SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Registrant's telephone number, including area code: (716) 382-3223

Securities registered under Sec. 12(g) of the Act:

The Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days.                       Yes [ X ]          No [     ]

As of June 22, 2000, there were outstanding 5,598,912 shares of the Company's Common Stock, $.01 Par Value. The aggregate market value of the 3,335,353 shares held by non-affiliates on that date was $23,347,471, based on the average of high and low bid prices of $7.125 and $6.875 respectively. Options for 945,656 shares of the Company's Common Stock are outstanding but have not yet been exercised. Shares to cover the options will not be issued until they are exercised.

Certain portions of Part III of this report are incorporated herein by reference to portions of the Registrant's Proxy Statement dated June 22, 2000.

The Exhibit Index to this Report is found on page 47.

The Company was formed on March 27, 1969 as a New York Corporation under the name of Computerized Pollution Abatement Corporation. Its name was shortened to CPAC, Inc. (pronounced "seapack") by an amendment to its Certificate of Incorporation filed March 29, 1976. The Certificate of Incorporation, as amended, authorizes the issuance of 30,000,000 shares of Common Stock with a par value of $0.01 per share.

Thomas N. Hendrickson left Eastman Kodak Company to become the founder, President, and Chief Executive Officer of CPAC, and has remained President and Chief Executive Officer throughout the Company's history.

The basic premise underlying the formation of the Company was the founder's belief that it would become necessary for photofinishers to remove pollutants from photographic processing effluent in order to meet environmental standards, and that most of the pollutants could be recovered in a cost effective manner. Silver was the primary recoverable material initially addressed by the Company.

The Company's initial strategy prior to fiscal 1995 evolved around the imaging industry. Acquisitions of Trebla Chemical Company (1984), Allied Diagnostic Imaging Resources, Inc. (1988), PRS, Inc.(1988), CPAC Europe, N.V. (1991), and CPAC Italia, S.r.l. (1992), helped the Company to expand its business into chemical manufacturing for the photochemical and medical imaging businesses, both domestically and internationally, while continuing to provide customers with full wrap-around solutions through existing silver refining equipment and services.

However, in fiscal 1995, the Company shifted its focus into diversifying out of the imaging industry, due to the volatility caused by the ongoing consolidations impacting U.S. imaging chemical suppliers and the uncertainties of new digital technologies. Its new strategy was to become a world leader in the manufacture, packaging, and distribution of niche market specialty chemicals. The Company's first diversification occurred in October 1994, with the acquisition of The Fuller Brush Company, Inc. Fuller makes a wide variety of specialty chemicals and cleaning products for the industrial and household consumer markets. In January, 1995, CPAC signed an agreement to license the trademarks and formulas of Stanley Home Products. Similar to the Fuller Brush line, Stanley also has a wide range of personal care products.

On July 23, 1997, CPAC acquired the commercial cleaning chemicals business of IVAX Industries and consolidated it with Fuller Brush's commercial cleaning division to form Cleaning Technologies Group (CTG). CTG operates as a division of Corporate and is positioned to become a major supplier to the janitorial cleaning market through partnerships with distributors and private-label manufacturing. The former IVAX manufacturing facility in Marion, Ohio, was closed during fiscal year 1999, and all production was moved to the Fuller Brush plant in Great Bend, Kansas.

On April 1, 1998, CPAC, Inc. acquired the PerfectView® illuminator product line and consolidated the manufacturing of these products into the CPAC Equipment Division's Leicester, New York, operation.

On April 1, 1998, CPAC Europe, N.V. acquired an 80% ownership interest in a former distributor and formed CPAC Africa (Pty) LTD to distribute photochemical products in South Africa and the Sub-Sahara region.

In July 1998, the Company formed CPAC Asia LTD., an 80% owned subsidiary to produce and distribute photochemicals in the Pacific Rim. During fiscal 1999, operations consisted of constructing the manufacturing facility and installing machinery and equipment. CPAC Asia became operational in September 1999.

On December 3, 1999, CPAC, Inc. acquired the Steri-Dent® dental sterilizer product line and consolidated the manufacturing of these products into the CPAC Equipment Division's Leicester, New York, operation.

CPAC, Inc. utilizes a profit center system to capitalize on its internal and acquired management strengths and to assure the continued customer benefits produced by its complementary product lines. CPAC, Inc. is now considered a holding company for the operations of: Trebla Chemical Company; Allied Diagnostic Imaging Resources, Inc.; CPAC Europe, N.V.; CPAC Equipment Division; PRS, Inc. (a sales and marketing organization); CPAC Italia, S.r.l.; The Fuller Brush Company, Inc.; Stanley Home Products; Cleaning Technologies Group, CPAC Africa (Pty) LTD, and CPAC Asia LTD. Each of the operations will be described separately in the following sections.

The Company is an acquirer, licensee, and developer of recognized brand names, and a manufacturer of branded and private label chemicals. The Company operates in two industry segments: the Fuller Brands segment which includes manufacture and sale of specialty chemical cleaning products and related accessories (brushes, brooms, mops) for commercial janitorial and consumer use, as well as personal products such as soaps, shampoos, and skin care items, and the Imaging segment which includes the manufacture and sale of prepackaged chemical formulations, supplies, and equipment systems to the imaging industry. The products of each segment are manufactured and marketed both in the U.S. and in other parts of the world. For additional financial information on these two segments, refer to Footnote 9 of Notes to Consolidated Financial Statements.

CPAC acquired the Fuller Brush Company as a major step toward diversification into new specialty chemical markets. Fuller makes over 2,200 different products, including household and commercial cleaning chemicals, brushes, brooms, mops, and personal care products.

The business is divided into industrial and consumer divisions. In addition, Fuller manufactures its products on a contract basis, and has a relationship with roughly 400 O.E.M. companies. Fuller has more than 100 trademarks in the U.S., Canada, and Puerto Rico, and sells products under a variety of names.

Operating as a division of Corporate, Cleaning Technologies Group is comprised of the recently acquired assets of IVAX Industries and Fuller's existing commercial cleaning business. Products are marketed under the recognized trademarks of Franklin®, Fuller Brush® Commercial, and Masury Columbia™ through a combined network of 600 distributors.

The Company's license agreement with an unrelated third party to manufacture and distribute Stanley Home Products through the use of trademarks and formulas through March 31, 2010, enhanced the Company's presence in the Cleaning and Personal Care market by reinforcing the direct selling element of Fuller Brush. During fiscal 1999, the Company negotiated an amendment to the agreement to obtain ownership of the name when the agreement expires. Stanley's products include over 250 different cleaning and personal care items, sold through a network of distributors via the "hostess" or "party plan." Stanley has over 50 trademarks in the U.S., Canada, and Puerto Rico. Products are marketed under the brand names "Naturals" and "Selectives."

Chemicals are used in the developing process of both photographic film and paper. The exhausted chemicals must be replaced by fresh chemicals or regenerated. Trebla manufactures a complete line of chemical replenishment and chemical regeneration kits for the photographic industry, as well as chemicals for any process that develops a silver halide image.

Trebla's Trecon® and Trelux® brand paper and film chemistries enhance the recovery efficiencies of CPAC silver and chemical recovery systems, to reduce chemical usage and minimize pollutant discharge. The company believes it is the leading manufacturer of recyclable chemistries. Trebla pioneered the industry's first line of developer regeneration kits, to allow photo labs to reuse color developer without purchasing recycling equipment. Trebla also recently received a patent on its one-part TriPhase™ developer and liquid-powder Slush™ chemistry.

Trebla continues to develop and introduce chemical products specifically to cut pollutant discharge, reduce chemistry costs, eliminate odors, and minimize packaging waste. The company also does contract manufacturing for several major manufacturers.

Medical, dental and industrial X-rays, and graphic arts pre-press plates all require processing of an exposed image in chemical solutions to produce an image. Allied produces a complete line of high quality chemical solutions for these purposes.

In Allied's primary market, medical X-ray, the company's Autex® processing chemicals are widely recognized for their quality and versatility. Allied pioneered the popular QuadraPak® and BiPak® packaging of chemistries. In the dental X-ray industry, Allied's second largest market, its trademarked Redi-Chem A & B® chemistry has the majority marketshare for automatic-type processing chemicals. Allied also produces high quality microfilm and pre-press chemicals for use in graphic arts applications. This represents the smallest portion of Allied's business.

CPAC Europe, N.V. manufactures Trebla chemicals and markets CPAC silver recovery equipment for sale in western and eastern Europe, northern Africa, and the Middle East.

Chimifoto was acquired to increase CPAC's market position in Europe, and to establish an additional chemical manufacturing and distribution point for further expansion of CPAC product lines within the European, Middle East, and North African photographic markets. Chimifoto manufactures processing solutions for photofinishing, medical, and graphic arts applications.

CPAC Africa manufactures Trebla chemicals and markets CPAC silver recovery equipment for sale to photographic customers in the Sub-Sahara countries. The entity operates as a division of CPAC Europe in Belgium.

CPAC Asia was established in Bangkok, Thailand, to increase CPAC's market position in the Pacific Rim and to establish an additional chemical manufacturing and distribution point for the photographic markets. CPAC, Inc. owns an 80% interest in CPAC Asia LTD. with the remaining 20% owned by AMCM, a distribution company in Thailand. The plant became fully operational in September 1999 and shipments commenced in the Company's fourth quarter.

As photographic materials are processed, either the exhausted chemicals must be replaced by fresh chemicals, or the solutions must be treated to extend their useful lives. CPAC Equipment Division designs and manufactures systems to achieve this by removing the silver from these solutions so that they can be mixed with fresh chemicals and reused. These systems also reduce pollutant discharge.

CPAC Equipment Division introduced two principal technologies for silver recovery -- electrolytic and ion-exchange. Under the registered trademark SilvPAC®, the Equipment Division manufactures silver recovery systems for image processing facilities using these technologies.

On April 1, 1998, CPAC, Inc. acquired the PerfectView® line of illuminators (light boxes) for the medical industry. These products are manufactured by the Equipment Division and are marketed through an existing distributor network as well as through Allied's distributor and national accounts channels.

On December 3, 1999, CPAC, Inc. acquired the Steri-Dent® product line and consolidated the manufacturing of these products into the CPAC Equipment Division's Leicester, New York, operation.

As the exclusive sales and marketing company for CPAC equipment, Trebla chemistry, and silver refining services, PRS utilizes a direct field sales force, mail order, and distributors to sell and service certain CPAC products in the photographic industry. PRS expanded its marketing role on behalf of the CPAC companies by assuming responsibility for international sales excluding sales made by CPAC's four foreign subsidiaries.

Fuller's industrial business is comprised of three major elements:

1) Commercial

2) Custom Products

3) Contract Manufacturing

Fuller Brush markets its consumer chemical and non-chemical products to consumers using primarily three sales methods:

1) Direct Sales

2) Retail Outlet Stores

3) Mail Order/Catalog Sales

PRS also provides sales and marketing representation for Trebla Chemical Company. Imaging chemical products are primarily sold through the PRS field sales force to dealers. In order to increase sales penetration in the minilab market segment, a dealer organization was established. At present, there are 30 independent dealers marketing Trebla products.

The major areas of sales concentration include amateur, school, professional, commercial, and government photofinishers. Trebla chemical sales have been predominantly in the U.S., although some sales have been made directly to major photofinishers in Latin America and Australia. The foreign market is highly competitive and only a few companies are owned by U.S. interests -- the largest being Eastman Kodak (Kodak). The non-U.S. companies and Kodak are in competition for the world market .

Allied markets its products through various channels. Medical X-ray products are sold to dealers by Allied field sales personnel, as well as through contract manufacturing. Dental X-ray products are sold through an extensive dealer and a commissioned sales representative organization. A number of distributors also warehouse the Allied product line. Certain dental X-ray processing chemicals are manufactured on a private-label basis. The company believes it is the second largest supplier of diagnostic imaging chemistry, behind Kodak, although no statistical data exists to substantiate this belief. The Company's graphic arts chemical products are also sold to dealers through Allied's sales staff and independent representatives. Allied also uses the complementary products of CPAC, Inc. companies to promote chemistry sales.

The Equipment Division markets its products domestically through PRS, Inc. and Allied Diagnostic Imaging Resources, Inc., and through CPAC international subsidiaries. Overall sales and marketing direction is managed within each organization.

The Equipment Division ships products to foreign customers against sight drafts, irrevocable letters of credit, or on open account. PRS acts as a commissioned sales agency in its relationship with CPAC's Equipment Division, and provides customer service activities, including minor product maintenance and installation work. CPAC equipment is also sold directly, under private label, to Allied for resale to its marketplace.

The Equipment Division markets IMG products as well as PerfectView® illuminators and Steri-Dent® sterilizers through dealer networks. The Company's silver recovery products and chemical mixers and blenders are sold through X-ray and solution service dealers in the United States, and graphic arts and equipment dealers serving the newspaper and printing industries. Illuminators are sold to hospital radiology departments and healthcare clinics. Sterilizers are sold primarily to dental offices.

PRS currently acts as a "commissioned sales agency" for Trebla Chemical and CPAC Equipment Division, providing sales and customer service. PRS, in its sales and marketing capacity, is free to draw upon the various technical resources within the CPAC organization. PRS uses the family of complementary products and services available to establish and maintain vendor relations with its customers. In addition, PRS is paid a commission for silver refined by Pioneer Refining Services, Inc., Salt Lake City, Utah.

PRS maintains a network of distributors who are authorized to sell selected products on a non-exclusive regional basis. Internationally, there are a number of exclusive and non-exclusive distributive arrangements in addition to the CPAC Europe, CPAC Italia, CPAC Africa, and CPAC Asia organizations. All PRS-appointed distributorships may be canceled without cause upon ninety days written notice.

CPAC Africa (Pty) LTD is a manufacturer of CPAC brand and private-label color photographic chemistry, and is the only photographic chemical manufacturer in the continent. The entity also markets CPAC's line of pollution control and chemical recycling systems. CPAC Africa supplies customers in South Africa, Namibia, Botswana, Zimbabwe, Zambia, and Zaire.

CPAC Asia LTD., was established in response to a growing demand for Trebla brand color photographic chemistry in the Pacific Rim. This new plant will serve customers in countries throughout the region including Japan, Malaysia, Thailand, Vietnam, Indonesia, and Korea. CPAC Asia also markets CPAC silver recovery equipment and silver refining services.

The amount spent on Company-sponsored research and development totaled $742,057, $766,417, and $696,401 for the years ended March 31, 2000, 1999, and 1998 respectively. All research and development for the Fuller Brands segment is carried out at Fuller, in Great Bend. Primary research and development for all CPAC chemical operations in the Imaging segment is carried out in St. Louis at the Trebla facilities.

The Company's net sales for the fiscal years ended March 31, 2000, 1999, and 1998 were $109.5 million, $112.7 million, and $106.1 million, respectively, during which periods total foreign sales were $14.0 million, $13.2 million, and $11.5 million, respectively.

Trebla Chemical Company; Allied Diagnostic Imaging Resources, Inc.; CPAC Europe, N.V.; CPAC Italia, S.r.l.; The Fuller Brush Company, Inc.; CPAC Africa (Pty) LTD; and CPAC Asia LTD. generally work without a backlog and usually ship any order within 24 hours of receipt. Backlog for the Equipment Division is not material. Fuller has some commercial business in contract manufacturing and production of custom products where orders are generally placed for longer term delivery cycles. The majority of such orders are filled within 90 days and the backlog is not material.

1) Fuller Brands

2) Imaging

At March 31, 2000, the Company employed 608 people with 380 working in Fuller Brands segment, 207 in the Imaging segment, and 21 assigned to the CPAC Corporate staff.

Effective May 1, 1986, the Company established a Profit Sharing and Retirement Plan under Section 401(k) of the Internal Revenue Code. This plan covers all eligible employees of CPAC, Inc. and its domestic subsidiaries. Subject to certain qualifications (employees must be over 21 years of age and have completed one year of service), the plan has the following features:

Effective January 1, 2000 the Company adopted a non-qualified deferred compensation plan for certain key executives of the Company. Contributions to the plan consist of "excess" 401(k) deferrals and selected percentages of salaries and bonuses with a maximum individual deferral of $50,000 per year. No matching contribution by the Company is required. Compensation deferred will be invested by the Company in various investment grade "pooled accounts" on behalf of the participants.

CPAC, Inc. owns the land and building in Leicester, New York, where the offices and manufacturing operations of the Equipment Division and corporate staff are housed. This plant is located on 4.2 acres and consists of a number of buildings, comprising a total of 30,330 sq. ft.

The 40,000 sq. ft. Trebla plant, located at 8417 Chapin Industrial Drive in St. Louis, Missouri, was purchased on October 29, 1993. The Trebla offices, laboratories, and major chemical manufacturing operations are housed in a one-story, concrete-block building on three (3) acres of land. Trebla has direct access to both truck and rail transportation for shipping purposes.

In May 1989, Trebla signed a 12-year lease for an additional 20,480 sq. ft. of office and warehouse space in the same industrial complex as its existing facility. In November, 1993 Trebla leased 14,800 sq. ft. of additional warehouse space immediately adjacent to the current warehouse facilities.

CPAC Europe, N.V. owns approximately 5 acres of land in Industriepark Herentals (near Antwerp), Belgium. The building, completed in fiscal 1992, is 15,500 sq. ft. There is a mortgage outstanding on the property. CPAC Europe expanded its facilities during fiscal 1999, adding 28,400 sq. ft.

Allied's main plant and headquarters, located in Norcross, Georgia, are approximately 84,000 sq. ft. The facilities are leased until August 31, 2004.

CPAC Italia leases its office and industrial manufacturing space in Milan, Italy under a two-year operating lease agreement with the former owners of Chimifoto Ornano, expiring in fiscal 2003. The lease contains options for an additional four-year renewal term. CPAC Italia also leases warehouse space under a six-year lease agreement.

The Fuller Brush Company, Inc.'s 450,000 sq. ft. facility is located in Great Bend, Kansas. The single story building contains manufacturing, distribution, office facilities, and retail outlet store, and has access to both truck and rail transportation for shipping purposes. The facility was financed through an Industrial Revenue Bond, which is outstanding until 2009. Fuller Brush constructed a 105,000 sq. ft. North America Distribution Center (warehouse facility) on its property in Great Bend, Kansas, to accommodate Fuller's recently integrated acquisition and to position Fuller Brush for future acquisitions and revenue growth. Fuller also leases eight third party retail outlet stores with two stores located in Missouri and one located in each of the following: Maine, Maryland, New Hampshire, South Carolina, Tennessee, and Wisconsin. There is also an outlet store located at the CPAC, Inc. offices in New York and one at Fuller Brush offices in Kansas.

CPAC Africa's 14,000 sq. ft. manufacturing facility is located in Pretoria, South Africa, and is leased under an arrangement expiring in December 2000. The lease contains a renewal option for an additional three years.

CPAC Asia owns its 33,000 sq. ft. facility located in Chachoengsao, Thailand.

In management's estimation, all facilities are adequate to allow the Company to continue operations; however, management is evaluating its space requirements in Italy and expects to negotiate a lease for different facilities before the year 2001.

Item 3.     LEGAL PROCEEDINGS

No material litigation is pending to which the Registrant and/or its subsidiary(ies) is a party or of which property of the Registrant and/or its subsidiary(ies) is the subject.

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

None.

Item 5.     MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

The principal market on which the Registrant's Common Stock is being traded is the national Over-The-Counter (OTC) market in the NASDAQ National Market System.

The source of such quotations is from the Nasdaq-Amex Online^SM service. Such online quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

The approximate number of holders of record of the Common Stock of the Registrant as of March 31, 2000 is 1,780. This number includes only holders of record, and beneficial holders who have disclosed that they are recordholders.

Item 6.     SELECTED FINANCIAL DATA

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

The Company uses a variety of measures of liquidity for internal management purposes. These measures include working capital, asset turnover, profitability, and leverage ratios, which are set forth below. Internally, review of these ratios on a quarterly and annual basis allows management to set and measure goals for performance by the various operations of the Company. These ratios, on a consolidated basis, help to measure the Company's ability to meet its short-term obligations and are a part of the loan covenants with our primary lending institution.

Working capital is the excess of current assets over current liabilities. The working capital ratio is calculated by dividing current assets by current liabilities.

During fiscal 2000, lower revenues and operating earnings contributed to the decrease in the Company's working capital levels. Increased net borrowings ($1.1 million), primarily to support the construction and start-up activities of CPAC Asia, as well as cash utilized for the stock buy-back program ($5.8 million) and capital additions ($3.1 million), also lowered working capital levels. However, cash generated from operations was extremely strong, due to reduction in inventory levels, improvement in accounts receivable collection efforts, and other operating efficiencies experienced.

During fiscal 1999, the Company's working capital decreased primarily due to the continued net paydown of debt obligations ($1.8 million), use of cash for the stock buy-back program ($4.5 million), as well as the funding of capital expenditures ($5.0 million), offset by cash generated from operations ($7.9 million). Although previously held short-term investments were used during the year, the Company's line of credit balance at March 31, 1999, due to strong operating cash flows, was only approximately $201,000.

In April 2000, the Company negotiated an amendment to its domestic line of credit agreement, extending it until October 31, 2002. The maximum availability remains at $20,000,000 with interest payable monthly at the lower of prime or the 30 day LIBOR rate plus .75% (prime was 9% and LIBOR was 6.13%, respectively at March 31, 2000). The line of credit facility requires meeting certain financial covenants, with which the Company was in compliance at March 31, 2000.

During fiscal 2000, CPAC Asia LTD. increased its line of credit with an international bank from 15.76 million baht to 20 million baht (approximately $530,000 based on the year-end conversion rate in Thailand). Interest is payable at prime plus 1% (prime rate in Thailand was 12% at March 31, 2000), with the line collateralized by a standby letter of credit (LOC) guaranteed by CPAC, Inc. CPAC Asia LTD. had borrowings against the line of credit of $516,040 at March  31, 2000.

During fiscal 2000, the Company did not renew its line of credit facility with a major Belgian bank, as the facility was not being utilized nor expected to be utilized in the future.

Management believes that its existing available lines of credit and cash flows from operations should be adequate to meet normal working capital needs, based on operations as of March 31, 2000. It is expected that additional financing may be necessary to allow the Company to pursue additional acquisitions.

Receivable days outstanding decreased slightly in 2000 over 1999 levels, due to continued strong collection efforts in the Fuller Brands segment, as well as a slight improvement in days' sales outstanding in the combined Imaging segment receivables.

Receivable days outstanding increased in 1999 over 1998 levels, as Fuller's receivable days outstanding increased to approximately 42 days, versus 32 days in 1998. This was primarily due to lengthening of some CTG customer terms for new customers, versus the predominantly "cash term" direct Fuller business. This coupled with the Imaging segment's "normal" terms of 70-80 days gave a blended days sales outstanding of 55 days.

Inventory turns increased slightly in 2000 over 1999 levels, due to a concerted effort to reduce inventory levels, primarily at the Fuller Brands segment. Inventory turns remained fairly constant in 1999 versus 1998.

Operating return on net sales is the result of dividing operating income by net sales. Net income on net sales is calculated by dividing net income by net sales. Net income to net worth is calculated by dividing net income by the amount of ending shareholders' equity.

The slight decrease in operating return on net sales in 2000 as compared to 1999, is primarily a result of the revenue shortfalls experienced by the Company, which overshadowed the cost reductions implemented during the year. The increases in net income on net sales and net income to net worth are a function of lower consolidated taxes, due to the tax refund received in the fourth quarter. These ratios, excluding the one-time tax benefit, would have been 4.9% and 10.5%, respectively. The reason net income to net worth, excluding the one-time tax benefit, still exceeds 1999 levels is due to a lower shareholders' equity from the increased stock buybacks and a full year of dividend payments, as compared to 1999.

The decreases in 1999, as compared to 1998, were caused by the profit shortfall in both the Fuller Brands and Imaging segments, due to expenses and sales shortfall in the CTG operation, as well as sales decreases in the photochemical operations.

Debt to debt-plus-equity is calculated by dividing all liabilities by the sum of all liabilities plus shareholders' equity. Total debt to equity is calculated by dividing all liabilities by the amount of shareholders' equity.

These ratios measure the extent to which the Company has been financed by debt and are an important measure to our lending institutions.

The increase in both ratios in 2000, as compared to 1999, reflects a combination of increased borrowings of $1.3 million, combined with a lower equity of $2.2 million, due to increased stock buy-backs, and increased dividends of $734,000.

The improvement in both ratios in 1999 reflects the use of invested and generated cash to reduce liabilities and debt balances from 1998 levels, offset somewhat by the continued stock buy-back program.

For purposes of financial reporting, the Company operates in two industry segments: the Fuller Brands segment, which includes the manufacture and sale of specialty chemical cleaning products and related accessories (brushes, brooms, mops) for commercial, janitorial, and consumer use, as well as personal care products such as soaps, shampoos, and skin care items, and the Imaging segment which includes the manufacture and sale of prepackaged chemical formulations, supplies, and equipment systems to the imaging industry. The products of each segment are manufactured and marketed both in the U.S. and in other parts of the world. Sales between segments are not material.

The Company's net sales decreased from year-end March 31, 1999 to year-end March 31, 2000 by 2.9% and increased from 1998 to 1999 by 6.3%.

For the Fuller Brands segment, 2000 sales decreased 7.6% over 1999, due to shortfalls in all three divisions: Fuller Brush, Stanley Home Products, and Cleaning Technologies Group. In 1999, sales increased 12.2% versus 1998 due primarily to CTG having twelve full months of sales.

For the Imaging segment, sales in 2000 increased 4.7% due to increased sales in the medical imaging market. Also increased Asian sales from shipments of the Company's Thailand subsidiary helped to mitigate decreases of domestic photochemical sales. Sales in 1999 decreased 2% over 1998 due to decreased chemical sales in the U.S. color photochemical market.

Net income in 2000 decreased less than .5% as compared to 1999. However, 2000's profits were favorably impacted by a one-time federal tax refund of $335,000 received in the fourth quarter of fiscal 2000, related to the previous disposition of the Company's Venezuelan operation. Net income, excluding the tax benefit, net, decreased approximately 5%. Lower sales in the Fuller Brands segment, largely due to a major decline in sales to a consumer catalog customer, offset operational efficiencies and expense reduction efforts and contributed to a decline in operating income of 5.3%. Increased sales and profits in the Imaging segment's medical imaging operations contributed to an increase of 16.8% in operating profits for this segment.

Net income decreased 17.6% in 1999 over 1998, caused by a 22.5% decline in operating profits in the Imaging segment due primarily to the sales shortfall in the photochemical operations, a 13% decline in operating profits in the Fuller Brands segment due to a sales shortfall and expenses from the acquired CTG operation, and a 43.6% increase in net interest expense due to the various investing and financing activities occurring during the fiscal year.

Combined sales for the foreign operations rose 7.7% in 2000 versus 1999. The increase was largely the result of CPAC Asia sales that began in the fourth quarter of fiscal 2000. Combined sales of CPAC Europe (Europe), CPAC Italia (Italy), and CPAC Africa (Africa) were flat with the previous years, after conversion from local currencies to U.S. dollars. Pretax profits for the combined foreign operations decreased 5.3% in 2000 versus 1999. Again, the decrease was largely attributable to the losses that CPAC Asia incurred in the first 3 quarters, prior to becoming fully operational. Combined pretax profits for Europe, Italy, and Africa were up less than 2%, after conversion to U.S. dollars. While CPAC Asia's sales and profits for fiscal 2001 are expected to increase due to a full year of operations, currency pressures involving the Belgian franc and Italian lira may impact the sales and profits of CPAC Europe and CPAC Italia and lessen the increased sales and resulting profits they are projecting for fiscal 2001. CPAC Africa expects to continue its mid-single digit sales growth, and should continue to show modest profit increases in fiscal 2001.

Combined sales for the foreign operations rose 5.3% in 1999 versus 1998. The increase was largely due to a 4.4% increase in sales at CPAC Italia, with the remainder coming from the acquisition of CPAC Africa (Pty) LTD in April of 1998. Pretax profits for the combined foreign operations, however, decreased 17.5%, due to increased borrowings related to the CPAC Europe plant expansion, the CPAC Africa acquisition, and the slowdown of business into the Russian market. The Russian customer base had been a primary reason for the increase in business and profits in 1998. While some of the shortfall has been covered with new customers, the margins are generally lower than previously earned.

The Company has exposure to currency fluctuations and occasionally has utilized hedging programs (primarily forward foreign currency exchange contracts) to help minimize the impact of these fluctuations on results of operations. At March 31, 2000 no forward foreign currency exchange contracts were outstanding. The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivative transactions. On a consolidated basis, foreign currency exchange losses are included in income or expense as incurred and are not material to the results of operations.

Gross margins (net sales less cost of sales expressed as a percentage of net sales), were 43%, 43%, and 44% for the years ended March 31, 2000, 1999, and 1998, respectively.

Gross margins in the Fuller Brands segment for 2000 were 46.9%, as compared to 46.8% and 47.4% in 1999 and 1998, respectively. Although the segment shows only slight improvement on a year to date basis, the margins actually improved to 47.5% for the fourth quarter of fiscal 2000, as compared

to 45.3% in the fourth quarter of 1999. The improvement demonstrates the efficiencies now being earned with regards to manufacturing of CTG and other Fuller and Stanley products in the segment's Great Bend, Kansas, facility. The margins will be impacted in the future by product mix, as the segment's direct selling businesses have higher gross margins than the commercial cleaning businesses. However, increased throughput in the facility through increased sales should help to continue to improve overall blended margins.

Continued market competition in the photochemical markets, both domestic and international, coupled with an increased amount of lower margin medical imaging business in 2000, resulted in a gross margin in the Imaging segment of 36.9% in 2000, versus 37.4% and 38.6% in 1999 and 1998, respectively.

The Company believes that past capital expenditures for plant and machinery and equipment in each segment both domestically and overseas should allow the Company to pursue higher volume, price competitive manufacturing opportunities, as many large, multinational companies continue to outsource non-strategic manufacturing.

This category amounted to 33.4%, 33.4%, and 31.7% of net sales in fiscal years 2000, 1999, and 1998, respectively.

In 2000, the Fuller Brands segment's selling, administration and engineering expenses were 36.4% of net sales, as compared to 36.7% and 34.6% in 1999 and 1998, respectively. Lack of revenue growth during 2000 offset the savings earned from expense reductions implemented at the beginning of the third quarter and prevented further improvement in the relationship of selling expenses to net sales. The Company again intends on holding the line on expenditures related to sales in fiscal 2001 and believes that the commercial cleaning business is now well positioned to increase sales, without corresponding increases in expenditures.

In 2000, the Imaging segment's selling, administration and engineering expenses decreased to 27.8% of net sales, versus 29.0% and 28.1% in 1999 and 1998, respectively. This was achieved through maintaining past levels of expenditures despite most Imaging segment's increasing sales. It also was achieved while absorbing nine months worth of start-up expenses from CPAC Asia. Due to continued pressures in the Imaging marketplace, further significant declines in this ratio are not anticipated.

Research and development expenses, as a percentage of net sales, have remained fairly constant at .7% for 2000, 1999, and 1998. This reflects the Company's strategy of focusing on improving existing products or developing complimentary products, based on customer needs. It is anticipated that additional R&D efforts will be spent in the Fuller Brands segment to develop new products for their direct selling customers, as well as continued efforts to improve and supplement the segment's floor care products, which will allow it to continue to compete for national account business and participate with other strategic partners in future revenue growth opportunities. R&D efforts in the Imaging segment will have a renewed focus on new chemical products for the photochemistry industry for use domestically and internationally. This may cause the ratio of expense to net sales to increase slightly in fiscal 2000, but anticipated increased sales should limit the impact.

Net interest expense decreased slightly in 2000 versus 1999. Strong cash flows domestically allowed the Company to stay out of its line of credit facility through much of 2000, although increased investments in CPAC Asia caused international interest expense to increase. The increase in 1999 versus 1998, was a result of the reduction in interest income, as short-term investments were used to pay down debt, fund capital expenditures, and the Company's stock buy-back program.

The provision for income taxes, as a percentage of pretax income, was 36.3% in 2000, as compared to 41.2% and 41.1% in 1999 and 1998, respectively. The lower rate in 2000 reflected the tax benefit recognized in the fourth quarter of that year, related to the income tax refund received from the tax write-off of the Company's previously discontinued Venezuelan operation. Absent this tax benefit, the Company's effective tax rate would have been approximately 40%. Lower state taxes due to lower pretax earnings in the Fuller Brands segment, as well as lower foreign taxes in several of the Company's international operations, contributed to the decline. It is expected that the effective rate for 2001 will continue to be below 40%, based on the seven-year "tax holiday" existing for the Company's Asian subsidiary.

Due to increased competitive sales pressure, the Company has not been able to pass on all inflation related cost increases in the Imaging segment. However, the adverse impacts of inflation have been partially offset through productivity improvements and cost cutting efforts. Inflation has generally not had an adverse impact on the Fuller Brands segment.

Remediation efforts related to certain environmental contamination issues at the Fuller Brush Great Bend, Kansas facility, discovered during the Fuller acquisition due diligence process, are now virtually complete. The former owner of Fuller Brush, the Company, and the Department of Health and Environment of the State of Kansas agreed on a comprehensive work plan for remediation, which during the last several years, has been substantially funded by the former owner. Management does not believe that further remediation work, if any, would have a material impact on the results of operations.

The Year 2000 issue is the result of computer software programs that were written using two digits rather than four to define the applicable year. Any computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather then the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, generate invoices, or engage in similar normal business activities. The Company has completed work on its program to ensure that all of its significant date-sensitive computer software and hardware systems and other equipment utilized in its various manufacturing, distribution and administration activities are Year 2000 compliant.

As of the date of this filing, the Company has not experienced any material adverse effects on the operations or results of operations of the Company relating to the Year 2000 Issue as a result of any of its systems or any of its third parties with whom it has significant business relationships. While there may be minor interruptions or malfunctions with some systems or third parties in the future, at the present time the Company does not expect such interruptions to have a material impact on its financial position, results of operations, or cash flows. However, because the Company's continued Year 2000 compliance is in part contingent upon the continued compliance of third parties, there can be no assurance that the Company's efforts alone have resolved all Year 2000 issues, or that key third parties

will not experience Year 2000 compliance failures as calendar year 2000 progresses. If such failures occur, they may have a material impact upon the Company's results of operations, financial condition, or cash flow. The Company intends to continue to closely monitor the performance and Year 2000 compliance of its key third party vendors.

On January 1, 1999, the Euro became the common currency of eleven of the fifteen member states of the European Union. After the introduction of the Euro, the national currencies will remain legal tender in the participating countries until mid-calendar-year 2002. During the dual currency phase, businesses must be capable of conducting commercial transactions in either the Euro or the national currency. After the dual currency phase, all businesses in participating countries must conduct all transactions in the Euro and must convert their financial records and reports to be Euro-based. The Company expects that all its facilities will be capable of complying with the Euro conversion timetable and with customer requirements for quoting and billing in Euro dollars. The Company's information technology systems are currently meeting the dual currency phase requirements, and it is anticipated that the final phase of the Euro conversion will not have a negative effect on the Company.

This Form 10-K contains forward-looking statements that are based on current expectations, estimates, and projections about the industries in which the Company operates, as well as management's beliefs and assumptions. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions ("Future Factors") which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise.

The Future Factors that may affect the operations, performance and results of the Company's business include the following:

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. The Company does not intend to update forward-looking statements.

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Footnote 5 - Debt, in the Notes to the Consolidated Financial Statements of the Company concerning interest rate risk.

See Management's Discussion and Analysis of Financial Condition and Results of Operations and Footnote 1 - Accounting Policies - Foreign Currency Translation, in the Notes to the Consolidated Financial Statements of the Company concerning foreign currency exchange rate exposure.

Item 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

To the Board of Directors and Shareholders of

CPAC, Inc. and Subsidiaries

In our opinion, the accompanying consolidated financial statements listed in the index appearing under item 14(a)(1) on page 43 of this Form 10-K present fairly, in all material respects, the financial position of CPAC, Inc. and Subsidiaries (the "Company") at March 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States. In addition the financial statement schedule listed in the index appearing under item 14(a)(2) on page 43, presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Rochester, New York

May 26, 2000

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

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

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

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

The Company

CPAC, Inc., and Subsidiaries ("the Company"), manufactures, markets, and distributes both in the U.S. and in other parts of the world cleaning and personal care products for industrial and consumer use, as well as prepackaged chemical formulations, supplies, and equipment systems to the imaging industry.

The consolidated financial statements of the Company include the accounts of the Company, its wholly-owned subsidiaries, its 98% owned subsidiary (CPAC Europe, N.V.), and its 80% owned subsidiaries (CPAC Africa (Pty) LTD and CPAC Asia LTD.). The Company's foreign subsidiaries are included in the consolidated financial statements utilizing a December 31 fiscal year to facilitate prompt reporting of financial results. All significant intercompany accounts and transactions have been eliminated.

The minority interests in the earnings (losses) of the consolidated foreign subsidiaries for the years ended March 31, 2000, 1999, and 1998 were ($8,617), $12,191, and $8,882, respectively, and is included in selling, general, and engineering expenses. Minority interest included in the Consolidated Balance Sheets at March 31, 2000 and 1999 was $195,164 and $63,666, respectively.

Inventory is stated at the lower of cost, on a first-in, first-out basis, or market.

Property, plant and equipment are stated at cost and are depreciated over their estimated useful lives on the straight-line and accelerated methods (buildings and improvements 15 to 39 years; machinery and equipment 3 to 12 years; leasehold improvements 15 to 39 years; furniture and fixtures 5 to 12 years). Leasehold improvements are amortized over the shorter of the lease period or the expected useful lives of the improvements using the straight-line method. At the time of retirement or other disposition of property, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.

The Company reviews the carrying value of long-lived assets and intangibles whenever events or changes in circumstances indicate that the carrying value of such items may not be recoverable from undiscounted net cash flows of the related business or asset.

The Company recognizes revenue upon shipment of product.

The Company charges research and development expenditures to income as incurred.

The Company charges advertising expenditures to income as incurred and includes the expenses in "selling, administrative, and engineering expenses."

All assets and liabilities of the Company's wholly-owned and majority-owned foreign subsidiaries are translated from their functional currency to U.S. dollars at year end exchange rates. Revenues and expenses are translated from functional currencies to U.S. dollars using an average exchange rate for the year. Translation gains and losses are not included in determining net income, but are accumulated as a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in the determination of net income. Included in consolidated net income are foreign currency transaction gains (losses) of ($22,000), $12,000, and ($46,000), realized during fiscal 2000, 1999, and 1998, respectively.

The Company has occasionally utilized hedging programs (primarily forward foreign currency exchange contracts) to minimize the impact of currency fluctuations on the result of operations. At March 31, 2000, and 1999, no forward foreign currency exchange contracts were outstanding. The Company does not hold or issue derivatives for trading purposes and is not a party to leveraged derivative transactions.

Basic EPS is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation including stock options.

The table below summarizes the amounts used to calculate basic and dilutive earnings per share:

Unexercised stock options to purchase 694,629 and 648,968 shares of the Company's common stock as of March 31, 2000 and 1999, respectively, were not included in the computations of diluted EPS because the options' exercise prices were greater than the average market price of the Company's common stock during the respective periods. These options, issued at various dates from 1995 through December 31, 1999, are still outstanding at the end of the year.

For purposes of the statements of cash flows, the Company considers marketable securities with a maturity of three months or less at the time of purchase to be cash equivalents. The Company paid interest of $696,000, $546,000, and $971,000, in fiscal 2000, 1999, and 1998, respectively. In addition, the Company paid income taxes of $2,785,000, $2,930,000, and $4,300,000, in fiscal 2000, 1999, and 1998, respectively.

Goodwill and intangible assets are amortized on the straight-line method over periods ranging from 5 to 40 years. Cost and related amortization are written off when fully amortized. At March 31, 2000 and 1999, goodwill with an original cost of $11,861,000 is being amortized over 40 years, with the remaining goodwill and intangibles being amortized over 5 to 15 years.

Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of temporary cash investments and trade accounts receivable. The Company places its temporary cash investments with high credit quality financial institutions. The Company's customers are not concentrated in any specific geographic region, but are broadly concentrated in the cleaning and personal care products and imaging industries. Concentrations of credit risk with respect to trade receivables are limited due to the large number of domestic and foreign customers comprising the Company's customer base, and their dispersion across several different business sectors participating in different facets of the cleaning and personal care products and imaging industries.

The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, receivables, and accounts payable approximates their carrying values due to the short-term maturity of the instruments. The fair value of short-term and long-term debt approximates their carrying value based on their effective interest rates compared to current market rates.

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 at year end and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income tax expense is based on reported earnings before income tax expense. Deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable in future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

Other comprehensive income includes foreign currency translation adjustments. Because cumulative translation adjustments are considered a component of permanently invested, unremitted earnings of subsidiaries outside the United States, no taxes are provided on such amounts.

The Company has two operating segments. The basis for determining the Company's operating segments is the manner in which the Company in its operations uses financial information. Management operates and organizes itself according to business units, which comprise unique products and services across geographic locations.

Certain 1999 and 1998 financial statement and related footnote amounts have been reclassified to conform to the 2000 presentation.

During fiscal 2000, the Company's Equipment Division (an Imaging segment operation) made one acquisition. The acquisition was accounted for as a purchase transaction and amounts paid were not material. Revenues, earnings, and assets of the acquired operations were also not material.

During fiscal 1999, the Company's Imaging segment made two acquisitions. Both acquisitions were accounted for as purchase transactions and amounts paid for both were not material. Revenues, earnings, and assets of the acquired operations were also not material.

Inventory as of March 31, 2000 and 1999 is summarized as follows:

Property, plant and equipment are comprised of the following at March 31:

On April 27, 2000, the Company amended its revolving credit agreement, extending the maturity date for borrowings until October 31, 2002. The agreement continues to contain customary covenants, including maintenance of specified working capital, capital expenditures, debt to equity, and net worth ratios, of which the Company was in compliance at March 31, 2000.

The Company's majority-owned subsidiary, CPAC Asia LTD., has a line of credit with an international bank amounting to 20,000,000 baht (approximately $530,000 based on the year-end conversion rate in Thailand). Interest on the line is prime plus 1% (Thailand prime was 12% at March 31, 2000) and is collateralized by a standby letter of credit (LOC) guaranteed by CPAC, Inc. CPAC Asia LTD. had borrowings against the line at March 31, 2000 of $516,040.

Annual maturities of debt for the next five fiscal years are as follows: 2001:$1,185,349; 2002:$381,585; 2003:$379,245; 2004:$313,578; and 2005:$592,918.

Stock Transactions

During fiscal 2000, the Company repurchased 766,873 shares of its common stock, at an average cost of $7.59 per share, for a total cost of approximately $5,818,000 as part of previously announced Board of Directors authorized stock buy back plans. During fiscal 1999, the Company repurchased 547,061 shares of its common stock, at an average cost of $8.19 per share, for a total cost of approximately $4,482,000 as part of a previously announced Board of Directors authorized stock buy back plan. In fiscal 1998, the Company repurchased 273,293 shares of its common stock, at an average cost of $10.59 per share, for a total cost of approximately $2,893,000 as part of a previously announced Board of Directors authorized stock buy back plan.

On November 2, 1998 the Company's Board of Directors approved the reinstatement of a regular quarterly cash dividend on its common stock. For the years ended March 31, 2000 and 1999, dividends of $1,609,169 and $875,569, respectively, were declared and paid.

The Company maintains an Executive Long-Term Stock Investment Plan (the Plan) for key employees, which allows issuance of incentive stock options, nonqualified stock options, reload options, and restricted performance shares. The Plan has reserved for issuance to key employees, 1,200,000 shares of the Company's common stock. Upon exercise, an employee granted an option under the Plan may pay for the Company's stock either with cash or with Company stock already owned by the employee, valued at the fair market value of the stock on the exercise date. The term of the option is determined by the Executive Long-Term Stock Investment Committee (the Committee), with most grants having terms of ten years (five years in the case of a greater than 10% shareholder). The options may be exercised in cumulative annual increments of the greater of 25% or 2,500 commencing one year after the date of the grant.

The Company also maintains a Non-Employee Directors Stock Option Plan. At the inception of the Plan, each non-employee director was granted an option to purchase 10,000 shares of the Company's common stock, on a one-time basis for past service rendered to the Board of Directors, at the fair market value at the date of the grant. Directors elected subsequent to the Plan inception were granted options to purchase 15,000 shares. The term of the option grants is for ten years. In addition, the Directors Plan calls for an annual automatic grant for the purchase of 3,000 shares, per director, of the Company's common stock, on the first Friday after the annual meeting of Shareholders, at a price equal to the fair market value at that date. The term of these grants is also ten years. During fiscal 2000, 1999, and 1998; 9,000, 12,000 and 9,000 options respectively were granted pursuant to the Directors Plan.

In addition, the Company from time to time grants nonqualified options to non-employees, at an option price equal to the fair market value at the date of the grant. The term of each option is to be decided by the Committee and at March 31, 2000, nonqualified options to non-employees had initial terms of ten years.

As of March 31, 2000, total options outstanding are summarized as follows:

The following table summarizes information about options outstanding at March 31, 2000:

Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," and as permitted by this standard, will continue to apply the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for employee stock options. Had compensation cost been determined based on the fair value at the grant dates for awards under the Company's stock plans in accordance with SFAS No. 123, net income and diluted earnings per share would have been reduced by $368,000 ($.06), $325,000 ($.05), and $329,000 ($.05) in 2000, 1999, and 1998, respectively. The fair value of these options were estimated at grant date using the Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999, and 1998:

There have been no charges to income in any of the three years in connection with these options other than incidental expenses related to issuance of options.

On March 29, 2000, the Company issued 40,000 stock warrants for the Company's $.01 par common stock to a non-related service provider in connection with a contract to feature CPAC's Cleaning Technologies Group as a Preferred Provider of cleaning and maintenance products on the entity's internet public network. These warrants were awarded at the closing market price on that date, $6.875, for services to be substantially provided during fiscal 2001. The warrants vest over a three-year period.

The warrants have been valued, in accordance with SFAS No. 123, at $1.85 per warrant, using the Black-Scholes option pricing model. Assumptions used were as follows: expected life: three years; historical volatility: 41%; and risk-free interest rate: 6.4%. The fair value of these warrants will be expensed during fiscal 2001.

In December 1999 the Company awarded 25,000 restricted shares of its $.01 par common stock to an executive officer of the Company subject to certain conditions and restrictions. The shares vest if certain targeted earnings per share levels are reached, at which time the restrictions will lapse. No expense has been recognized for the year ended March 31, 2000.

The Company had previously awarded 23,347 shares of the Company's $.01 par common stock to the same executive officer, as part of a deferred compensation agreement. The expense had been amortized and recognized over a five-year period as it was being earned. These shares were completely vested in April 1999. The total expense recognized for the years ended March 31, 2000, 1999, and 1998 was 0, $31,376, and $38,000 respectively.

In connection with the issuance of incentive stock options, there are 3,432 outstanding shares of the Company's common stock treated as "restricted performance shares" which were issued to certain outstanding employees pursuant to the 1994 Executive Long-Term Stock Investment Plan. Restrictions on these shares lapse over a five-year period, if performance objectives have been met during the period. Shares are forfeitable if their related incentive stock options are exercised. The total expense recognized for the years ended March 31, 2000, 1999, and 1998, was $17,000, $35,699, and $56,000, respectively. The unearned balance, which has been grouped with additional paid-in capital, was $3,000 and $20,000, at March 31, 2000 and 1999, respectively.

The Company maintains a contributory profit sharing plan [401(k)] for the benefit of substantially all employees. Contributions to the plan may be made for each plan year in such amounts as the Board of Directors may, at its discretion, determine. In addition, the Company will also match to a maximum of 3% of the participant's compensation each contribution made by a plan participant for the plan year in an amount equal to $.50 for each $1.00 of participant contribution. A participant may contribute up to 15% of compensation to the plan. The amount charged to expense in connection with this plan was $400,000, $421,000, and $419,000, for the years ended March 31, 2000, 1999, and 1998, respectively.

During fiscal 2000, the Company adopted a nonqualified deferred compensation plan for various key executives of the Company. Contributions to the plan consist of "excess" 401(k) deferrals and percentages of salaries and bonuses. No matching contribution by the Company is required. Compensation deferred will be invested by the Company in various investment grade "pooled accounts" on behalf of the participants. At March 31, 2000, total assets and liabilities resulting from the nonqualified plan were not material.

The provision for income taxes is summarized as follows:

The differences between the provision for income taxes and income taxes computed using the U.S. federal income tax rate are as follows:

Temporary differences and carryforwards, which give rise to deferred tax assets and liabilities at March 31, are as follows: