24,782,175
                                                                     ===========

The year-end Euro exchange  rate used to convert Euro  denominated  debt to U.S.
dollars was 1.2601 at December 31, 2003.


<PAGE>



The Company's  revolving  credit  arrangements  provide for maximum  borrowings,
based upon eligible inventory and receivables  balances,  of approximately $14.3
million (7 million Euros and U.S. $5.5 million).  Amounts  available under these
arrangements  as of December 31, 2003 were $7.7  million.  Borrowings  under the
revolving credit agreements bear interest ranging from prime to 1.5% over LIBOR.
At December 31, 2003, the weighted average interest rate on outstanding domestic
revolving  borrowings was 3.11% and 3.37% on the European  revolving  loans. The
revolving credit  arrangements expire at various dates beginning in 2003 through
2005.  Under the domestic  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.

On January 31, 2003, the Company's domestic financing agreements,  which provide
for revolving credits, term loans and a mortgage,  were extended.  The Company's
main  revolving  loan was  renewed  through  April 1,  2005.  The term loans and
mortgage were extended to November 1, 2008. A prepayment penalty of $122,000 was
rolled into the principal of the term loan, and the monthly  principal  payments
and interest were changed to $81,117 and the final balloon payment of $801,574.

The Company has the ability under its domestic  financing  agreements to fix its
rate of interest at LIBOR plus 1.50%, and on April 4, 2003, the Company executed
two interest  rate swap  agreements  to fix the interest  rates on the Company's
U.S. term loans. The Company entered into these agreements to reduce the risk of
adverse changes in variable interest rates. The notional amounts were $4,606,324
(with a fixed rate of  4.43%),  and  $2,303,840  (with a fixed rate of 4.82%) on
April 4, 2003. The swap agreements terminate on January 31, 2008. Changes in the
fair value of derivatives are recorded each period in current  earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge  transaction  and,  if it is,  the  type  of  hedge  transaction.  These
derivatives do not qualify for hedge accounting and accordingly, the Company has
recorded these derivative  instruments and the associated  assets or liabilities
at their fair values with the related  gains or losses  recorded as other income
or expense in the consolidated statements of operations.

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.

The Subordinated  Convertible  Note (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  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.

The Company  believes it will continue to generate cash flow from operations and
expects to be profitable  in 2004,  primarily due to an increase in its sales of
printed woodgrain patterns and holographic  products.  The Company will continue
to  consider  other  avenues  to  improve  profitability  such as  further  cost
containment measures or other changes in operations including quick changeovers,
longer run sizes and increased running speeds. The Company believes that the net
cash provided by operating  activities  and amounts  available  under the Credit
Facility will be sufficient  to finance the Company's  operations  through 2004.
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.


<PAGE>


Contractual Cash Obligations

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

                                                            2009 and
                                                             There-
      2004        2005        2006      2007       2008       after     Total
      ----        ----        ----      ----       ----       -----     -----


Revolver..........
  $ 6,676,494 $       -- $       -- $       -- $       -- $       -- $ 6,676,494

Mortgage
Note
Payable...........
      156,612    156,612    156,612    156,612  1,572,984         --   2,199,432

Term Loan
Payable...........
      801,000    801,000    801,000    801,000    868,323         --   4,072,323

Equipment Note
Payable ..........
      286,000    286,000    286,000    240,617         --         --   1,098,617

Industrial
Revenue Bond .....
      200,498    200,498    200,498    200,498  1,800,746         --   2,602,738

Convertible
Subordinated
Note Payable .....
      333,333    333,333    333,334         --         --         --   1,000,000

European Term
Loans ............
    1,262,129    189,015  5,681,427         --         --         --   7,132,571

Operating Lease
Obligations......
      937,657    636,303    603,180    471,208    328,420  1,187,607   4,164,375
  ----------- ---------- ---------- ---------- ---------- ---------- -----------
Total............
  $10,653,723 $2,602,761 $8,062,051 $1,869,935 $4,570,473 $1,187,607 $28,946,550
  =========== ========== ========== ========== ========== ========== ===========

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.  Also, the gift card business sales
were much  stronger in the third and fourth  quarter of 2002.  During 2003,  the
gift card  business did not have the same impact and the Company does not expect
the same  proportional  impact going forward due to the growth in holography and
printed products.

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.


<PAGE>



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.  In
conjunction with the adoption of SFAS No. 142 during fiscal 2002, the Company no
longer amortizes goodwill.

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 did not have any impact on the
Company's financial statements.

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 did
not have any impact on the Company's 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 other than to include quarterly disclosures.

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 January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest Entities an Interpretation of ARB No. 51," which is effective
immediately for all variable  interest  entities  created after January 31, 2003
and for the first fiscal year or interim  period  beginning  after June 15, 2003
for variable  interest entities in which an enterprise holds a variable interest
that it acquired  before  February 1, 2003.  The Company does not have  variable
interest entities that fall within the scope of this pronouncement and therefore
the adoption of this  pronouncement on December 31, 2003 did not have any impact
on its financial statements.

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.


<PAGE>



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

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

o    The effect of continuing unfavorable economic conditions on market growth
     trends in general and 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.


<PAGE>



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, 2004
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.

Quantitative and Qualitative Disclosures about Market Risk

The Company does not use derivative financial instruments to address 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,  2003 and 2002  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, 2003 and December 31, 2002,  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
Company's U.S. term loans were renewed at a floating prime rate of interest with
a one-time option to a fixed rate of interest which was fixed April 4, 2003 (see
note 4 to the financial statement beginning on page 41 for more details).

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

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.
Certain  variable  rate debt  instruments  can also be converted to a fixed rate
should interest rates rise in the future.


<PAGE>



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, 2003,  the Company had total assets of $24.5 million and
net assets of $9.9 million invested in Europe.








<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




                          INDEX TO FINANCIAL STATEMENTS


                                                                    Page
                                                                    ----

Report of Independent Auditors...............................       36

Consolidated Balance Sheets at December 31, 2003 and 2002....       37

Consolidated Statements of Operations for the years
  ended December 31, 2003, 2002 and 2001.....................       38

Consolidated Statements of Cash Flows for the years ended
  December 31, 2003, 2002 and 2001...........................       39

Consolidated Statements of Stockholders' Equity for
  the years ended December 31, 2003, 2002 and 2001...........       40

Notes to Consolidated Financial Statements...................       41-54





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 AUDITORS





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, 2003 and 2002, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2003 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 3 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 18, 2004


<PAGE>





                             CFC INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                           December 31,
                                                  -----------------------------
                                                       2003             2002
                                                       ----             ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................    $  5,672,647     $  5,990,077
Accounts receivable, less
  allowance for doubtful
  accounts and customer credits
  of $814,000 (2003) and
  $618,000 (2002) ............................       9,821,047        8,996,995
Inventories:
  Raw materials ..............................       4,488,351        3,234,290
  Work in process ............................       1,858,727        1,690,762
  Finished goods .............................       6,703,633        5,887,549
                                                  ------------     ------------
                                                    13,050,711       10,812,601
Prepaid expenses and
  other current assets........................         856,153          638,571
Deferred income tax assets....................         915,493          675,000
                                                  ------------     ------------
  Total current assets .......................      30,316,051       27,113,244
                                                  ------------     ------------
Property, plant and
  equipment, net .............................      28,116,892       25,214,867
Deferred income tax asset ....................       3,280,891        2,143,584
Intangible assets, net .......................       3,695,899        3,980,000
Other assets .................................         105,078          154,861
                                                  ------------     ------------
  Total assets ...............................    $ 65,514,811     $ 58,606,556
                                                  ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term
  debt .......................................    $  9,716,066     $  6,388,157
Accounts payable .............................       4,769,539        3,158,400

Accrued compensation and
  benefits....................................       1,032,115        1,862,138
Accrued expenses and other
  current liabilities ........................       4,273,938        3,526,013
                                                  ------------     ------------
  Total current liabilities...................      19,791,658       14,934,708
                                                  ------------     ------------
Deferred income tax liabilities ..............       2,680,247        2,204,321
Fair value of interest rate swap .............          47,783             --
Long-term debt, net of current
  portion.....................................      15,066,109       15,097,682
                                                  ------------     ------------
  Total liabilities ..........................      37,585,797       32,236,711
                                                  ------------     ------------

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 4,446,127 (2003)
  and 4,437,075 (2002)........................          44,462           44,371
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 ...................      12,167,569       12,130,587
Retained earnings ............................      16,589,249       16,751,153
Accumulated other comprehensive income .......       1,781,007           97,007
                                                  ------------     ------------
                                                    30,587,417       29,028,248
Less - 565,867 treasury shares
  of common stock, at cost ...................      (2,658,403)      (2,658,403)
                                                  ------------     ------------
                                                    27,929,014       26,369,845
                                                  ------------     ------------
  Total liabilities and
    stockholders' equity .....................    $ 65,514,811     $ 58,606,556
                                                  ============     ============

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


<PAGE>





                             CFC INTERNATIONAL, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                    December 31,
                                   --------------------------------------------
                                       2003              2002             2001
                                       ----              ----             ----
Net sales ......................   $ 62,787,777    $ 61,877,843    $ 61,995,410
                                   ------------    ------------    ------------
Cost of goods sold
  (excluding depreciation
  and amortization
  shown below) .................     42,454,451      38,491,371      41,033,060
Selling, general and
  administrative expenses ......     13,301,002      13,118,020      13,333,409
Research and development
  expenses .....................      2,167,194       2,042,287       2,221,682
Depreciation and amortization
  expenses .....................      4,192,672       3,956,394       4,075,995
                                   ------------    ------------    ------------
Total operating expenses .......     62,115,319      57,608,072      60,664,146
                                   ------------    ------------    ------------

Operating income ...............        672,458       4,269,771       1,331,264
                                   ------------    ------------    ------------
Other expense/(income):
  Interest expense .............      1,110,152       1,241,131       1,484,106
  Interest income ..............           (355)        (28,899)        (10,074)
  Other expense ................           --              --            15,600
  Interest rate swap valuation
    provision ..................         47,783            --              --
  Other income .................        (25,440)       (218,738)        (29,280)
                                   ------------    ------------    ------------
Total other expense, net .......      1,132,140         993,494       1,460,352
                                   ------------    ------------    ------------
(Loss) income before
  income taxes .................       (459,682)      3,276,277        (129,088)
(Benefit) provision for
  income taxes .................       (297,778)        997,591         (54,554)
                                   ------------    ------------    ------------

Net (loss) income ..............   $   (161,904)   $  2,278,686    $    (74,534)
                                   ============    ============    ============

Basic and diluted earnings per share
(which gives effect to the elimination
of interest expense on convertible debt):

  Net (loss) income per share....  $      (0.04)    $      0.51    $      (0.02)
                                   =============  ==============   =============

Weighted Average Shares Outstanding to
  Compute Earnings Per Share:

  Primary........................     4,391,144       4,425,339       4,525,531
  Effect of dilutive options
    and convertible debt...........      99,511         110,246             988
  Diluted..........................   4,490,655       4,535,585       4,526,519

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


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

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



<PAGE>



                             CFC INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                        December 31,
                                          --------------------------------------
                                               2003        2002          2001
                                               ----        ----          ----
Cash flows from operating activities:
  Net (loss) income ......................$  (161,904) $ 2,278,686  $   (74,534)
    Adjustments to reconcile net
      (loss) income to net cash
      provided by operating activities:
        Depreciation and amortization ....  4,217,282    3,985,760    4,117,211
        Valuation of interest rate swap ..     47,783           --           --
        Deferred compensation expense ....         --      102,656      111,987
        Settlement of sales tax liability          --     (496,594)          --
        Gain on sale of land and building          --     (191,158)          --
        Deferred income taxes ............   (145,955      575,595     (280,624)
        Changes in assets and liabilities:
          Accounts receivable ............    (16,787)      779,433   1,407,355
          Inventories .................... (1,476,262)     (208,596)    268,940
          Prepaid expenses and other
            current assets ...............   (176,413)      217,897          --
          Other assets ...................     49,783       136,517    (429,105)
          Accounts payable ...............  1,437,771      (251,740)    418,214
          Accrued compensation & benefits    (977,513)      707,617     (77,200)
          Accrued expenses and other
            current liabilities ..........    235,800      (379,331)  2,233,619
                                          ------------ ------------ ------------
Net cash provided by operating
  activities .............................  3,033,585     7,256,742   7,695,863
                                          ------------ ------------ ------------

Cash flows from investing activities:
  Purchases of property, plant
    and equipment ........................ (4,067,494)  (2,543,635)  (2,359,388)
  Proceeds from sale of land
    and building .........................         --      455,334           --
                                          ------------ ------------ ------------
  Net cash used in investing
    activities ........................... (4,067,494)  (2,088,301)  (2,359,388)
                                          ------------ ------------ ------------

Cash flows from financing activities:
  Proceeds from revolving credit
    agreements ...........................  1,783,832    2,800,770    5,110,962
  Repayments of revolving credit
    agreements ...........................   (291,396)  (2,106,218)  (8,873,011)
  Proceeds from term loans ...............  1,221,162           --    2,690,598
  Repayments of long-term debt ........... (2,058,103)  (2,274,618)    (663,956)
  Proceeds from issuance of
    common stock .........................     37,073       59,106       73,086
  Repurchase of common stock
    for treasury shares ..................         --     (366,822)    (520,090)
                                          ------------ ------------ ------------
  Net cash provided (used in)
    by financing activities ..............    692,568   (1,887,782)  (2,182,411)
                                          ------------ ------------ ------------
Effect of exchange rate changes
  on cash and cash equivalents ...........     23,911      216,823     (960,340)
                                          ------------ ------------ ------------

(Decrease) increase in cash
  and cash equivalents ...................   (317,430)   3,497,482    2,193,724

Cash and cash equivalents
  beginning of period ....................  5,990,077    2,492,595      298,871
                                          ------------ ------------ ------------
Cash and cash equivalents
  end of period ..........................$ 5,672,647  $ 5,990,077  $ 2,492,595
                                          ============ ============ ============

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


<PAGE>







                             CFC INTERNATIONAL, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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



Balance
at
Dec.
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
purchases.183             72,903                                          73,086

Repurchase
of
common
                                                           (520,090)   (520,090)
Vesting of
restricted
shares
issued...............    111,987                                         111,987
      ------- ------ ----------- ----------- ---------- -----------  -----------
Balance
at
Dec.
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
purchases.155             58,951                                          59,106

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

Net
loss...                             (161,904)                          (161,904)

Foreign
currency
translation
adjustment..                                 1,684,000                 1,684,000
                                                                     -----------
Comprehensive
income.......                                                          1,522,096
                                                                     -----------
Employee
stock
purchases..91             36,982                                          37,073
      ------- ------ ----------- ----------- ---------- -----------  -----------
Balance
at
Dec.
31,
2003. $44,462 $5,130 $12,167,569 $16,589,249 $1,781,007 $(2,658,403) $27,929,014
      ======= ====== =========== =========== ========== ============ ===========


                                         Common          Class B     Treasury
                                         Stock           Common       Stock -
Number of shares                         Issued           Stock    Common Shares
                                        ----------         -----   -------------
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
Employee stock purchase plan ......          9,052           --             --
                                         ---------      ---------      ---------
Balance at December 31, 2003 ......      4,446,127        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.  Description of the Business

CFC  International,  Inc. (the  "Company")  formulates,  manufactures  and sells
chemically   complex,   multi-layered   functional  coatings  and  sophisticated
holographic technologies.  The Company applies its proprietary coatings to rolls
of plastic  film from which its  customers  transfer  the coatings or with which
they  laminate the coatings to their  products for  protective  and  informative
purposes.   The  Company   produces  five  primary  types  of  coated  products:
holographic  products,  printed  products,  pharmaceutical  pigmented  coatings,
security  products and specialty  pigmented and simulated  metal  coatings.  Its
customers are primarily  companies in the consumer  products and medical  supply
industries.

Note 2.  Significant Accounting Policies

Principles of consolidation.  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  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.

At December  31, 2003 and 2002,  the cost basis and  estimated  useful  lives of
property, plant and equipment consist of the following:

                                                December 31,
                                       -----------------------------
                                                                      Estimated
                                           2003            2002      Useful Life
                                           ----            ----      -----------
Land ................................   $  4,304,422   $  3,593,771
Buildings ...........................      6,879,117      6,510,696  25 years
Machinery and manufacturing equipment     42,065,371     36,207,238  10-15 years
Furniture and office equipment ......      5,007,363      4,687,044   3-10 years
Construction in process .............        143,756      1,193,897
                                        ------------   ------------
                                          58,400,029     52,192,646
Less - Accumulated depreciation .....    (30,283,137)   (26,977,779)
                                        ------------   ------------
                                        $ 28,116,892   $ 25,214,867
                                        ============   ============

Depreciation  expense for the years ending  December 31, 2003, 2002 and 2001 was
$3,909,208,  $3,672,894 and $3,693,427,  respectively. On February 12, 2004, the
Company purchased land adjacent to an existing facility for $1.6 million.


<PAGE>



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 and assume no residual value. Beginning January 1, 2002, the
Company no longer amortizes goodwill (see Note 3).

The following are the major classes and useful lives of the Company's intangible
assets as of December 31, 2003 and 2002:

                         2003                      2002
            ---------------------------  ----------------------------
                      Accum-                         Accum-
                      ulated     Net                 ulated    Net
                      Amorti-    Book                Amorti-   Book     Useful
            Cost      zation     Value     Cost      zation    Value     Lives
            ----      ------     -----     ----      ------    -----     -----
 Good-
 will $1,436,456 $  406,994 $1,029,462 $1,436,456 $  406,994 $1,029,462 15 years
                                                                        pre-2002
Holo-
 graphic
 base
 coat
 proc-
 esses   460,000    425,500     34,500    460,000    379,500     80,500 10 Years

Worldwide
 holo-
 graphic
 rights3,562,059    930,122  2,631,937  3,562,059    692,652  2,869,407 15 Years
       --------- ---------- ---------- ---------- ---------- ----------
Total $5,458,515 $1,762,616 $3,695,899 $5,458,515 $1,479,146 $3,979,369
      ========== ========== ========== ========== ========== ==========

Annual  intangible  amortization  expense is expected to be $271,971,  $237,471,
$237,471,   $237,471  and  $237,471  in  2004,   2005,   2006,  2007  and  2008,
respectively.  Amortization expense was $283,470, $283,500 and $410,612 in 2003,
2002 and 2001, respectively.

Revenue recognition. Under the terms of its sales agreements with customers, the
Company  recognizes revenue when persuasive  evidence of an arrangement  exists,
title has  transferred,  generally  upon product  shipment  based upon  shipping
terms,  price is  fixed  and  collection  is  reasonably  assured.  For  certain
transactions,  which are not material,  revenue is recognized upon completion of
manufacturing or upon use by the customer.

Significant Customer. One pharmaceutical customer accounted for approximately 11
percent of net sales during each of the years ended December 31, 2003,  2002 and
2001,   respectively.   The  Company   believes  that  it  has  no   significant
concentrations  of credit risk based upon its  industry  and  geographic  mix of
customers.

Shipping and handling  costs.  Shipping costs  included in selling,  general and
administrative  expenses  and totaled  $866,000,  $608,000  and $670,000 for the
years ended December 31, 2003, 2002 and 2001,  respectively.  Handling costs are
included in cost of goods sold.

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.  Beginning in 2004, the Company expanded the warranty period to 60 days
for selected printed  patterns,  to meet changes in customer  expectations.  The
Company records an estimated  provision for possible  returns,  using historical
experience  at the time revenue is  recognized.  Historically,  returns have not
been significant.

Advertising costs. Advertising costs are expensed as incurred. Advertising costs
were approximately $117,000,  $108,000 and $135,000 for the years ended December
31, 2003, 2002 and 2001, respectively.

Research and development  costs.  Research and development costs are expensed as
incurred.   Research  and  development  costs  were  approximately   $2,167,000,
$2,042,000 and $2,222,000 for the years ended December 31, 2003,  2002 and 2001,
respectively.


<PAGE>




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 (1.2601 dollar per Euro at December 31,
2003,  and 1.0486  dollar per Euro at December  31,  2002) 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.

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 (loss)
earnings per share would have been reduced to the  pro-forma  amounts  indicated
below:

                                         2003        2002        2001
                                         ----        ----        ----
         Pro-forma net (loss) income
           (dollars in 000's) ......   $  (207)   $   2,202   $  (150)
         Pro-forma (loss) earnings
           per share (basic) .......   $ (0.05)   $    0.50   $ (0.03)
         Pro-forma (loss) earnings
           per share (diluted) .....   $ (0.05)   $    0.49   $ (0.03)

Fair value of  financial  instruments.  As of December  31,  2003 and 2002,  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  income  benefits,  inventory  reserves  and the  allowances  for
doubtful accounts and customer  credits.  Actual results could differ from these
estimates.

Supplemental cash flow disclosures.

                                              For Year Ended December 31,
                                        ----------------------------------------
                                            2003           2002          2001
                                            ----           ----          ----
Cash paid during the year for:
  Interest ...........................    $1,151,819    $1,249,803    $1,445,737
  Income taxes, excluding refunds
    of $348,113 during 2002 ..........          --       1,266,429       354,274
Non-cash transactions:
  Sales tax settlement resulting
    in reduction in obligation .......          --         496,594          --



<PAGE>



Note 3.  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.  In
conjunction  with the adoption of SFAS No. 142,  effective  January 1, 2002, the
Company no longer amortizes goodwill.

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 did not have any impact on the
Company's financial statements.

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 did
not have any impact on the Company's financial statements.

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.

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 other than to include quarterly disclosures.

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest Entities an Interpretation of ARB No. 51," which is effective
immediately for all variable  interest  entities  created after January 31, 2003
and for the first fiscal year or interim  period  beginning  after June 15, 2003
for variable  interest entities in which an enterprise holds a variable interest
that it acquired  before  February 1, 2003.  The Company does not have  variable
interest entities that fall within the scope of this pronouncement and therefore
the adoption of this  pronouncement on December 31, 2003 did not have any impact
on its financial statements.



<PAGE>



Note 4.  Long-Term Debt and Other Liabilities

Long-term debt consists of the following at December 31, 2003 and 2002:

                                                           2003          2002
                                                           ----          ----
Revolving borrowings (see below):
  Domestic .........................................   $ 1,550,000   $   750,000
  Europe ...........................................     5,126,494     3,626,798

Mortgage Note Payable, face amount of $2,625,000;
  bearing interest fixed at 4.82% at
  December 31, 2003 (see interest rate swap
  discussion below), payable in monthly
  principal and interest of $20,431 with a
  final payment of $2.2 million on
  November 1, 2008, secured by related property ....     2,199,432     2,349,162

Term Loan payable, face amount of $5,800,000;
  bearing interest fixed at 4.43% at
  December 31, 2003 (see interest rate
  swap discussion below), payable in
  monthly principal and interest payments
  of $81,117, due on February 1, 2008,
  secured by assets of the U.S. operations .........     4,072,323     4,684,028

Equipment Note Payable, face amount
  of $2,000,000, $1,098,617 drawn
  at December 31, 2003; bearing interest
  at prime (4.0% at December 31, 2003),
  payable in 84 monthly principal
  installments of $15,500, balance due on
  December 26, 2010, secured by two oxidizers ......     1,098,617          --

Industrial Revenue Bond, face amount
  of $4,005,000, bearing interest at a
  floating weekly rate and payable
  monthly (1.35% at December 31, 2003), such
  rate capped at 12%, requiring annual
  principal payments of $200,250 through
  2007 with the final balance due on
  June 1, 2008, secured by a standby
  letter of credit .................................     2,602,738     2,805,250

Convertible Subordinated Note Payable,
  face amount of $3,000,000; bearing
  interest at 6%, payable in nine
  annual principal payments of $333,333
  through September 2006 ...........................     1,000,000     1,333,334

Term Loan Payable, face amount of
  3,000,000 Euro; bearing interest at 6.25%,
  payable monthly, requiring quarterly
  principal installments of 37,500 Euro,
  final balance due April 30, 2006,
  secured by standby letter of credit ..............     3,260,509     2,870,542

Term Loan Payable, face amount of
  4,243,723 Euro; bearing interest at 5.0%,
  requiring quarterly principal installments
  of 87,942 Euro, interest payable quarterly,
  this loan is due March 30, 2004 and the
  Company is in the process of renewing,
  secured by standby letter of credit ..............     3,242,012     3,066,725

Two local European bank accommodation loans,
  face amount 560,226 Euro, bearing
  interest at 2.95%, payable monthly,
  maturing February 23, 2004
  which the Company expects to rollover ............       630,050          --
                                                       -----------   -----------
                                                        24,782,175    21,485,839
                                                       -----------   -----------
Less current maturity ..............................     9,716,066     6,388,157
                                                       -----------   -----------
                                                       $15,066,109   $15,097,682
                                                       ===========   ===========

The Company and its subsidiaries have a combination of revolving and term credit
arrangements  (collectively  the "Credit  Agreements")  for total  borrowings of
$32.5 million. The credit agreements also provide for $16,412,912 in the form of
standby letters of credit to guarantee foreign borrowings.


<PAGE>



The Company's  revolving  credit  arrangements  provide for maximum  borrowings,
based upon eligible inventory and receivables  balances,  of approximately $14.3
million (7 million Euros and U.S. $5.5 million).  Amounts  available under these
revolving  arrangements  as of December 31, 2003 were $7.6  million.  Borrowings
under these revolving  agreements bear interest  ranging from prime to 1.5% over
LIBOR. At December 31, 2003, the weighted  average  interest rate on outstanding
domestic  revolving  borrowings  was 3.11% and 3.37% on the  revolving  European
loans. The revolving credit  arrangements  expire at various dates through 2005.
Under the domestic 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 Company has the ability under its domestic  financing  agreements to fix its
rate of interest at LIBOR plus 1.50%. On April 4, 2003, the Company executed two
interest rate swap  agreements to fix the interest  rates on the Company's  U.S.
term loans.  The Company  entered  into these  agreements  to reduce the risk of
adverse changes in variable interest rates. The notional amounts were $4,606,324
(with a fixed rate of  4.43%),  and  $2,303,840  (with a fixed rate of 4.82%) on
April 4, 2003. The swap agreements terminate on January 31, 2008. Changes in the
fair value of derivatives are recorded each period in current  earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge  transaction  and,  if it is,  the  type  of  hedge  transaction.  These
derivatives do not qualify for hedge accounting and accordingly, the Company has
recorded these derivative  instruments and the associated  assets or liabilities
at their fair values with the related  gains or losses  recorded as other income
or expense in the consolidated statements of operations.

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.  At December 31, 2003, the Company
was in compliance with or has obtained  waivers for the covenants of its various
credit agreements.

The Subordinated  Convertible  Note (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  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.

On January 31, 2003, the Company's  credit  agreement with its main bank,  which
provides for revolving credits,  the term loan and mortgage,  was extended.  The
Company's main  revolving  loan was renewed  through April 1, 2005, and the Term
Loan and mortgage  was  extended to November 1, 2008.  A  prepayment  penalty of
$122,000  was  rolled  into the  principal  of the term  loan,  and the  monthly
principal  payments and interest  were changed to $81,117 and the final  balloon
payment of $801,574.

Aggregate minimum principal payments for long-term debt as of December 31, 2003,
are as follows:

2004..........................................................       $9,716,066
2005..........................................................        1,966,458
2006..........................................................        7,458,870
2007..........................................................        1,398,727
2008..........................................................        4,242,054
Thereafter....................................................                -
                                                               -----------------
                                                                     $24,782,175
                                                               =================



<PAGE>



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.  This
machine was fully functional in 2003.

Note 6.  Income Taxes

For the years ended  December 31, 2003,  2002 and 2001, the income tax provision
(benefit) consists of the following:

                                   2003               2002               2001
                                   ----               ----               ----
Current:
  Federal .............         $ (26,420)         $ 457,764          $ 353,195
  State ...............           (15,670)            14,564             88,937
  Foreign .............           111,306            (47,332)
                                                                       (140,564)
Deferred ..............          (366,994)           572,595           (356,122)
                                ---------          ---------          ---------
                                $(297,778)         $ 997,591          $ (54,554)
                                =========          =========          =========

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:

                                                    2003        2002       2001
                                                   Actual      Actual     Actual
                                                   ------      ------     ------
Statutory U.S. tax rate ....................        34.0%       34.0%      34.0%
Differences resulting from:
  State and local taxes ....................        (5.4)        2.4        4.8
  Effect of foreign taxes ..................        19.8         1.8        5.5
  Research & developmental credits .........          --        (8.4)      (1.0)
  Excluded profits on export sales .........        20.0        (2.3)        --
  Other, net ...............................        (3.6)        2.9       (1.0)
                                                    -----       -----      -----
Effective tax rate .........................        64.8%       30.4%      42.3%
                                                    =====       =====      =====

Deferred tax  (liabilities)  assets at December 31, 2003 and 2002 consist of the
following:

                                                      2003            2002
                                                      ----            ----
Deferred tax assets:
   Foreign net operating loss carry forward.....    $3,218,215      $2,143,584
   Inventory ...................................       431,407         237,500
   Employee benefits ...........................       227,560         213,500
   Other .......................................       356,395         261,194
                                                  -------------   -------------
        Total                                        4,233,577       2,855,778

Deferred tax liabilities - fixed assets and
  intangibles ..................................    (2,717,440)     (2,241,515)
                                                  -------------   -------------
Net deferred tax asset .........................    $1,516,137        $614,263
                                                  =============   =============



<PAGE>



The foreign net operating loss carry forwards (NOL's) totaling 6.7 million Euros
at  December  31,  2003  relate to taxable  losses in Germany and may be carried
forward to offset future taxable income in Germany. At present, the unused NOL's
have no expiration  dates.  In December  2003, new German tax  regulations  with
regards to NOL's were  approved and became  effective  January 1, 2004.  The new
regulations limit the annual  utilization of the NOL carryforward to one million
Euros of taxable income and 60% of the amount of taxable income in excess of one
million  Euros.  During  the third  quarter of 2003,  the  Company  developed  a
business strategy to shift production of certain printed woodgrain products sold
in Europe to its German  operations.  This has the benefit of creating  capacity
domestically to serve the  anticipated  increase in printed  woodgrain  patterns
caused by the major  competitor  announcing  its  exiting of the  United  States
market.

At December 31, 2003  management was required to determine,  in accordance  with
the  provisions  of SFAS No. 109,  "Accounting  for Income  Taxes," the need for
recording  a  valuation   allowance  against  its  deferred  tax  assets.   This
determination  requires an  assessment of positive and negative  evidence.  Such
assessment must be done on a  jurisdiction-by-jurisdiction  basis. In evaluating
the  recoverability  of its  deferred  tax assets,  the Company  considered  all
available positive and negative evidence,  including past results, the existence
of past and cumulative  losses in Germany and forecasted  future taxable income.
The Company has concluded that no valuation  allowance  against its deferred tax
assets was required at December  31, 2003 as it believes  that it is more likely
than not that the tax  benefit  will be  realized.  The  realization  of the net
deferred tax asset at December 31, 2003, is dependent on future taxable  income.
Failure  to  achieve  expected  results  in 2004 or beyond or future  changes in
German tax laws may require the need to record a valuation allowance against the
Company's  deferred  tax  assets,  resulting  in  income  tax  expense  for  the
applicable period.

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, 2003,  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, 2003,
no reserve has been established.



<PAGE>



In September 2003, the Company was notified by Clariant Corporation ("Clariant")
that  certain  lots  of  pigment  Clariant  provided  to the  Company  contained
polychlorinated  biphenyls  ("PCB's")  in excess  of  Federal  regulations.  The
Company immediately  quarantined all material containing this pigment and ceased
production  using this pigment.  Samples of products  produced with this pigment
were  sent  to an  outside  independent  laboratory  for  testing.  The  results
indicated that in the Company's  product,  the pigment with the PCB's is encased
in a strong  organic matrix that can only be broken with a highly polar solvent.
The Company's customers came to the conclusion that their respective products do
not need to be recalled based upon their further testing and investigation.  The
customers did want to return all products containing the suspected pigment.  The
Company has issued credits to affected customers, and as a result has recorded a
receivable from Clariant in the amount of $355,000 at December 31, 2003.

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, 2003, the Company has non-cancelable  operating leases for which
future minimum rental  commitments are estimated to total $4,164,375,  including
$937,657 in 2004, $636,303 in 2005, $603,180 in 2006, $471,208 in 2007, $328,420
in 2008 and $1,187,746 thereafter. Rental expense under non-cancelable operating
leases totaled $1,031,645 in 2003, $874,115 in 2002 and $735,863 in 2001.

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.

Note 9.  Allowance for Doubtful Accounts and Customer Credits

Activity of the  allowance  for doubtful  accounts and customer  credits for the
years ended December 31, 2003, 2002 and 2001 are as follows:

                                Balance   Addi-   Additions
                                   at     tions   Charged To             Balance
                                Beginning  To     Costs and              at end
                                Of Year  Reserve   Expenses Deductions*  of Year
                                -------  -------   --------------------  -------
Year Ended December 31, 2003... $  618    $ --     $ 1,568   ($1,372)    $  814
Year Ended December 31, 2002... $  583    $ --     $ 1,466   ($1,431)    $  618
Year Ended December 31, 2001... $  537    $ --     $ 1,258   ($1,212)    $  583

* Deductions represent credit memos and amounts written off.



<PAGE>


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:

                                       % of            % of            % of
                                        Net             Net             Net
                                 2003  Sales     2002  Sales     2001  Sales
                                 ----  -----     ----  -----     ----  -----

Holographic Products ........   $14.9  23.7%    $11.8  19.1%    $10.5  17.0%
Printed Products ............    17.1  27.3      17.7  28.5      17.5  28.2
Pharmaceutical Products .....    11.1  17.6      10.6  17.2      10.7  17.3
Security Products ...........     8.4  13.3      11.3  18.3       9.4  15.2
Simulated Metal and Other
  Pigmented Products ........    11.3  18.1      10.5  16.9      13.9  22.3
                                -----  -----    -----  -----    -----  -----
Total .......................   $62.8 100.0%    $61.9 100.0%    $62.0 100.0%

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
                -------------------------------------  -------------------------
                   2003          2002         2001         2003          2002
                   ----          ----         ----         ----          ----
United States.. $30,227,284  $35,576,545  $32,369,480  $18,489,552   $18,542,961
Europe ........  22,620,449   18,398,991   20,220,510   13,428,317    10,806,767
Other Foreign..   9,940,044    7,902,307    9,405,420           --            --
                -----------  -----------   ----------  -----------   -----------
                $62,787,777  $61,877,843   $61,995,410 $31,917,869   $29,349,728
                ===========  ===========   =========== ===========   ===========

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

The following data relates to the Company's  European  divisions in U.S. dollars
is  included in the  accompanying  financial  statements  as of and for the year
ended December 31:

                                  2003               2002              2001
                                  ----               ----              ----
Assets .................      $ 24,502,282       $ 18,206,393      $ 14,458,243
Liabilities ............        14,631,953         11,704,913         9,938,719
Net sales ..............        22,620,449         18,368,991        20,220,510
Net (loss) income ......          (686,370)           316,719        (1,032,213)




<PAGE>






Note 11.  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, 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
   Granted.......................          -       $    - - $    -      $    -
   Forfeited.....................    (15,500)      $ 3.85 - $12.50      $  7.30
                                    ---------      -----------------    --------
Balance, December 31, 2003           199,842       $ 3.85 - $15.25      $  6.68

Options  exercisable  at  December  31,  2003 and 2002 were  119,286 and 71,380,
respectively.

The  characteristics  of outstanding and of exercisable  stock options under the
Company's Stock Option Plan at December 31, 2003 were as follows:

                                  Outstanding                 Exercisable
                       ----------------------------    ------------------------
                                          Weighted                     Weighted
Exercise Prices        Shares   Life     Avg. Price       Shares      Avg. Price
---------------        ------   ----     ----------       ------      ----------
$ 3.85 - $ 6.00       132,029    7.9      $ 4.28          52,973      $ 4.17
$ 6.01 - $10.00        17,500    6.8      $ 8.14          16,000      $ 8.26
$10.01 - $15.25        50,313    3.8      $12.46          50,313      $12.46



<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, 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
  Granted........................       -               -                 -
                                   ------         -------------        ------
Balance, December 31, 2003         90,000         $4.87 - 9.50         $6.95
                                   ======         ==============       =======

Options  exercisable  at  December  31,  2003 and 2002 were  67,500 and  55,000,
respectively.

The  characteristics  of  outstanding  and  exercisable  stock options under the
Directors Stock Option Plan at December 31, 2003 were as follows:

                               Outstanding                      Exercisable
                    ----------------------------------    ----------------------
                                           Weighted                    Weighted
Exercise Prices         Shares      Life  Avg. Price          Shares  Avg. Price
---------------         ------      ----  ----------          ------  ----------
$4.87                   40,000       7.2    $4.87             20,000     $4.87
$5.81                   10,000       6.4    $5.81              7,500     $5.81
$8.75                   10,000       3.6    $8.75             10,000     $8.75
$9.50                   30,000       1.9    $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
                           ---------------------   -----------------------
                            2003   2002     2001   2003    2002       2001
                            ----   ----     ----   ----    ----       ----

Weighted average
fair value of
option grants
during the year..........  $   -  $   -    $2.40  $   -    $1.88      $1.50

Weighed average
fair value of
all options
outstanding at
year end.................  $2.58  $2.58    $2.58  $ 2.94    $3.25      $3.87

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

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 2003, 2002 and 2001. The Company incurred approximately
$177,300, $149,400 and $139,400 of 401(K) matching expense during 2003, 2002 and
2001, 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 2003, 2002 or 2001.

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 officer left the
Company in 2002 and repurchased the shares for $225,500.

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.  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 2003,  2002 and 2001,  respectively,
9,052,  15,546 and 18,264  shares of common  stock were  issued  pursuant to the
Stock Purchase Plan. As of December 31, 2003,  there were zero 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.

Note 15. Selected annual financial data (unaudited), in thousands, except per
share data

                                         Quarter Ended
                ----------------------------------------------------------------
                Dec.    Sept.    June    Mar.    Dec.    Sept.    June    Mar.
                 31       30      30      31      31      30      30      31
                 2003    2003    2003    2003    2002    2002    2002    2002
                 ----    ----    ----    ----    ----    ----    ----    ----
Revenues.......$15,314 $15,074 $16,690 $15,710 $15,956 $16,649 $14,431 $14,842
Cost of goods
  sold
  (excluding
  depreciation
  and
  amortization).10,841  10,467  10,967  10,180   9,426  10,272   9,324   9,470
Operating
  (loss)
  income ....... (295)    (218)    571     614   1,787   1,312     421     749
Net (loss)
  income ....... (202)    (316)    110     246   1,088     675      95     422
Basic and
  diluted
  (loss)
  earnings
  per share..... (0.05)   (0.07)   0.03    0.06   0.25    0.15    0.02    0.10

The  third and  fourth  quarters  of 2002  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.  Gross
margin in the third and  fourth  quarters  of 2003 are lower than the prior year
because of the lower  volume of gift card  business in 2003,  which has a higher
margin  because no material costs are  associated  with this product group.  The
increase  in sales in the third and  fourth  quarter of 2002 was due to the gift
card  business.  The first quarter of 2002,  other income  includes gains from a
sale of an older manufacturing  facility in Germany.  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  refund.  In
addition,  the fourth  quarter of 2003 and 2002 had  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.

ITEM 9A.  CONTROLS AND PROCEDURES

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 as of December 31, 2003.  Based on their  evaluation,  our
principal  executive officer and principal financial officer have concluded that
the Company's  disclosure  controls and procedures were effective as of December
31, 2003. There were no significant changes in our internal controls or in other
factors that could significantly  affect these controls in the fourth quarter of
2003.


<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 2004 (the "Proxy
Statement"), is incorporated herein by reference.

Officers

Set forth below are the names of the executive  officers and senior staff of the
Company and its  subsidiaries,  their ages at December 31, 2003,  the  positions
they hold with the Company or its subsidiaries,  and summaries of their business
experience.  Executive  officers  and senior staff 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..........................      68    Chairman of the Board of
                                                      Directors, Chief Executive
                                                      Officer

Gregory M. Jehlik.......................      43    President, Chief Operating
                                                      Officer and Director

Dennis W. Lakomy........................      58    Executive Vice President,
                                                      Chief Financial Officer,
                                                      Secretary, Treasurer and
                                                      Director

Steven A. Clow..........................      47    Vice President of Quality

Scott D. Coney..........................      37    Vice President of Operations

William A. Herring......................      56    Senior Vice President of
                                                      Technology

Robert G. Klueppel......................      56    Vice President of Human
                                                      Resources

Mark A. Lamb............................      52    Vice President, Global
                                                      Marketing

Mark Mitravich..........................      52    Vice President, Sales
                                                      - Americas

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

Friedrich Sommer........................      50    Managing Director, CFC
                                                      Europe


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. In
1998,  Mr. Hruby was awarded  "Entrepreneur  of the Year" and became a member of
the  Chicago  Entrepreneurship  Hall of Fame.  Mr.  Hruby  is also an  Executive
Committee Member and a member of the Board of Trustees at North Central College.
Mr. Hruby earned a bachelors  degree in chemistry from North Central College and
a Masters of Business Administration from the University of Chicago.


<PAGE>




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  also  serves as a  director  on The A-T
Children's  Project.  Mr.  Jehlik  earned a bachelors  degree in  marketing  and
management from Indiana University and a Masters of Business Administration from
the University of Wisconsin.

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.

Steve Clow, Vice President of Quality joined the Company in February 1999. Prior
to joining the Company,  Mr. Clow served from 1995 as Vice  President of Quality
and Product Director with Precision Coatings,  Inc. Prior thereto, Mr. Clow held
various  management  positions with the Dunmore  Corporation.  Mr. Clow earned a
bachelors degree from the University of Massachusetts in Chemistry.

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.

William A. Herring,  Senior Vice  President of Technology  joined the Company in
June 1996 as Senior 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 and from 1973 to 1992 he held various
senior management  positions in technical and operations at Avery-Dennison.  Mr.
Herring  earned a bachelors  degree and a Masters of Science from the University
of Missouri in Chemical Engineering.

Robert G. Klueppel, Vice President of Human Resources joined the Company in June
1997. Prior to joining the Company,  Mr. Klueppel served from 1994 as Manager of
Corporate Human  Resources at Andrew  Corporation.  Prior thereto,  Mr. Klueppel
spent 12 years with E.J. Brach  Corporation where he held a number of management
roles. Mr. Klueppel earned a bachelors degree in biological science with a minor
in  education  from  Northeastern  Illinois  State  University  and a Masters of
Science in Industrial Relations from Loyola University of Chicago.

Mark A. Lamb,  Vice  President,  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 bachelors degree in journalism from Northern
Illinois  University  and  graduated  from the  Printing  Industry of  America's
Executive Development Program.

Mark Mitravich,  Vice President,  Sales - Americas joined the Company in October
2003.  Before  joining the Company,  Mr.  Mitravich  served from 1978 in various
senior technical,  sales, purchasing and marketing management positions with The
Pilcher Hamilton Corporation, SGL Carbon Group and Hoechst Celanese Corporation.
Mr.  Mitravich  holds a bachelors  degree in business and economics  from Lehigh
University and a Masters of Business  Administration from the City University of
New York, Baruch College.


<PAGE>




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 bachelors degree in business  administration from
Carthage  College,  and  graduated  from  the  Printing  Industry  of  America's
Executive Development Program.

Dr.  Friedrich  Sommer,  Managing  Director of CFC Europe  joined the Company in
April  2002.  Prior  to  joining  the  Company,  Dr.  Sommer  joined  Vereinigte
Papierwarenfabriken  GmbH in 1997 and held several senior management  positions.
Dr. Sommer was named Managing Director in 2000. Dr. Sommer has a Ph.D and BSc in
Chemistry from Ruhr-Universitaet-Bochum.

ITEM 11.  EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Information appearing under the caption "Appointment of Independent  Accountants
- Fees Paid to Independent  Accountants"  in the Proxy Statement is incorporated
by reference.




<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 below under Item 15(c) of this
         Report. 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

         During the fiscal fourth quarter of 2003, and through the date of this
         filing, the following Reports on Form 8-K have been filed:

         (i)      Report on Form 8-K dated October 30, 2003, reporting on Item 7
                  (Financial Statements and Exhibits) and Item 12 (Results of
                  Operations and Financial Condition);*

         (ii)     Report on Form 8-K dated February 8, 2004, reporting on Item 7
                  (Financial Statements and Exhibits) and Item 12 (Results of
                  Operations and Financial Condition);* and

         (iii)    Report on Form 8-K dated March 17, 2004, reporting on Item 9
                  (Regulation FD Disclosure) and Item 7 Financial Statements and
                  Exhibits).*

         *In accordance with General Instruction B of Form 8-K, the Reports
         submitted to the Securities and Exchange Commission under Item 9 and 12
         of Form 8-K are not deemed to be "filed" for purposes of Section 18 of
         the Securities Exchange Act of 1934 (the "Exchange Act"), and are not
         subject to the liabilities of that section. We are not incorporating,
         and will not incorporate by reference, such Reports into any filing
         under the Securities Act of 1933 or the Exchange Act.


<PAGE>



(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
                (incorporated by reference to Exhibit 10.1(b) to the Company's
                Form 10-K for the year ended December 31, 2002).

         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 (incorporated by
                reference to Exhibit 10.1(c) to the Company's Form 10-K for
                the year ended December 31, 2002).

         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).



<PAGE>








        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 incorporated by reference to Exhibit 10.9 to
                the Company's Form 10-K for the year ended December 31, 2002).

        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.
                (incorporated by reference to Exhibit 10.10(b) to the
                Company's Form 10-K for the year ended December 31, 2002).

        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 (incorporated by reference
                to Exhibit 10.11 to the Company's Form 10-K for the year ended
                December 31, 2002).

        14.1    CFC International, Inc. Conflicts of Interest and Business
                Ethics Policy (incorporated by reference to Exhibit 14.1 to
                the Company's Form 10-K for the year ended December 31, 2002).

        21.1    List of Subsidiaries of the Company.

        23.1    Consent of Independent Accountants.

        31.1    Certification of Chief Executive Officer pursuant to Section 302
                of the  Sarbanes-Oxley  Act of 2002 (filed herewith).

        31.2    Certification of Chief Financial Officer pursuant to Section 302
                of the  Sarbanes-Oxley  Act of 2002 (filed herewith).

        32.1    Certification of the Chief Executive Officer pursuant to
                Section 906 of the  Sarbanes-Oxley Act of 2002 (filed herewith).

        32.2    Certification of the Chief Financial Officer pursuant to
                Section 906 of the  Sarbanes-Oxley Act of 2002 (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 26, 2004.


                             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 26, 2004.

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

      Principal Executive Officer:


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


Principal Financial/Accounting Officer:


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


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


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


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