Indicate by check mark whether the Registrant (1) 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.           Yes [ X ]          No [    ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.        [ X ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).           Yes [    ]          No [ X ]

The aggregate market value of the 2,410,171 shares of voting stock held by non-affiliates (persons other than officers, directors, and 5% shareholders) of the Registrant as of September 30, 2002, the last business day of the Registrant's most recently completed second fiscal quarter, was $13,496,957, based on the closing price of $5.60 on the Nasdaq National Market as of such date.

Certain portions of Part III of this Form 10-K are incorporated herein by reference to portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders dated June 20, 2003.

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CPAC was formed in 1969 as a New York Corporation under the name of Computerized Pollution Abatement Corporation. Its name was shortened to CPAC, Inc. in 1976. The principal executive offices of the Company are located at 2364 Leicester Road, Leicester, New York, 14481, telephone number 585-382-3223. Additional information is available on the Company's web site at (http://www.cpac.com).

The Company's Fuller Brands Segment is comprised of three business units that are primarily focused on the development, manufacture, distribution, and marketing of approximately 2,700 branded and private-label products for consumer and commercial cleaning and personal care applications. These business units are The Fuller Brush Company, Inc., Great Bend, KS (acquired in 1994); Stanley Home Products, Agawam, MA (licensed in 1995); and Cleaning Technologies Group (CTG), Great Bend, KS (acquired in 1997).

The Segment's products include home and commercial cleaning products (all-purpose cleaners, degreasers, deodorizers, stain removers, laundry products); stick goods (brooms, brushes, mops); commercial floor care chemicals (finishes and waxes, strippers, sealers, maintainers); custom brush components for OEM applications; and personal care products (hair and skin care, fragrances, cosmetics, vitamins, nutritional supplements). The vast majority of Segment products are manufactured at its 600,000 sq. ft. facility in Great Bend, Kansas.

The Consumer component of the Fuller Brands Segment consists of products sold through The Fuller Brush Company and Stanley Home Products business units, which utilize the following channels: direct selling, catalogs, the Internet, retail outlet stores, direct marketing partners, television home shopping, and sweepstakes.

The consumer product lines of these two business units include (i) Home Care products for kitchen, laundry, bath, and general household cleaning, as well as brushes, brooms, and mops and (ii) Personal Care products such as hair and skin care products, fragrances, cosmetics, vitamins and nutritional supplements. The Fuller Brush Company and Stanley Home Products each hold more than 100 registered trademarks in the U.S. and elsewhere for their products.

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While most of the Consumer cleaning products for Fuller and Stanley are developed and manufactured in the Great Bend facility, a number of cosmetic and skin care products for Stanley are imported.

Stanley Home Products and The Fuller Brush Company both have direct selling organizations comprised of independent representatives. Direct selling consists of the sale of a consumer product or service, person-to-person, away from a fixed retail location. The Company also utilizes the "party plan" sales method in which its sales representatives demonstrate products to groups rather than individuals, as well as the traditional "one-on-one" method.

Most of the independent representatives sell part-time, purchasing products from Fuller and Stanley in order to resell them to their customers. Representatives are encouraged to recruit others into the business, thus widening the sales network.

Both Fuller and Stanley publish full-color catalogs and fliers as a means of marketing their product lines, as well as to promote the direct selling business opportunity. Customers who are not assisted by a direct selling representative can order directly from the company by mailing, telephoning, e-mailing, or faxing an order directly to Customer Service. Additionally, both companies have e-commerce enabled web sites through which consumers can order products directly (www.fullerbrush.com and www.shponline.com).

Fuller Brush operates eight Factory Retail Outlet Stores, six of which are located in outlet shopping centers in Kittery, Maine; Branson, Missouri; Myrtle Beach, South Carolina; Pigeon Forge, Tennessee; Kenosha, Wisconsin; and Hagerstown, Maryland; with additional stores located in a regional mall in Chesterfield, Missouri; and at the Fuller Brush plant in Great Bend, KS. All products bear the Fuller Brush brand and are sold at a discount. First quality consumer products comprise approximately 80% of stocked merchandise with the balance consisting of consumer and commercial overstocks, closeouts, and ''seconds". The Retail Outlet component of Fuller Brands' Consumer business provides a useful platform for delivering world famous Fuller quality goods to those consumers not covered by a local representative.

Fuller-branded consumer products are marketed through national direct marketing partners such as catalog companies, sweepstakes marketers, direct mail firms, Internet marketers, and direct response television. They partner with Fuller Brush to directly promote the Fuller brand to their large audiences, and fulfill orders from their respective distribution centers.

This growing channel complements the direct selling efforts of Fuller representatives, and offers consumers an opportunity to purchase Fuller merchandise in a variety of ways.

The Commercial business of the Fuller Brands Segment consists of products sold through The Fuller Brush Company and Cleaning Technologies Group. Commercial sales are broken out into the following three categories: Commercial Cleaning, Custom Products, and Export. The three key Commercial businesses address the needs of a wide array of customers, from retail food store sanitation products to customer designed industrial brushes.

Cleaning Technologies Group (CTG), the commercial cleaning business unit, manufactures, distributes, and sells sanitary maintenance supplies, professional cleaning products, and stick goods (brooms, brushes, mops). Products are sold through a national network of wholesale janitorial and paper distributors, manufacturers' representatives, and large buying groups that purchase and resell products to end-users such as grocery stores, offices, hotels, retail stores, hospitals, schools, and manufacturing plants. CTG also employs a national sales force of regional representatives to provide service to and manage the accounts of its distribution network. In addition, CTG exhibits its products at national trade shows.

CTG products are marketed under the Franklin Cleaning Technology^®, Masury-Columbia^®, Fuller Brush^® Commercial and Brillo^® brand names. In all, CTG has over 60 trademarks for general and specific commercial cleaning needs. With the exception of marketing, all of CTG's support functions are located at the Company's Great Bend facility.

The Custom Products business of The Fuller Brush Company designs, manufactures, and sells private-label chemicals and stick goods made to customers' specifications. It principally manufactures OEM brush components; however, it also produces a variety of chemicals, metal handles, and plastic parts. The Custom Products division principally serves the footwear, aviation, durable goods, and agriculture industries.

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The company's plant in Kansas features state-of-the-art high-speed lines as well as unique equipment which is used to manufacture brushes and brush components designed for a specialty application.

The Fuller Brush Company services a number of commercial customer accounts in Canada, Mexico, and other countries. It distributes via intermodal transport to Puerto Rico. Primary products exported are home and floor care chemicals and products.

Fuller Brands' Consumer business entails the development, manufacture, and marketing of home cleaning and personal care products that are sold to consumers through the following four channels:

Both Fuller Brush and Stanley Home Products' direct selling organizations are comprised of thousands of independent representatives in all 50 states who promote home cleaning and personal care products one-on-one and at home parties. The product lines of these two divisions are quite similar. In fact, before becoming part of CPAC, Inc., Fuller Brush and Stanley Home Products competed directly with one another in the marketplace. Now, Fuller representatives can sell both Fuller and Stanley products and vice versa, should they choose.

Direct selling companies compete both in terms of products, and in terms of attracting representatives and customers. Relative to their home cleaning and personal care product lines, Fuller and Stanley compete with direct selling companies such as Alticor^®, Avon^®, Mary Kay^®, and Tupperware^®. All U.S. direct selling companies compete with Fuller and Stanley for representatives and customers.

Product demonstrations are key to the success of both the Fuller and Stanley direct selling businesses, particularly with the home care lines. To attract a greater number of younger, more diverse representatives, Stanley has added an exclusive skin care line and an exclusive color cosmetics line. These products also lend themselves to personal demonstration and fit perfectly with Stanley's emphasis on strengthening the home party selling style it invented in the 1930's.

Although the Fuller Brush brand has historically been marketed door-to-door, the Company continues to expand its presence in other channels to reach consumers that are not as readily available to direct sellers. In April, 2002 Fuller began selling home care product sets via direct response television [also known as home shopping]. These live televised product demonstrations raise awareness of the Fuller brand, which supports the efforts of the direct selling organization.

Management believes that the personalized demonstrations and service offered by Fuller and Stanley representatives; the rich history of those brands; the high quality and efficacy of the products; and the Company's satisfaction guarantee are significant factors in maintaining a competitive position in direct selling. Based on the venerable Fuller Brush brand, the Company believes that other consumer channels hold opportunity and it will continue to explore them.

Both Fuller and Stanley maintain e-commerce enabled web sites, which allow consumers to request a catalog by mail and place orders directly with the company. This practice encourages new and repeat sales, creates a "lead" for a field sales representative to pursue, and allows the company to market the business opportunity to potential representatives.

The majority of direct selling companies publish catalogs and/or fliers for representatives to leave behind after a sales call or home party; several allow consumers to order directly. Most well known direct selling companies also have an Internet presence.

As direct selling companies go, Fuller and Stanley have been in business longer than most. For both organizations, a reputation for quality and service has created significant loyalty to the products and to the business opportunity. The Company believes there is still significant brand equity in both names.

Management believes that the Internet channel has enhanced sales, marketing, recruiting, and information-sharing opportunities for its customers and representatives. A significant cost reduction is achieved by communicating electronically

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with the field sales force. The Internet also allows current and prospective customers and representatives to self-educate about products.

Fuller Brush markets its products in eight retail outlet stores in the U.S., primarily located in well-traveled outlet malls. This channel allows Fuller Brush to efficiently sell first-quality inventory, as well as slow-moving or discontinued items, while enhancing brand awareness.

The Fuller Brush Company uses merchandising and attractive product displays in its retail stores to compete with other mall tenants, such as Oneida^®, Maidenform^®, Buster Brown^®, and Jockey^®. The number of direct competitors that Fuller faces in the retail outlet channel is limited.

Fuller's brand equity is strong with certain groups of consumers who shop in outlet malls. The stores represent an opportunity for former customers to re-discover Fuller in a retail setting.

Management believes that its retail outlet stores in certain areas of the country are a viable channel for incremental sales and brand awareness.

Fuller-branded consumer products are purchased by national direct marketing partners such as catalog companies, direct mail firms, Internet marketers, and direct response television. These partners purchase Fuller products in quantity, then market and distribute them to their audiences and customer lists.

Fuller Brush competes for sales with similar products featured in catalogs, web sites, direct mailings, etc., such as Orange Glo^® and Oxiclean^®.

The Fuller brand has recently been reintroduced to consumers through appearances on direct response television. As previously stated, brand equity and high quality are the Company's competitive advantages. These hallmark traits make the Fuller brand attractive to direct marketing partners, and allow Fuller to effectively compete with the vast number of home care competitors.

Management views these direct marketing partner relationships as an effective means of broadening exposure for the Fuller Brush brand. This exposure adds value across every channel.

Fuller Brands' Commercial business develops, manufactures, and markets commercial cleaning and maintenance chemicals, and stick goods. The Fuller Brands Segment competes with regional, national, and global companies in each of the three industrial channels in which it operates: Commercial Cleaning, Custom Products, and Export.

Cleaning Technologies Group (CTG), the Fuller Brands Segment's commercial cleaning business unit, markets branded and private-label janitorial and maintenance products through a direct sales force as well as a national distributor network. CTG products are used primarily in offices, hotels, retail stores, hospitals, schools and other public buildings.

Commercial cleaning products is a fragmented industry, and although two companies are significantly larger than others (S.C. Johnson Wax and Ecolab), no single firm or group of firms dominates the industry as a whole. There are numerous small regional or local competitors who focus on limited geographies, product lines and/or customer segments. CTG seeks to fill specific product niches where it feels it can compete favorably, such as providing one-stop sanitation shopping for retail food stores.

CTG has established long-standing relationships with its major commercial cleaning customers based on the ability to "bundle" high quality chemicals and stick goods, and provide value-adds to customers such as lower cost structure, reduced labor, and assistance with training, safety, and environmental standards. Alliances with large national wholesalers, whose scope is national and whose extensive sales force is direct, augment CTG's own network.

This component of Fuller Brands' Commercial business is involved in the manufacture and sale of private-label products made to customers' specifications. The primary products are brushes and brush components, although various chemicals, metal handles, and plastic parts are also produced on a contract basis.

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  Custom brush competitors tend to be smaller, specialized private companies such as Felton Brush and America Brush Company. These competitors manufacture numerous types of industrial brush finished goods. At present, Fuller Brands specializes in strip and coil type brushes for commercial customers, but intends to grow this category.

Management believes Fuller Brands is able to compete successfully in the custom products arena based on its reputation for high-quality products, exceptional technical support, on-time delivery and an emphasis on superior customer service.

Fuller Brands' export business currently is limited to the selling of branded commercial and household products through a small network of commercial distributors outside of the continental U.S. (primarily in Puerto Rico and Canada).

Through its Imaging Segment, CPAC has an extensive manufacturing and distribution base in key international markets. As in the U.S., export customers demand the best value -- high quality at a competitive price. Fuller Brands' products meet these criteria.

The Company currently has an insignificant share of the global market for cleaning and personal care products, and so management believes a great opportunity exists.

The Company's CPAC Imaging Segment develops, manufactures, packages, distributes, and markets its extensive line of branded and private-label chemicals and equipment for Color Photographic, Health Care, and Graphic Arts applications.

The classes of products for CPAC Imaging include liquid chemicals for developing silver halide photographic film, photographic paper, radiographic and graphic arts film; chemical mixers for Health Care and Graphic Arts imaging; silver recovery and pollution control equipment and supplies; silver refining services; illuminators for viewing medical x-rays; dry-heat sterilizers used in dental practices; and dental evacuation (suction) units.

Seven of the Imaging Segment's eight business units manufacture products. Equipment is manufactured at the CPAC Equipment Division in Leicester, NY and chemicals are blended and packaged at six other plant locations. An eighth business unit, Profit Recovery Systems (PRS), is exclusively a sales and marketing organization. All products are marketed to businesses, such as photo processing labs, radiology and dental practices, and printing facilities in more than 100 countries worldwide. A superior level of customer and technical support is a distinguishing characteristic of the Segment.

The Imaging Segment manufactures virtually all of its products to better control costs, quality, and inventory levels. This arrangement minimizes the expenses associated with outside vendor overhead and carrying raw goods versus finished goods inventory. The raw materials necessary for manufacture of the Segment's products are readily available from numerous sources and the Imaging Segment is not dependent on any single supplier for any one item.

The refining of customers' recovered silver is conducted under an exclusive agreement with Pioneer Refining Services in Salt Lake City, UT, the largest independent U.S. refiner of photographic silver.

Business units in this Segment include CPAC Equipment Division (CED), Leicester NY (established in 1969); PRS, Inc., St. Louis, MO (established in 1981); Trebla Chemical Company (Trebla), St. Louis MO (acquired in 1984); Allied Diagnostic Imaging Resources, Inc. (Allied), Norcross, GA (acquired in 1988); CPAC Europe, Herentals, Belgium (established in 1989); CPAC Italia, Gorgonzola, Italy (acquired in 1992); CPAC Africa, Pretoria, South Africa (acquired in 1997); CPAC Asia Imaging Products Limited, Chachoengsao, Thailand (established in 1998).

There are three principal areas in which CPAC's Color Photographic business operates: Chemicals, Equipment, and Refining Services.

The Color Photographic Chemicals business includes the development, manufacture, packaging, distribution, marketing, and sales of branded and private-label processing chemicals used to develop photographic paper and film. These activities are carried out at Trebla Chemical Company and the four international Imaging business units.

Equipment is manufactured exclusively at CPAC Equipment Division, and involves the design, patent, fabrication, installation, and service of branded and private-label silver recovery and pollution control equipment, which helps photo

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processors achieve environmental compliance by collecting silver (a by-product of the traditional wet silver halide photographic process) for reclamation and subsequent refining.

Color Photographic products and services are marketed in more than 100 countries through a combination of wholesale distributors, manufacturers' sales representatives, and company sales personnel.

Products are manufactured under the Trebla^®, SilvPAC^®, and CPAC^® brands, as well as under private-label agreements, and are sold wherever photographs are wet processed (using liquid chemicals), primarily independent and chain photo labs; one-hour processing locations, such as mass market retailers; photo labs at universities and law enforcement agencies; and photo processing wholesalers.

Products are marketed domestically and in Mexico and South America by PRS, Inc., the exclusive sales and marketing organization for CPAC's Color Photographic products, to a national network of photographic distributors and directly to end-users. For each of the International business units, a sales force markets to distributors and end-users. The distributors buy CPAC's products and then market and sell them to photo processors, retaining the difference between the purchase and selling prices as profit. Each manufacturing business unit employs a team of technical support personnel to provide service to the distribution network and end-users. In addition, CPAC's Color Photographic businesses advertise their products in trade publications and exhibit at national and international industry trade shows.

Color Photographic currently accounts for 54% of CPAC Imaging sales. Since its practice is to ship goods upon receipt of customer orders, Color Photographic does not generally have a material backlog of orders for its products.

In January 2002, CPAC Inc. purchased a 19% minority equity interest in TURA AG, a German manufacturer and supplier of photographic paper and film emulsion products and wide-format inkjet printing consumables. Through this expansion of an existing relationship, each company's core products are now sold through each other's respective distribution channels. In April 2003, CPAC, Inc. increased its minority equity investment in TURA AG to 40%.

There are three principal areas in which CPAC's Health Care business operates: Chemicals, Equipment, and Refining Services.

The Health Care Chemicals business is involved with the development, manufacture, packaging, distribution, marketing, and sales of branded and private-label wet processing chemicals used to develop medical and dental x-ray film. Dental x-ray film was introduced to the line in FY '03. These activities are carried out at Allied Diagnostic Imaging Resources, Inc., as well as two international manufacturing plants.

Health Care Equipment, both branded and private label, involves the design, patent, fabrication, installation, and service of silver recovery equipment and chemical automixers for medical, dental, chiropractic, veterinary, and podiatry practices; illuminators (light boxes) for viewing x-ray film; and dry-heat sterilizers and portable and stationary vacuum equipment (evacuators) for dental practices. This equipment is manufactured exclusively at CPAC Equipment Division.

Health Care products, sold under the Autex^®, RediChem^®, SilvPAC^®, and CPAC^® brands as well as under private-label agreements, are marketed to radiology, dental, and niche health care markets, and are used wherever x-ray film is wet processed. This includes radiology practices including mammography clinics; dental practices and clinics; hospitals; and, to a lesser extent, veterinary, chiropractic, and podiatry practices.

A national sales force markets products to health care products distributors, to group purchasing organizations (GPO's), and directly to end-users. These distributors and GPO's buy CPAC's Health Care products and then market and sell these products to health care providers, retaining the difference between the purchase and selling prices. Each manufacturing business unit also employs a team of technical support personnel to provide service to the distribution network and end-users. In addition, CPAC Imaging exhibits its products at national and international industry trade shows.

Health Care Imaging currently accounts for 38% of CPAC Imaging sales. Since its practice is to ship goods upon receipt of customer orders, Health Care does not generally have a material backlog of orders for its products.

CPAC's Graphic Arts business operates in two principal areas: Chemicals and Equipment.

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The Graphic Arts Chemicals business is involved with the development, manufacture, packaging, distribution, marketing, and sales of branded and private-label wet processing chemicals used to develop prepress film and plates used in printing facilities. These activities are carried out at Allied Diagnostic Imaging Resources, Inc., as well as two international manufacturing plants.

Graphic Arts Equipment, both branded and private label, involves the design, patent, construction, installation, and service of silver recovery and pollution control equipment and chemical mixers for commercial and in-plant printers, and service bureaus. This equipment is manufactured exclusively at CPAC Equipment Division.

Graphic Arts products, sold under the Allied^®, SilvPAC^® and CPAC^® brands as well as under private-label agreements, are marketed to commercial and in-plant printing markets and are used wherever film or plates are wet processed, primarily printers of newspapers, magazines, packaging, and labels, and service bureaus.

A national sales force of manufacturer's representatives markets products to Graphic Arts products distributors; to group purchasing organizations (GPO's); and directly to end-users. The distributors and GPO's buy and resell CPAC's Graphic Arts products, retaining the difference between the purchase and selling prices as profit. Each manufacturing business unit employs a team of technical support personnel to provide service to the distribution network and end-users. In addition, CPAC exhibits its products at national trade shows for the Graphic Arts industry.

Graphic Arts Imaging currently accounts for 8% of CPAC Imaging sales. Since its practice is to ship goods upon receipt of customer orders, Graphic Arts does not generally have a material backlog of orders for its products.

CPAC's Imaging Color Photographic business competes with regional, national and international Imaging companies. The CPAC Imaging Segment develops, manufactures, packages, markets and distributes liquid chemicals for developing silver halide photographic film and paper; silver recovery and pollution control equipment and supplies; and provides silver refining services. Through its relationship with TURA AG, photographic film and paper are also part of the product line.

Color Photographic products are used wherever photographs are wet processed, primarily independent and chain photo labs; one-hour processing locations such as mass market retailers; photo labs at universities and law enforcement agencies; and photo processing wholesalers.

The domestic and international markets for the Company's branded products are highly competitive. Competitors range in size from large, highly diversified companies to small, specialized producers. Direct competitors for Color Photographic chemicals include companies such as Eastman Kodak Company, Fuji Hunt Photographic Chemicals, and Champion Photochemistry Ltd. Direct competitors for silver recovery, silver refining services, and pollution control equipment include Academy Corp. and Hallmark Refining Corp.

The Color Photographic industry continues to introduce new products and services, especially in digital imaging. Some digital conversion has occurred in photo processing labs, but primarily in developed countries. This has had some impact on CPAC's sales in the U.S., but management believes there is great potential for traditional silver halide processes in emerging overseas markets. CPAC, Inc.'s recent minority equity investment in TURA AG provides increased access to these customers.

In Color Photographic, the Company seeks to improve product performance and ease of use, increase processing efficiency, and improve the ability of its customers to stay in compliance with local environmental regulations. Management believes that technological innovation, convenience, high product performance, and quality and timeliness of technical support and service are its competitive advantages in Color Photographic markets worldwide.

CPAC's Imaging Health Care business develops, manufactures, packages, markets and distributes liquid chemicals for developing silver halide radiographic film, chemical automixers; silver recovery and pollution control equipment and supplies; and provides silver refining services. Additional products include illuminators for viewing medical x-rays, dry-heat instrument sterilizers used in dental practices; and dental evacuation units.

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Health Care Imaging products are used wherever x-ray film is wet processed or viewed, such as radiology labs and hospitals, and in dental practices where instrument sterilization and dental evacuation is required.

The markets for the Company's branded products are highly competitive. Direct competitors for Health Care chemicals include companies such as Eastman Kodak Company, Thatcher Company, White Mountain Imaging, and H.R. Simon and Company. White Mountain and Eastman Kodak Company compete with CPAC for market share of chemical automixers. Direct competitors for silver recovery and pollution control equipment include USI International, Inc. and Metafix. For silver refining services, CPAC Health Care Imaging competes directly with Hallmark Refining Corp. and Academy Corp. Competitors in x-ray illuminators are MAXANT and Wolf X-Ray Corporation. CPAC competes directly with Wayne Metal Products, Inc. and indirectly with Dentronix, Inc. for dry heat sterilizers. DentalEZ, Inc. is a competitor in dental evacuation units.

There is continued consolidation among Health Care imaging providers to consolidate their buying power by working with or joining group purchasing organizations (GPO's). In this environment, CPAC's businesses must aggressively compete for GPO contracts that provide the most favorable conditions to the Company.

The Health Care Imaging industry continues to evolve, driven primarily by increased demand for digital products and services. Digital conversion is occurring in radiology and dental practices at a faster rate than in Color Photographic, but again, primarily in the U.S. This has impacted CPAC's sales in the U.S., but management believes there is still significant potential for traditional silver halide processes in the U.S. and in emerging markets.

In Health Care Imaging, the Company seeks to improve product performance, increase processing efficiency, broaden its product offering, and improve the ability of its customers to stay in compliance with local environmental regulations. Management believes that customer care, quality, ease-of-use, reliability, and technical support are its competitive advantages in Health Care Imaging markets worldwide.

CPAC's Imaging Graphic Arts business develops, manufactures, packages, markets and distributes liquid chemicals for developing graphic arts film and printing plates; chemical automixers; silver recovery and pollution control equipment and supplies; and provides silver refining services.

Graphic Arts Imaging products are used in facilities such as commercial printers, service bureaus, in-plant printers, newspapers, magazines, packaging printers, and the like.

The markets for the Company's branded products are highly competitive. Direct competitors for Graphic Arts chemicals include companies such as Kodak Polychrome Graphics and Agfa-Gevaert Group. Konica Graphic Imaging USA and Fuji compete with CPAC for market share of chemical automixers. Direct competitors for silver recovery and pollution control equipment include X-Rite, Inc. and USI International, Inc. Graphic Arts processes that do not use silver halide film (computer-to-plate processes) require a different treatment of effluent for environmental compliance. CPAC believes its private-label equipment serves the majority of customers in this niche market. For silver refining services, CPAC Graphic Arts Imaging competes directly with Hallmark Refining Corp. and Academy Corp.

The Graphic Arts Imaging industry continues to evolve, driven primarily by increased demand for digital products and services. Digital conversion is occurring in printing facilities at a slower rate than in Color Photographic, but again, primarily in the U.S. This has not significantly impacted CPAC's sales in the U.S. Management believes it can provide enhanced products to serve this market and sees graphic arts as a growth area.

In Graphic Arts Imaging, the Company seeks to improve product performance, increase processing efficiency, broaden its product offering, and improve the ability of its customers to stay in compliance with local environmental regulations. Management believes that product innovation, high product quality, compatibility with all graphic arts films, competitive pricing, and superior technical support and service are its competitive advantages Graphic Arts Imaging markets worldwide.

At March 31, 2003, the Company employed 576 people with 367 working in the Fuller Brands Segment, 191 in the CPAC Imaging Segment, and 18 assigned to the CPAC Corporate staff.

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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), 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 $100,000 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 of the Corporate staff and manufacturing operations of the Equipment Division 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.

Allied's main plant and headquarters, located in Norcross, Georgia, are approximately 84,000 sq. ft. The facilities are leased until August 31, 2004. As announced on May 28, 2003, the Company will be consolidating its domestic manufacturing of imaging chemicals into its Norcross, Georgia, facility during fiscal 2004. This will involve moving the production of Trebla Chemical Company photochemicals from its 40,000 sq. ft. facility in St Louis, Missouri, to Allied's Norcross, Georgia, facility at which time it is anticipated that the Company will attempt to sell the Trebla facility. Trebla also maintains an adjacent 35,000 sq. ft. warehouse and office space for which utilization options are currently being explored. The Company is presently operating under a ten-year lease arrangement for this space, which commenced in October 2001, with a five-year termination clause.

CPAC Europe, N.V. owns approximately 5 acres of land in Industriepark Herentals (near Antwerp), Belgium. The building, which is 43,900 sq. ft., has a mortgage outstanding on the property.

After moving from its previously leased site in Milan, Italy, in March 2002, CPAC Italia leases 29,350 sq. ft. of office, warehousing, and industrial space in Gorgonzola, Italy. The lease on the present facility is for six years, with a six-year renewal option.

The Fuller Brush Company, Inc.'s 495,000 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 present inventory and to position Fuller Brush for future acquisitions and revenue growth. Fuller also leases seven third party retail outlet stores with two stores located in Missouri and one located in each of the following: Maine, Maryland, South Carolina, Tennessee, and Wisconsin. There is also an outlet store located at the Fuller Brush offices in Kansas.

Stanley Home Products division leases 6,800 sq. ft. of office space in Agawam, Massachusetts, under a five-year lease commitment, expiring in 2006.

CPAC Africa's 14,000 sq. ft. manufacturing facility is located in Pretoria, South Africa, and is leased under an arrangement expiring in December 2004.

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.

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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 REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The principal market on which the Registrant's Common Stock is being traded is 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 markup, markdown, 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, 2003 is 1,610. This number includes only holders of record and beneficial holders who have disclosed that they are recordholders. Regular, quarterly dividends in the amount of $0.07 a share have been paid in both years, 2003 and 2002.

The following table provides information as of March 31, 2003 concerning compensation plans previously approved by security holders and not previously approved by security holders.

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Item 6.     SELECTED FINANCIAL DATA.

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

For purposes of financial reporting, the Company operates in two industry Segments: the Fuller Brands Segment, which is involved in developing, manufacturing, distributing, and marketing branded consumer and commercial cleaning and personal care products in North America and internationally, and the CPAC Imaging (Imaging) Segment, which includes the Company's color photographic, health care, and graphic arts imaging operations in the United States, Belgium, Italy, South Africa, and Thailand. 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 sales decreased 2.5% in 2003, as compared to 2002, and 6.5% in 2002 as compared to 2001.

For the Fuller Brands' Segment in 2003, net sales decreased 2% over 2002. The slowing of the Stanley Home Products division's business, whose net sales were down 10.7%, contributed to the decrease, as did Cleaning Technologies Group (CTG), whose net sales, despite operating in a difficult, price competitive environment, decreased only 1.3%. CTG

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continued to be impacted as a result of lower Kmart business due to additional Kmart store closings. The Fuller Brush division's net sales were up 3% largely due to the successful program initiated with the QVC television home shopping business, which provided the division with a new sales distribution outlet. In 2002, the Fuller Brands' Segment net sales decreased 5.7% over 2001. This was primarily due to the decrease in Cleaning Technologies Group sales of almost 15%, due to the effects of the September 11, 2001 terrorist attacks and the reduction in Kmart business. In 2002, Stanley Home Products' slight sales decreases were offset by sales increases in the traditional Fuller Brush business.

For the Imaging Segment in 2003, net sales decreased 3.3% over 2002. The decrease was partially caused by a 13.2% decrease in net sales in the Company's domestic medical imaging business. This part of the imaging business continues to be impacted by the presence of digital imaging, as well as continued competition within its distribution network. While the Company's domestic photochemical imaging business' net sales were down less than 1%, this business continues to be impacted by the slowdown in picture taking in the U.S., as well as price competition. The Segment's net sales performance was favorably impacted by the growth in its foreign imaging businesses (See Foreign Operations Section). In 2002, net sales for the Imaging Segment decreased 7.6% over 2001. This decrease was largely the result of sales decreases in the Segment's domestic photochemical, medical imaging, and equipment manufacturing operations, mitigated by combined sales increases in the Segment's international operati ons. The Company's domestic operations in 2002 continued to be impacted by the competition in the North American market, as well as the business slowdown experienced, as a result of the U.S. recession, and September 11, 2001 terrorist attacks.

The Company's income before the cumulative effect of a change in accounting principle for the year ended March 31, 2003, decreased 29.8% as compared to the proforma net income for 2002 of $3,161,959. The proforma net income for 2002 represents net income as if the non-amortization provisions of SFAS No. 142 had been applied in the prior year. Sales declines, the continuation of investments in sales and marketing programs, and the rebuilding of management teams in both Segments to position the Company when economic recovery begins, contributed to this decline. Proforma net income in 2002 decreased 34.4% over the proforma net income of $4,820,852 in 2001, as both Segments' profits declined. In the Fuller Brands Segment, Stanley Home Products and Cleaning Technologies Group operations had sharp declines in profits, due to sales shortfalls outlined above, as well as continued investment in sales and marketing programs to stimulate the business. The traditional Fuller Brush busine ss helped to mitigate this decline with strong earnings from their contract consumer and catalog/Internet business. In the Imaging Segment, all business' profits declined, with the exception of the Segment's Asian operations, led by its North American photochemical operation.

The Company adopted SFAS No. 142 during the first quarter of 2003 and recorded a one-time, non-cash expense of $6,281,251, net of a tax benefit of 4,188,000, or $1.24 per diluted share. The adjustment related to the Fuller Brands Segment's Cleaning Technologies Group (CTG) investment in fiscal 1998, whose goodwill was determined to be impaired, based on calculating the present value of future cash flows. CTG had been impacted by several factors, including continued, reduced operating performance. (See Footnote 5 in the consolidated financial statements). The net loss after the cumulative effect adjustment was ($4,060,232) or ($0.80) a diluted share.

Combined net sales of the Company's foreign operations in Belgium, Italy, South Africa, and Thailand, after converting from local currencies to U.S. dollars, rose approximately $1,148,000 or 8.9% in 2003 over 2002. The increase was primarily attributable to CPAC Europe and CPAC Asia, whose sales increased on a U.S. dollar basis, 15% and 9%, respectively (10% and 6% on a local currency basis, respectively). CPAC Europe's increase was largely as a result of increased photochemical paper sales, due in part to the Company's relationship with TURA AG, which has provided new sales opportunities. As disclosed elsewhere, CPAC in 2002 acquired a 19% share ownership in this German distributor, and subsequent to March 31, 2003, increased its investment to 40%. CPAC Asia's increase in 2003 over 2002 continues the growth exhibited in the Asian marketplace. Increases in gross U.S. dollars, after the impact of currency translation to a U.S. dollar basis, for CPAC Italia and Africa were r elatively minor. Combined net sales of the Company's foreign operations in Belgium, Italy, South Africa, and Thailand increased $450,000 or 3.8% in 2002 over 2001. This was primarily due to CPAC Asia whose net sales increased $900,000 over 2001 levels. Combined net sales of CPAC Europe, Italia, and Africa decreased, where currency declines against the U.S. dollar impacted their translated results.

Combined pretax profits for the Company's foreign operations in 2003, after converting from local currencies to U.S. dollars, declined approximately $193,000 or 16.8% over 2002. Expenses related to accounts receivable collection problems with distributor receivables at both CPAC Asia and CPAC Europe, resulted in an increase to the allowance for doubtful accounts in 2003 of approximately $365,000, net of minority interest. CPAC Asia's difficulties, disclosed in the second and third quarterly 10-Q filings, resulted from a Japanese distributor, whereas CPAC Europe's difficulties resulted in an increase to its allowance for doubtful accounts in the fourth quarter of approximately $0.01, primarily due to problems in Russia. CPAC Italia's start-up expenses in the first quarter, amounting to approximately $38,000 relating to its move to a new manufacturing facility also impacted the year to date results. However, CPAC Africa's results for 2003 helped mitigate the

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 decline, as it experienced an approximate $153,000 increase in pretax profit, net of minority interest, its best performance since being acquired in 1997.

In 2002, pretax profits for the four combined entities declined almost 14% due to currency pressures in Italy and South Africa, as well as continued investment in sales and marketing initiatives to attempt to maintain or increase revenues.

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, 2003 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 45.0%, 44.7%, and 43.7% for the years ended March 31, 2003, 2002, and 2001, respectively.

Gross margins in the Fuller Brands Segment increased to 50.3% in 2003, from 49.3% and 48.3% in 2002 and 2001, respectively. Improvements reflected the impact of the television home shopping business, which has higher gross margins (accompanied by higher selling and marketing costs), coupled with less volume of CTG's competitively priced national accounts business. The increase in 2002 as compared to 2001 was a result of product mix sold. Gross margins in 2004 will continue to be under pressure, if the Stanley Home Products and CTG sales declines continue, due to unabsorbed overhead problems that would be encountered in the Segment's Great Bend, Kansas, manufacturing facility. Numerous sales initiatives to place volume through the facility, as well as cost control programs, are being implemented to continue to guard against margin erosion. Competitive bidding situations for gaining or maintaining business in all divisions, however, will make this a challenging situation for 2004.

Gross margins in the Imaging Segment were 37.5% in 2003, as compared to 38.1% and 37.2% in 2002 and 2001, respectively. Lower margins at the Company's domestic photochemical Imaging operation due to continued, reduced volume (See Imaging Restructuring disclosure for further description), coupled with slightly lower margins experienced by the Company's foreign locations, due to pricing pressures encountered during the worldwide economic slowdown, contributed to the 2003 versus 2002 decline. The increase in 2002 versus 2001 was a result of strong margin improvement in several of the foreign operations in the early part of the fiscal year, although the worldwide economic slowdown prevented this improvement from being sustained. The Company is hopeful that the Imaging Restructuring plan to be implemented during 2004 will help to reduce redundant costs from domestic underutilized facilities and, coupled with continued strong growth in Asia, will help to maintain gross margins at present lev els.

These expenses amounted to 40.5%, 38.9%, and 35.3% of net sales in 2003, 2002, and 2001, respectively.

In the Fuller Brands' Segment, 2003 selling, administrative, and engineering expenses were 44.4% versus 43.7% and 40.2% in 2002 and 2001, respectively. The increase in 2003 versus 2002 is partially a result of the increased sales through the television home shopping distribution channel, which has higher sales and marketing costs. In 2002 the increase over 2001 levels was a direct result of lower revenues, coupled with increased marketing and promotional expenses, in the Segment's Stanley Home Products to increase its direct selling business.

In the Imaging Segment, 2003 selling, administrative, and engineering expenses were 34.2% versus 32.9% and 28.9% in 2002 and 2001, respectively. The increase in 2003 over 2002 was partially a result of increasing foreign accounts receivable reserves, as well as flat expenses on decreasing revenues, in the Segment's domestic medical imaging operation. As described in the Imaging Restructuring disclosure, the Company is attempting to reduce duplicate operating costs, as a result of declining revenues in its domestic imaging operations and believes upon completion of the project, selling, administration and engineering expenses domestically, as a percentage of net sales, will be lower. The increase in 2002 over 2001 was largely caused by the continued decline in sales in the third and fourth quarter of 2002, without a corresponding reduction in spending.

Research and development expenses, as a percentage of sales have remained relatively consistent at approximately 0.7% of net sales for 2003 and 0.6% for 2002 and 2001, respectively. The level of expense reflects the Company's emphasis of focusing on improving existing products or developing complimentary products, based on customer needs. For 2004 the Fuller Brands Segment's focus will be on continuing to develop new products to enhance its growing television shopping business, stimulate recruitment efforts in its direct selling business, as well as continuing to enhance CTG's commercial

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cleaning product offerings to compete in the highly-competitive janitorial sanitation business. In the Imaging Segment, continued effort will be placed on developing easy-to-use prepackaged, chemical formulations and continuing to develop innovative wrap-around-programs, involving chemistry, paper, and equipment for use in domestic and overseas imaging markets. These efforts are not expected to increase research and development expenses, as a percentage of sales, significantly from prior periods.

Net interest expense (interest expense less interest income) declined 14.2% in 2003 versus 2002, largely as a result of net debt reduction at the Company's foreign operations and continued lower debt interest rates both domestically and overseas. While cash and equivalents increased in 2003 versus 2002, lower interest rates on invested cash caused interest income to decline. Net interest expense declined 30.3% in 2002 versus 2001 caused by a combination of lower interest rates and debt reduction in 2002. The decline in interest income was less severe due to a strong cash balance early in 2002, offsetting declining interest rates.

The provision for income taxes on income before the cumulative effect of change in accounting principle was 32.2% in 2003, as compared to 34.7% and 37.2% in 2002 and 2001, respectively. The continued reduction in the Company's effective tax rate in 2003 resulted from a lower provision from its Italian operation, who received certain tax credits and benefits related to its facility relocation, as well as the utilization of net operating loss carryforwards at its African operation. Similar to 2002, the effective rate shows the benefits of the seven-year tax holiday existing for the Company's Asian subsidiary, as well as lower state taxes due to reduced domestic earnings. Since the Company continues to receive the tax holiday into fiscal 2007, CPAC Asia will continue to significantly impact the future effective rate, depending on its profitability. Although it is expected that the Italian operation's effective rate may increase in 2004 and state taxes may rise as domestic earnings increase, the Company should continue to experience tax benefits in Africa, which may help to mitigate the increase in the effective rate.

In conjunction with the SFAS No. 142 goodwill adjustment recognized by the Company in the first quarter of 2003 amounting to $10,469,251, a tax benefit of $4,188,000 was recorded. This deferred asset is expected to be realized over the next nine years, as the goodwill is deducted for income tax purposes.

On May 28, 2003 the Company announced that it was consolidating its domestic manufacturing of imaging chemicals into its Norcross, Georgia, facility and that it would be curtailing manufacturing at its St. Louis, Missouri, facility sometime during the second quarter of the fiscal year ending March 31, 2004. The physical move of manufacturing and related equipment is expected to begin in the second quarter and complete consolidation is expected early in the Company's fourth quarter. The majority of the 26 employees at its St. Louis facility will be given severance packages upon curtailment of operations. Severance and costs of relocating the manufacturing operation are estimated to total approximately $500,000 net of tax ($0.10 a diluted share) and will be recognized in 2004.

The Company has historically financed its operations and acquisitions with internally generated cash flows, supplemented with outside borrowings. The following table summarizes CPAC, Inc.'s consolidated cash flow information (in thousands):

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Consolidated net cash used in investing activities decreased in 2003 versus 2002, due to the Company's 19% equity investment in TURA AG in 2002. Property, plant and equipment additions in 2003 were relatively consistent with 2002 levels, with the largest expenditure related to CPAC Italia's move and improvements to their new manufacturing facility in Gorgonzola. Cash used in investing activities in 2004 will be impacted by the Company's first quarter additional 21% $1,300,000 investment in TURA AG. Consolidated net cash used in investing activities increased in 2002 over 2001, primarily due to the Company's initial 19% investment of $1,891,000 in TURA AG.

Consolidated net cash used in financing activities decreased in 2003 over 2002. One of the contributors to the decrease was the reduction in common stock shares repurchased during the year, and reduced debt paydowns as a result of lower debt levels in 2003. In 2002 consolidated net cash used in financing activities decreased versus 2001, due to lower debt reduction payments ($235,000), lower dividends due to less shares outstanding ($104,000), offset by increased stock repurchases ($215,000) versus the prior year.

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

In 2003 the Company continued to build working capital, despite lower sales and profits, due to tight cash controls, aggressive receivable collections, implementation of inventory reduction goals within the Fuller Brands Segment, and reduction in working capital borrowings at CPAC Asia, as a result of continued strong cash flow.

During fiscal 2002, despite the shortfall in sales and profits, the Company's Fuller Brands Segment continued to provide positive cash flow, allowing the consolidated Company to continue its stock repurchase programs, acquire capital assets where needed, and fund the Imaging Segment's investment in TURA AG.

During fiscal 2001, reductions in capital spending ($1.7 million) and reductions in stock repurchases ($4.2 million) helped to offset lower earnings ($1 million) and contributed to increased working capital and an improvement in the working capital ratio.

During June 2002, the Company renewed its existing line of credit agreement (Agreement), with a new two-year agreement, maturing on October 31, 2004. The Agreement continues the maximum borrowing capability of $20,000,000, with interest at LIBOR plus 1.25% to 2%, based on funded debt to EBITA parameters. It also requires meeting various financial covenants with which the Company was in compliance at March 31, 2003. The Agreement also contains a $6.2 million letter of credit facility, which the Company uses to collateralize the Fuller Brands' Industrial Revenue Bonds.

The Company's majority-owned subsidiary CPAC Asia Imaging Products Limited has a line of credit with an international bank of 20 million baht (approximately $464,000 based on the year-end conversion rate in Thailand). Interest is payable at the bank's announced prime rate in Thailand, which was 8.75% at March 31, 2003, with the line collateralized by a standby letter of credit (LOC) guaranteed by CPAC, Inc. CPAC Asia Imaging Products Limited had borrowings against the line of credit of $13,107 at March 31, 2003.

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, 2003. It is expected that additional financing may be necessary to allow the Company to pursue additional acquisitions.

Receivable days outstanding improved in 2003 versus 2002, helped in part by improved collection efforts with the Fuller Brush Segment. Receivable days outstanding in 2002 remained consistent with 2001, despite the decline in sales.

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Inventory turns decreased slightly in 2003, due to lower net sales than anticipated. Inventory turns decreased slightly in 2002 as compared to 2001, due to an increase in inventory levels over the last three to six months of fiscal 2002.

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 decrease in operating return on net sales in 2003 as compared to 2002, is largely a function of the Imaging Segment's reduced sales with flat operating costs, higher unallocated Corporate overhead, mitigated by an improvement in the Fuller Brands Segment operating income led by its entrée into the television home shopping business. The negative return on net income (loss) on net sales and net income (loss) to net worth for 2003 is a function of the $6.3 million cumulative effect of a change in accounting principle charge taken upon adoption of SFAS No. 142 in the Company's first quarter. The decrease in operating return on net sales, net income on net sales, and net income to net worth in 2002, as compared to 2001, is a result of the reduction in sales and earnings in both the Fuller Brands and Imaging Segments.

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.

In 2003 debt to debt plus equity and debt to equity remained relatively constant versus 2002, despite the net loss incurred by the Company, as a result of the SFAS No. 142 adoption and related adjustment of $6.3 million, net of tax. Also helping to minimize the decline was the fact that total liabilities decreased, while equity decreases slowed due to the reduction of the Company's stock buyback program. The ratios remained relatively consistent in 2002 as compared to 2001, with continued debt paydown improving the debt to equity ratio.

The following table summarizes information about the Company's consolidated contractual cash obligations and other commercial commitments (in thousands), as of March 31, 2003, and the effect such obligations are expected to have on its consolidated liquidity and cash flow in future periods:

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The Company believes that these liabilities have no material impact on CPAC, Inc.'s liquidity and capital resources. As of the date of the report, CPAC, Inc. had no other commercial commitments, which may impact its capital resources and liquidity.

In the absence of unforeseen developments, CPAC, Inc. believes that it has sufficient liquidity to fund its operating expenses and other operational requirements at least for the 12 months following the date of this report.

The accompanying consolidated financial statements and notes to financial statements contain information that is pertinent to management's discussion and analysis of financial condition and results of operations. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Actual results may differ from these estimates and assumptions.

CPAC, Inc. believes that the critical accounting policies and estimates discussed below involve additional management judgement due to the sensitivity of the methods and assumptions necessary in determining the related asset, liability, revenue, and expense amounts.

The Company recognizes revenue when it is realized or realizable and earned, based on terms of sale with the customer. This occurs primarily when the product has been shipped and legal title and all risks of ownership have been transferred, sales price is fixed and determinable, and collectibility is reasonably assured. The terms and arrangements vary by product categories, owing to the different nature of the customers, distribution channels, and products. The Company records estimated reductions to revenues for customer incentive programs offered including cash discounts, volume discounts, rebates, and specifically established customer product return programs. If market conditions were to change, the Company may take actions to expand these customer offerings, which may result in incremental reductions to revenue.

The Company regularly reviews its customer accounts and records specific provisions for doubtful accounts to reduce the related receivable to the amount that is estimated to be collectible. The Company also records provisions for doubtful accounts based on a variety of factors including the Company's historical experience, current economic conditions, and other adverse industry or market trends. If circumstances related to specific customers were to change, the Company's estimates with respect to the collectibility of the related receivables could be further adjusted. The Company considers all available information in its quarterly assessments of the adequacy of the reserves for uncollectible accounts. The Company recorded an expense provision of $778,000, $259,000, and $117,000 to the consolidated statements of operations for the years ended March 31, 2003, 2002, and 2001, respectively.

The Company values its inventory at the lower of cost or market. As part of this valuation, reserve provisions are made to reduce inventory carrying values based on estimates of what is excess, slow moving, or obsolete, or for inventory whose carrying value is in excess of net realizable value. These provisions are based on current assessments about future demands, market conditions, and related management initiatives. If in the future, the Company determines that market conditions and actual demands are less favorable than those projected; and, therefore, inventory is overvalued, the Company will be required to further reduce the carrying value of the inventory and record an expense at the time the determination is made. The Company recorded an expense provision of $253,000, $130,000 and $788,000, for excess, slow-moving, and obsolete inventory to the consolidated statements of operations for the years ended March 31, 2003, 2002, and 2001, respectively.

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The Company assesses the carrying value of its identifiable intangible assets, long-lived assets, and goodwill whenever events or changes in circumstances indicate that the carrying amount of the underlying asset may not be recoverable, or in the case of goodwill, at least annually. Certain factors, which may occur and indicate that an impairment exists, include, but are not limited to, significant underperformance relative to actual historical or projected future operating results, significant changes in the manner of the company's use of the underlying assets, and significant adverse industry or market economic trends. In the event that the carrying value of assets are determined to be unrecoverable, the company would estimate the fair value of the assets or reporting unit and record an impairment charge for the excess of the carrying value over the fair value. Events or changes in circumstances could occur that may create underperformance relative to projected future cash fl ows, which could create future impairments. The Company's policy is consistent with current accounting guidance as prescribed by SFAS No. 142, "Goodwill and Intangible Assets" and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."

For the last several years, inflation has not had a material adverse effect on the Company's costs. However, due to the competitive sales pressures in both the Fuller Brands and Imaging Segments, any inflation experienced, has generally not been able to be passed on to the customer. Programs stressing productivity improvements, as well as group purchasing efforts should continue to offset potential negative impacts of inflation in the near future.

The Company expects to soon receive final acceptance from the state of Kansas for remediation work performed in the mid to late 1990's, connected with the Company's 1995 acquisition of the Fuller Brush Company, Inc. Remediation efforts for the last several years have consisted of minimal monitoring efforts. Management does not believe that the Company will incur any significant, future costs related to this project.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to implement SFAS No. 143 on April 1, 2003, although adoption will have no impact on its consolidated financial position or results of operations.

On April 1, 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" was effective for the Company. The adoption of this pronouncement did not have any effect on the Company's financial position, results of operations, or cash flows.

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," was issued. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64 related to classification of gains and losses on debt extinguishment and amends SFAS No. 13 with respect to sales-leaseback transactions. The pronouncement was effective for the Company April 1, 2002 and had no impact on the Company's reported results of operations and financial position.

In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued. SFAS No. 146 nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," and requires companies to recognize a liability for costs associated with an exit or disposal activity when the liability is incurred, as opposed to the date of an entity's commitment to an exit plan (as required under EITF No. 94-3). The pronouncement, effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application allowed, did not impact the Company's reported results of operations and financial position for the year ended March 31, 2003. As described under Imaging Restructuring, provisions of this pronouncement will apply to results of operations and financial position of the Company starting in 2004, related to the Company's consolid ation of its domestic imaging manufacturing operations.

In December 2002, SFAS No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure-an amendment of FASB No. 123" was issued. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation. It also amends disclosure requirements of SFAS No. 123 requiring disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of this statement are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. At this time, the pronouncement is not expected to have any impact on

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the Company's reported results of operations and financial position as the Company continues to account for its stock compensation plans under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees".

In November 2002, FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. At this time, the Company does not expect the recognition and measurement provisions of FIN 45 to have a material effect on future interim or annual financial statements. The disclosure requirements are effective for the Comp any's financial statements for the year ended March 31, 2003. In that regard, the Company has the following significant guarantees:

             (a)  A standby letter of credit issued by Bank of America for $6.2 million is used by the Company to collateralize the Fuller Brands' Industrial Revenue Bonds.

             (b)  A standby letter of credit issued by HSBC Bank is used by the Company to guarantee the Company's majority-owned subsidiary CPAC Asia Imaging Products Limited's 20 million baht line of credit (approximately $464,000 based on the fourth quarter conversion rate in Thailand). At March 31, 2003, the outstanding line of credit borrowings were $13,107.

             (c)  Standby letters of credit issued by HSBC Bank are used by the Company to guarantee the Company's majority-owned subsidiary CPAC Asia Imaging Products Limited's term note obligations. These obligations totaled approximately $918,000 at year-end.

In January 2003, FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" was issued. The Interpretation provides guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model for consolidation applies to an entity which either (1) the equity investors do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The Interpretation applies immediately to variable interest entities created after J anuary 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. At this time, the Company does not believe the Interpretation will have an impact on the Company's future reported results of operations and financial position.

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") that 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.

The Company's exposure to changes in interest rates results from investing and borrowing activities. At March 31, 2003, the Company has no interest rate swap agreements in place, which would limit its exposure to upward movements in interest rates. In the event interest rates were to increase or decrease by 1%, the effect on interest expense would not be material compared to that which would result if rates remained constant and at rates which existed at March 31, 2003.

Approximately 86% of the Company's sales are denominated in U.S. dollars. The remainder of the Company's sales are denominated in Euros, African Rand, and Thai baht. A 10% change in the value of these currencies would impact the Company's revenues by approximately 1%. The Company monitors the relationship between the U.S. and its foreign currencies on a continuous basis and adjusts sales prices for products and services sold in those currencies as appropriate safeguards to the profitability of sales recorded in those currencies.

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Item 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

To the Board of Directors and Shareholders of
CPAC, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 16(a)(1) on page 42 present fairly, in all material respects, the financial position of CPAC, Inc. and its subsidiaries at March 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 16(a)(2) on page 42 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 audi ts 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 5 to the consolidated financial statements, as of April 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and other Intangible Assets".

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Rochester, New York
May 23, 2003

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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 Imaging Products Limited). 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 cost method of accounting is used for investments in which the Company has less than a 20% ownership interest, and the Company does not have the ability to exercise significant influence. These investments are carried at cost and are adjusted only for other than temporary declines in fair values. Profits or losses of the investee are not recognized in the consolidated financial statements of the Company. The carrying value of these investments is reported in other long- term assets.

The minority interests in the earnings of the consolidated foreign subsidiaries for the years ended March 31, 2003, 2002, and 2001 were $151,088, $127,160, and $137,544, respectively, and are included in selling, general, and engineering expenses. Minority interest included in the Consolidated Balance Sheets at March 31, 2003 and 2002 was $610,956 and $459,868, respectively.

Inventory is stated at the lower of cost or market, on a first-in, first-out, basis. The Company provides inventory reserves for excess, obsolete, or slow-moving inventory based on changes in customer demands or technology developments.

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. Repairs and maintenance are charged to expense as incurred.

Effective April 1, 2002, the Company adopted the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Under SFAS No. 144, the Company's current policy is substantially the same as its previous policy. 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 has warranty obligations in connection with sales of its equipment sold in the Imaging market. The warranty period generally ranges from six to twelve months. The costs incurred to provide for these warranty obligations are estimated and recorded as an accrued liability at the time of sale. The Company estimates its warranty cost at the time of sale for a given product based on historical failure rates and related costs to repair. The change in the Company's accrued warranty obligations from March 31, 2002 to March 31, 2003 was as follows (in thousands):

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The Company recognizes revenue when it is realized or realizable and has been earned. Product revenue is recognized primarily when the product has been shipped and legal title and all risks of ownership have been transferred, sales price is fixed and determinable, and collectibility is reasonably assured. Appropriate accruals for discounts, volume rebates, and other allowances are recorded as reduction in sales.

In accordance with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company classifies shipping and handling costs billed to customers as revenue. Shipping and handling costs for the Fuller Brands' Segment amounting to $6,272,000, $6,275,000, and $6,463,000 in 2003, 2002, and 2001, respectively, are included in selling, administrative and engineering expenses. Similar costs for the Imaging Segment amounting to $3,056,000, $2,878,000, and $2,866,000 in 2003, 2002, and 2001, respectively, are included in cost of sales.

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."

As permitted under SFAS No. 123, "Accounting for Stock Based Compensation," the Company continues to apply the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25 in accounting for its stock option plans. Accordingly, no expense is charged to net income as all options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant.

In accordance with SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure," the following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" to its stock options plans:

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, 2003 and 2002, 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.

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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 916,417, 592,686, and 712,811 shares of the Company's common stock as of March 31, 2003, 2002, and 2001, 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 August 13, 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 also considers payments due from banks for customer credit card transactions that process within 24 to 48 hours as cash equivalents. Credit card amounts due from banks classified as cash equivalents total approximately $528,000 and $730,000 at March 31, 2003 and 2002, respectively. The Company paid interest of $585,000, $777,000, and $1,011,000, in fiscal 2003, 2002, and 2001, respectively. In addition, the Company paid income taxes of $1,417,000, $1,643,000, and $2,604,000, in fiscal 2003, 2002, and 2001, respectively.

Prior to adoption of Statement of Financial Accounting Standards (SFAS) No. 142, the Company amortized goodwill and certain intangibles assets on a straight-line basis over the estimated useful lives of such assets, using amortizable periods ranging from 3 to 40 years, respectively. The Company adopted the provisions of SFAS No. 142 effective April 1, 2002. The pronouncement requires an annual impairment test (comparison of estimated fair value to carrying value) in lieu of monthly amortization for goodwill. To determine potential impairment, fair value of the applicable business units is determined by computing the present value of expected future cash flows.

In conjunction with adoption, goodwill's carrying value was reduced by approximately $6.3 million, net of income tax benefit of $4.2 million, or $1.24 per diluted share. See footnote 5.

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 accounting principles generally accepted in the United States of America 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.

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Income tax expense is based on reported income 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.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This standard addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to implement SFAS No. 143 on April 1, 2003, although adoption will have no impact on its consolidated financial position or results of operations.

On April 1, 2002, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" was effective for the Company. The adoption of this pronouncement did not have any effect on the Company's financial position, results of operations, or cash flows.

In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, amendment of FASB Statement No. 13, and Technical Corrections," was issued. SFAS No. 145 rescinds SFAS No. 4 and SFAS No. 64 related to classification of gains and losses on debt extinguishment and amends SFAS No. 13 with respect to sales-leaseback transactions. The pronouncement was effective for the Company April 1, 2002 and had no impact on the Company's reported results of operations and financial position.

In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued. SFAS No. 146 nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity," and requires companies to recognize a liability for costs associated with an exit or disposal activity when the liability is incurred, as opposed to the date of an entity's commitment to an exit plan (as required under EITF No. 94-3). The pronouncement, effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application allowed, did not impact the Company's reported results of operations and financial position for the year ended March 31, 2003. It is possible that future expense reduction efforts may be necessary, and if so, provisions of this pronouncement may apply to future results of operations and financial position of the Company.

In December 2002, SFAS No. 148, "Accounting for Stock Based Compensation-Transition and Disclosure-an amendment of FASB No. 123" was issued. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation. It also amends disclosure requirements of SFAS No. 123 requiring disclosures in both annual and interim financial statements about the method of accounting for stock based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of this statement are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. At this time, the pronouncement is not expected to have any impact on the Company's reported results of operations and financial position as the Company continues to account for its stock compensation plans under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees".

In November 2002, FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" was issued. The Interpretation elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit. It also clarifies that at the time a company issues a guarantee, the company must recognize an initial liability for the fair value, or market value, of the obligation it assumes under that guarantee and must disclose that information in its interim and annual

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financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. At this time, the Company does not expect the recognition and measurement provisions of FIN 45 to have a material effect on future interim or annual financial statements. The disclosure requirements are effective for the Company's financial statements for the year ended March 31, 2003. In that regard, the Company has the following significant guarantees:

             (a)  A standby letter of credit issued by Bank of America for $6.2 million is used by the Company to collateralize the Fuller Brands' Industrial Revenue Bonds.

             (b)  A standby letter of credit issued by HSBC Bank is used by the Company to guarantee the Company's majority-owned subsidiary CPAC Asia Imaging Products Limited's 20 million baht line of credit (approximately $464,000 based on the fourth quarter conversion rate in Thailand). At March 31, 2003, the outstanding line of credit borrowings were $13,107.

             (c)  Standby letters of credit issued by HSBC Bank are used by the Company to guarantee the Company's majority-owned subsidiary CPAC Asia Imaging Products Limited's term note obligations. These obligations totaled approximately $918,000 at March 31, 2003.

In January 2003, FASB Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" was issued. The Interpretation provides guidance on the identification of entities for which control is achieved through means other than through voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIE (the "primary beneficiary"). This new model for consolidation applies to an entity which either (1) the equity investors do not have a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. The Interpretation applies immediately to variable interest entities created after Janua ry 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. At this time, the Company does not believe the Interpretation will have an impact on the Company's future reported results of operations and financial position.

Certain 2002 and 2001 financial statement and related footnote amounts have been reclassified to conform to the 2003 presentation.

On January 4, 2002, the Company expanded its distribution agreements with TURA AG of Düren, West Germany, by purchasing a 19% ownership interest in TURA AG for approximately $1,891,000. TURA AG is a manufacturer and supplier of photographic paper and film emulsion products to the worldwide silver halide photographic market, as well as a manufacturer of wide format inkjet printing consumables. The Company's investment has been accounted for under the cost method.

On April 8, 2003, the Company increased its investment in TURA AG from 19% to 40% by acquiring an additional 21% ownership for approximately $1,300,000. The Company will account for its total investment under the equity method and will restate previous periods reported starting in fiscal 2004 to reflect the proportionate share of the investee's earnings.

Inventory as of March 31, 2003 and 2002 is summarized as follows:

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

The Company adopted SFAS No. 142 on April 1, 2002. In connection with adoption of SFAS No. 142, the Company completed its impairment testing and determined that the carrying value of goodwill needed to be reduced by approximately $6.3 million, net of income tax benefit of $4.2 million, or $1.24 per diluted share. The impairment adjustment was related to the Fuller Brand's Cleaning Technologies Group (CTG) operation, acquired in fiscal 1998, and was a result of a combination of factors, including operating performance, as well as new measurement techniques and methodologies as prescribed by SFAS No. 142. In determining impairment, the fair value of the reporting unit (CTG) was computed by using the present value of future cash flows, compared to its carrying value, including goodwill. The adjustment is shown as a cumulative effect of change in accounting principle in the consolidated statements of operations and comprehensive income for the year ended March 31, 2003. The income tax benefit realized, netted with the previously recognized deferred tax credit, resulted in the recording of a long-term deferred tax asset upon adoption.

A summary of changes in the Company's goodwill during 2003 by Segment is as follows (in thousands):

The following table presents prior year earnings and earnings per share as if the non-amortization provisions of SFAS No. 142 had been applied in the prior year: