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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~December~~September 3130, ~~2004~~ 2006

OR

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-09600

CPAC, INC.
(Exact name of registrant as specified in its charter)

New York (State or other jurisdiction of incorporation or organization)	16-0961040 (I.R.S. Employer Identification No.)
2364 Leicester Road Leicester, New York 14481
2364 Leicester Road, P. O. Box 175, Leicester, New York 14481
(Address of principal executive offices and Zip Code)
(585) 382-3223
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).		Yes [ ] No [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).		Yes [ ] No [ X ]

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

Class	Number of Shares Outstanding at September 30, 2006
Common Stock, $.01 par value	4,946,774

Options Outstanding & Not Exercised	Shares to cover the options will not be issued until they are exercised.
754,300

Class	Number of Shares Outstanding at December 31, 2004
Common Stock, $.01 par value	4,946,774
Options Outstanding & Not Exercised	Shares to cover the options will not be issued until they are exercised.
960,911

CPAC, INC. AND SUBSIDIARIES

INDEX

		Page No.
	PART I -- FINANCIAL INFORMATION
Item 1.	Financial Statements.
	CPAC, Inc. and Subsidiaries Consolidated Balance Sheets - December 31, 2004 (Unaudited), and March 31, 2004	3
	CPAC, Inc. and Subsidiaries Consolidated Balance Sheets - September 30, 2006 and March 31, 2006 (Unaudited)	3
	CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) -- For the Nine Months Ended December 31, 2004 and 2003 (Unaudited)	4
	CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) -- For the Six Months Ended September 30, 2006 and 2005 (Unaudited)	4
	CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) -- For the Three Months Ended December 31, 2004 and 2003 (Unaudited)	5
	CPAC, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) -- For the Three Months Ended September 30, 2006 and 2005 (Unaudited)	5
	CPAC, Inc. and Subsidiaries Consolidated Statements of Cash Flows -- For the Nine Months Ended December 31, 2004 and 2003 (Unaudited)	6
	CPAC, Inc. and Subsidiaries Consolidated Statements of Cash Flows -- For the Six Months Ended September 30, 2006 and 2005 (Unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	1819
Item 4.	Controls and Procedures.	1819
	PART II -- OTHER INFORMATION
Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Defaults Upon Senior Securities.	19
Item 4.	Submission of Matters to a Vote of Security Holders.	1920
Item 5.	Other Information.	1920
Item 6.	Exhibits.	1920
	SIGNATURES PAGE	2021
	EXHIBIT INDEX	2122

PART I -- FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

CPAC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS UNAUDITED

ASSETS	~~December~~September 3130, ~~2004 (Unaudited)~~2006		March 31, ~~2004 (Note)~~2006
Current assets:
Cash and cash equivalents	$ 75,~~157~~718,~~466~~914		$ 76,~~747~~188,~~481~~060
Accounts receivable (net of allowance for doubtful accounts of $1,737,000 and $1,542,000, respectively)	9,952,977		11,532,459
Accounts receivable (net of allowance for doubtful accounts of $1,727,000 and $1,563,000, respectively)	11,923,040		11,885,074
Inventory, net	1824,~~775~~881,~~949~~514		1720,~~230~~135,~~999~~361
Prepaid expenses and other current assets	21,~~913~~806,~~646~~732		2,~~271~~055,~~978~~795
Deferred tax assets, current	1220,~~103,790~~469		1176,~~124,790~~069
Total current assets	3944,~~903~~550,~~828~~669		3940,~~907~~440,~~707~~359
Property, plant and equipment, net	1513,~~224~~301,~~921~~255		1613,~~269~~595,~~021~~372
Goodwill	192,426		192,426
Intangible assets (net of amortization of $1,491,000 and $1,384,000, respectively)	809,981		930,681
Intangible assets (net of amortization of $1,786,000 and $1,687,000, respectively)	541,498		617,387
Deferred tax assets, long-term	3,138,518		3,345,518
Deferred tax assets, net	188,512		239,244
Investment in affiliate			250,000
Other assets	3,238,301		2,960,360
Other assets	3,461,638		3,311,484
	$ 62,012,661		$ 58,045,148
Assets held for sale			1,219,153
	$ 62,731,312		$ 65,425,990
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$ ~~240~~200,~~924~~054		$ ~~210~~238,~~174~~624
Accounts payable	47,~~327~~503,~~952~~828		5,~~551~~867,~~570~~766
Accrued payroll and related expenses	1,~~665~~669,~~264~~025		1,~~692~~422,~~167~~294
Other accrued expenses and liabilities	2,061,217		2,385,488
Accrued income taxes payable	447,165		--
Total current liabilities	8,295,357		9,839,399
Other accrued expenses and liabilities	2,598,629		2,873,002
Long-term debt, net of current portion	6,846,393		6,771,471
Total current liabilities	12,418,701		10,401,686
Deferred tax liabilities, long-term	867,304		693,304
Long-term debt, net of current portion	6,532,491		6,519,149
Other long-term liabilities	4,286,155		4,204,323
Deferred tax liabilities, net	222,739		179,469
Minority interests	207,459		830,328
Other long-term liabilities	4,149,941		4,097,586
Minority interests	309,370		284,564
Shareholders' equity:
Common stock, par value $0.01 per share; Authorized 30,000,000 shares; Issued 5,032,081 shares	50,321		50,321
Additional paid-in capital	9,~~613~~630,906		9,613,906
Retained earnings	3228,~~616~~459,~~677~~774		3327,~~374~~221,~~205~~064
Accumulated other comprehensive income	~~537~~828,~~928~~606		~~638~~267,~~921~~591
	42,818,832		43,677,353
	38,969,607		37,152,882
Less: Treasury stock, at cost, 85,307 shares	(590,188	)	(590,188	)
Total shareholders' equity	4238,~~228~~379,~~644~~419		4336,~~087~~562,~~165~~694
	$ 62,731,312		$ 65,425,990
	$ 62,012,661		$ 58,045,148

Note: The balance sheet at March 31, 2004 has been taken from the audited financial statements as of that date.

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

CPAC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Loss) FOR THE ~~NINE~~SIX MONTHS ENDED ~~dECEMBER 31~~SEPTEMBER 30, ~~2004~~2006 AND ~~2003~~2005 UNAUDITED

	2004		2003
	2006		2005
Net sales	$ 6449,~~767~~847,~~884~~346		$ 6743,~~221~~880,~~255~~846
Costs and expenses:
Cost of sales	3629,~~625~~614,~~854~~947		3725,~~752~~706,~~589~~342
Selling, administrative and engineering expenses	2617,~~515~~280,~~550~~153		2717,~~978~~764,~~498~~422
Research and development expense	~~664~~404,~~922~~814		~~519~~437,~~345~~057
Restructuring expenses			1,130,997
Interest expense, net	233,152		223,258
Interest expense, net	297,095		387,605
	47,533,066		44,131,079
	64,103,421		67,769,034
Income (loss) before non-operating income (expense) and income taxes	2,314,280		(250,233	)
Income (loss) before non-operating income (expense) and income taxes	664,463		(547,779	)
Non-operating items:
Non-operating expense:
Minority interests	(24,806	)	(13,988	)
Minority interests	(163,409	)	(132,919	)
	(24,806	)	(13,988	)
Equity in loss of affiliate	(250,436	)	(233,931	)
Income (loss) before income tax	2,289,474		(264,221	)
	(413,845	)	(366,850	)
Provision for income tax	358,000		88,000
Income (loss) before income tax	250,618		(914,629	)
Net income (loss)	$ 1,931,474		$ (352,221	)
Provision (benefit) for income tax	(31,000	)	(279,000	)
Net income (loss)	$ 281,618		$ (635,629	)
Net income (loss) per common share:
Basic net income (loss) per share	$ 0.0639		$ (0.1307	)
Diluted net income (loss) per share	$ 0.0639		$ (0.1307	)
Average common shares outstanding:
Basic	4,946,774		4,~~945~~946,~~365~~774
Diluted	4,~~951~~956,~~798~~226		4,~~945~~946,~~365~~774
Comprehensive income:
Comprehensive income (loss):
Net income (loss)	$ ~~281~~1,~~618~~931,474		$ (~~635~~352,~~629~~221	)
Other comprehensive income (loss)	~~(100~~561,~~993~~015	)	~~815~~(961,~~270~~308	)
Comprehensive income	$ 180,625		$ 179,641
Comprehensive income (loss)	$ 2,492,489		$ (1,313,529	)

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

CPAC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (~~Loss~~LOSS) FOR THE THREE MONTHS ENDED ~~dECEMBER 31~~SEPTEMBER 30, ~~2004~~2006 AND ~~2003~~2005 UNAUDITED

	2004		2003
	2006		2005
Net sales	$ 2025,~~385~~912,~~359~~579		$ 2021,~~508~~457,~~772~~279
Costs and expenses:
Cost of sales	1115,~~722~~925,~~415~~632		1112,~~844~~801,~~472~~203
Selling, administrative and engineering expenses	8,~~560~~627,~~332~~327		8,~~886~~510,~~482~~272
Research and development expense	~~244~~206,~~876~~841		~~178~~204,~~344~~305
Restructuring expenses			533,968
Interest expense, net	118,489		124,145
Interest expense, net	111,850		128,157
	24,878,289		21,639,925
	20,639,473		21,571,423
Income (loss) before non-operating income (expense) and income taxes	1,034,290		(182,646	)
Loss before non-operating income (expense) and income taxes	(254,114	)	(1,062,651	)
Non-operating items:
Non-operating expense:
Minority interests	(14,436	)	(9,505	)
Minority interests	(47,423	)	(34,893	)
	(14,436	)	(9,505	)
Equity in loss of affiliate			(54,644	)
Income (loss) before income tax	1,019,854		(192,151	)
	(47,423	)	(89,537	)
Provision for income tax	160,000		21,000
Loss before income tax	(301,537	)	(1,152,188	)
Net income (loss)	$ 859,854		$ (213,151	)
Provision (benefit) for income tax	(244,000	)	(330,000	)
Net income (loss) per common share:
Net loss	$ (57,537	)	$ (822,188	)
Basic net income (loss) per share	$ 0.17		$ (0.04	)
Net loss per common share:
Diluted net income (loss) per share	$ 0.17		$ (0.04	)
Basic net loss per share	$ (0.01	)	$ (0.17	)
Diluted net loss per share	$ (0.01	)	$ (0.17	)
Average common shares outstanding:
Basic	4,946,774		4,~~945~~946,~~670~~774
Diluted	4,~~946~~965,~~774~~677		4,~~945~~946,~~670~~774
Comprehensive income (loss):
Net loss	$ (57,537	)	$ (822,188	)
Net income (loss)	$ 859,854		$ (213,151	)
Other comprehensive income	84,864		276,693
Other comprehensive income (loss)	297,400		(646,872	)
Comprehensive income (loss)	$ 271,~~327~~157,254		$ (~~545~~860,~~495~~023	)

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

CPAC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
UNAUDITED

	2004		2003
	2006		2005
Cash flows from operating activities:
Net income (loss)	$ ~~281~~1,~~618~~931,474		$ (~~635~~352,~~629~~221	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation	1,~~647~~004,~~514~~048		1,~~861~~080,~~700~~389
Amortization of intangible assets	~~115~~77,~~635~~088		~~115~~77,~~642~~088
Deferred income taxes	~~158~~29,000		~~(92~~66,000	)
Minority interest in consolidated foreign subsidiaries	~~163~~24,~~409~~806		~~132~~13,~~919~~988
Equity in loss of affiliate	250,436		233,931
Stock-based compensation expense	17,000		--
Gain of sale of property, plant and equipment	(62,902	)
Changes in assets and liabilities:
Accounts receivable	147,~~563,053~~870		1(88,~~952,777~~225	)
Inventory	(14,~~575~~567,~~943~~027	)	~~855~~18,~~991~~456
Accounts payable	(1,230,762	)	(320,605	)
Income taxes, net	1,223,453		1,107,905
Accrued expenses and liabilities	(357,325	)	(83,341	)
Accounts payable	1,690,083		(609,701	)
Other changes, net	(413,467	)	64,246
Accrued expenses and liabilities	3,082		(829,598	)
Total adjustments	257,648		4,721,260
Other changes, net	(439,993	)	(436,760	)
Net cash provided by operating activities	539,266		4,085,631
Total adjustments	(890,590	)	399,542
Net cash provided by operating activities	1,040,884		47,321
Cash flows from investing activities:
Sale of property, plant and equipment	1,219,153
Purchase of property, plant and equipment	(614,173	)	(154,840	)
Purchase of property, plant and equipment	(842,499	)	(2,327,612	)
Net cash used in investing activities	(614,173	)	(154,840	)
Business investment	(300,000	)
Investment in affiliate			(1,300,000	)
Net cash provided by (used in) investing activities	76,654		(3,627,612	)
Cash flows from financing activities:
Common stock issuance			7,938
Proceeds from borrowings	1,500,000		75,241
Repayment of long-term borrowings	(~~161~~1,~~434~~493,173	)	(~~721~~267,~~463~~108	)
Payment of cash dividends	(1,039,146	)	(1,038,819	)
Debt financing costs	(227,219	)	--
Net cash used in financing activities	(1,200,580	)	(1,752,344	)
Payment of cash dividends	(692,764	)	(692,764	)
Effect of exchange rate changes on cash	(5,355	)	19,087
Net cash used in financing activities	(913,156	)	(884,631	)
Net decrease in cash and cash equivalents	(590,015	)	(1,275,238	)
Effect of exchange rate changes on cash	17,299		(17,992	)
Cash and cash equivalents -- beginning of period	7,747,481		9,866,539
Net decrease in cash and cash equivalents	(469,146	)	(1,010,142	)
Cash and cash equivalents -- end of period	$ 7,157,466		$ 8,591,301
Cash and cash equivalents -- beginning of period	6,188,060		7,710,031
Cash and cash equivalents -- end of period	$ 5,718,914		$ 6,699,889

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

CPAC, Inc. And Subsidiaries

Notes to Consolidated Financial Statements

Unaudited

1 -- CONSOLIDATED FINANCIAL STATEMENTS

The consolidated balance sheets, the consolidated statements of operations and comprehensive income, and the consolidated statements of cash flows for the interim periods presented have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented (which include only normal recurring adjustments), have been made. The balance sheet at March 31, 2006 has been taken from the audited financial statements as of that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. ItThese isinterim ~~suggested that these~~ consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's March 31, ~~2004~~2006 Annual Report to Shareholders. The results of operations for the interim periods presented are not necessarily indicative of the operating results for the full year.

2 -- INVENTORY

Inventory net of reserves is summarized as follows:

	December 31, 2004	March 31, 2004
	September 30, 2006	March 31, 2006
Raw materials and purchased parts	$ 68,~~974~~347,~~736~~058	$ 68,~~602~~451,~~331~~264
Work-in-process	1,~~047~~299,~~941~~973	1,~~175~~271,~~438~~515
Finished Goods	1015,~~753~~234,~~272~~483	910,~~453~~412,~~230~~582
	$ 18,775,949	$ 17,230,999
	$ 24,881,514	$ 20,135,361

3 -- ~~BUSINESS~~GOODWILL ~~INVESTMENT~~AND INTANGIBLE ASSETS

InThe ~~September 2004, the~~ Company ~~acquired~~follows ~~the~~SFAS ~~remaining 20% ownership interest in its majority-owned subsidiary~~No. 142, ~~CPAC~~"Goodwill ~~Asia~~and ~~Imaging~~Other ~~Products~~Intangible ~~Limited (CPAC Asia) for $600~~Assets,~~000;~~" ~~$300,000~~which inrequires ~~cash,~~an ~~and~~annual aimpairment ~~three-year~~test ~~non-interest bearing promissory note for $300,000~~ (~~principal~~comparison ~~payments~~ of ~~$100,000~~estimated ~~annually).~~fair ~~The~~value ~~amount~~to ~~paid~~carrying ~~represents~~value) ain ~~discount~~lieu toof ~~CPAC~~monthly ~~Asia's~~amortization ~~net~~for ~~asset~~goodwill. ~~fair~~At ~~market value~~September 30, 2006 and asMarch 31, ~~such~~2006, ~~has~~all ~~resulted~~of inthe arecorded ~~proportionate~~goodwill ~~reduction~~pertained into the ~~subsidiaries'~~Imaging ~~property,~~Segment ~~plant~~ and ~~equipment.~~amounted ~~The Company believes that with undivided ownership, it will be able~~ to ~~pursue its expansion in the Asian marketplace~~$192,426.

~~The~~At ~~acquisition~~September 30, ~~has~~2006, ~~been~~other ~~accounted~~intangible ~~for~~assets inconsisted primarily of a contractual license agreement allowing the ~~consolidated~~Company ~~financial~~to ~~statements~~manufacture asand distribute products through the use of, the trademarks and ~~for,~~formulas of Stanley Home Products. The license is being amortized over the ~~quarter~~contract ~~and~~period, ~~nine~~which ~~months~~expires ~~ended~~on ~~December~~March 31, ~~2004~~2010. AsThe oforiginal ~~the~~cost ~~date~~pertaining ofto ~~the~~this ~~acquisition~~intangible was $2,250,000, ~~the~~while ~~Company~~accumulated ~~will~~amortization ~~recognize~~at ~~100%~~September 30, 2006 and March 31, 2006 was $1,725,000 and $1,650,000, respectively. Annual amortization of the ~~operating~~license ~~results~~is of$150,000, ~~CPAC~~which ~~Asia~~will incontinue ~~its~~until ~~consolidated~~expiration ~~statement~~date. ofOther ~~operations~~amortizable, intangible assets and their related amortization expense are not material.

4 -- ~~INVESTMENT IN AFFILIATE~~DEBT

~~The~~On ~~Company~~September 28, ~~accounts~~2006, ~~for~~CPAC, ~~its~~Inc. ~~40% ownership interest in TURA AG~~ (~~TURA~~"CPAC") ofentered ~~Düren,~~into ~~West~~a ~~Germany,~~Financing ~~under~~Agreement (the ~~equity~~"Financing ~~method~~Agreement") ofwith ~~accounting~~HSBC asBusiness ~~prescribed~~Credit by(USA) ~~Accounting~~Inc., ~~Principles~~("HSBC"), ~~Board~~under ~~Opinion~~which ~~No.~~HSBC ~~18.~~will ~~The~~provide ~~Company~~up ~~records~~to ~~its~~$12 million ~~equity~~ in ~~the~~Senior ~~income~~Secured orRevolving ~~losses~~Credit offor ~~TURA~~a onperiod aof three~~-month~~ ~~lag.~~years ~~The~~from ~~Company~~the ~~has~~date ~~recorded~~of ~~its equity investment on~~ the ~~consolidated~~Financing ~~balance~~Agreement. ~~sheets~~The inFinancing ~~"Investment~~Agreement inprovides ~~affiliate"~~asset ~~and~~based ~~its~~lending ~~share~~capabilities ofto ~~the~~CPAC's ~~TURA~~U.S. ~~earnings~~operations and ~~losses~~is ascollateralized ~~"Equity~~by inCPAC's ~~loss~~U.S. ofsubsidiaries ~~affiliate,"~~and ontheir ~~the~~respective ~~consolidated statements of operations~~assets. InThe ~~addition,~~Financing ~~the~~Agreement ~~purchase~~allowed ~~price~~CPAC to ~~acquire~~terminate ~~the~~and ~~cumulative~~replace ~~40%~~its ~~ownership~~prior ~~exceeded~~credit ~~the~~facility ~~Company's~~with ~~proportionate~~Bank ~~share~~ of ~~TURA's~~America, ~~net assets~~NA. ~~A portion of this allocated excess purchase price is also amortized into equity earnings.~~

AsThe ~~disclosed~~Financing ~~previously,~~Agreement ~~the~~allows ~~Company's~~up ~~recognition~~to of$7.5 million for the ~~40%~~issuance ~~share~~of Letters of Credit and the ~~losses~~balance offor ~~TURA~~working ~~during~~capital ~~the~~needs. ~~first~~An ~~six~~annual ~~months~~fixed offee ~~fiscal~~payment ~~2005,~~of ~~effectively~~2.0% ~~reduced~~on the ~~basis~~outstanding Letters of ~~its~~Credit ~~investment~~values towill ~~zero~~be charged. ~~The~~Revolving ~~Company~~Advances ~~has~~are noavailable ~~obligation~~under tothe ~~fund~~Financing ~~any~~Agreement ~~losses~~based ~~experienced~~upon byavailability ~~TURA~~of receivables and ~~will~~inventory ~~not~~in ~~record~~accordance ~~its~~with ~~40%~~computational ~~share~~formulas ofincluded ~~TURA's~~and ~~equity~~defined ~~earnings~~ in ~~future~~the ~~periods,~~Financing ~~until~~Agreement. ~~such~~Interest ~~time~~on asrevolving ~~TURA~~advances ~~becomes~~is ~~profitable~~charged at either the U.S. prime rate plus 0.25% or at LIBOR plus 2.0%.

InHSBC ~~the~~has ~~fourth~~provided ~~quarter~~a Secondary Letter of ~~fiscal~~Credit ~~2004,~~under the ~~Company~~Agreement ~~had~~for ~~determined~~$6.5 million, ~~due~~which towill ~~recognition~~support ofthe ~~significant~~previously ~~equity~~issued ~~losses,~~Bank ~~that~~of ~~TURA's~~America ~~financial~~$6.2 million ~~decline~~Letter ~~was~~of ~~other~~Credit ~~than~~facility, ~~temporary~~which ~~and~~presently ~~recorded~~is ancollateralizing ~~impairment~~The ~~loss~~Fuller ofBrush ~~approximately $2~~Company,~~320,000~~ ~~or $0~~Inc.47's aIndustrial ~~diluted~~Revenue ~~share~~Bonds ~~for~~until ~~the year ended March~~October 31, ~~2004~~2007. ~~This~~The ~~reduced~~Company expects to finalize the ~~estimated~~substitution ~~fair~~of ~~market~~the ~~value~~HSBC Letter of Credit facility with the ~~Company~~Industrial Revenue Bond's ~~investment~~trustee, at ~~March 31,~~which ~~2004~~time tothe ~~$250,000~~Bank of America Letter of Credit facility will be canceled. The ~~impairment~~$6.5 million ~~adjustment~~HSBC ~~also~~Secondary ~~reduced~~Letter ~~the~~of ~~previously~~Credit ~~allocated~~issued ~~excess~~at ~~purchase price~~September 30, ~~leaving~~2006 areduces ~~value~~the ~~that~~$12 million available borrowing capacity under the ~~Company~~Agreement. ~~believed~~No ~~was~~revolving ~~largely~~advances ~~attributable~~were tooutstanding under the ~~supply~~Financing ~~contracts~~Agreement ~~between~~at September 30, 2006. During the ~~Company~~second quarter and ~~TURA.~~prior to entering into the Agreement with

In January 2005, TURA has restructured and reduced its workforce in Germany, including replacing its former president and terminating sales and financial management in an effort to reduce operating losses and improve cash flows.

~~The~~HSBC, the Company ~~has~~had ~~not~~borrowed ~~received~~$1,500,000 ~~full~~on ~~financial~~its ~~statements~~line ~~from~~of ~~TURA,~~credit ~~since~~with ~~its~~Bank ~~second~~of ~~quarter~~America, ~~and~~NA. ~~does~~This ~~not~~borrowing ~~believe~~was ~~TURA~~paid ~~has~~off ~~returned to profitability~~ at ~~this~~the time. ~~Because~~ of the ~~continued uncertainty and lack of information with regards to TURA's day-to-day operations, the Company's representative resigned his position on TURA's supervisory board in December 2004~~refinancing.

~~During~~The ~~the~~Agreement ~~first~~also ~~six~~contains ~~months~~certain ~~of fiscal 2005~~covenants, ~~and~~including ina ~~the~~fixed ~~second~~rate ~~and~~ratio ~~third~~coverage. ~~quarters~~The ~~of fiscal 2004, the~~ Company ~~recorded~~was ~~its~~in ~~40%~~compliance ~~proportionate~~with ~~share of TURA's losses, plus amortization of~~ the ~~excess~~Agreement ~~purchase~~at ~~price allocated to the supply contract. For the first quarter of fiscal 2004~~September 30, ~~the Company recorded its 19% proportionate share of TURA's losses, plus amortization of the allocated excess purchase price~~2006.

At 5 ~~December 31,~~-- ~~2003,~~INCOME ~~the proportionate share of the Company's investment in the net assets of TURA, as well as the unamortized value of the allocated excess purchase price, was allocated as follows:~~ TAXES

		December 31, 2003
CPAC, Inc.'s proportionate share of TURA net assets		$ 681,911
Property, plant and equipment		355,000
Supply contracts		281,250
Goodwill		1,580,490
Net investment		$ 2,898,651

Income (loss) before income taxes for the three and six months ended September 30 were as follows:

The difference between the original purchase price for the Company's equity interests in TURA and the net investment balance shown above at December 31, 2003 represents the Company's subsequent recognition of its proportionate share of TURA's net loss, amortization of the purchase price, and foreign currency translation adjustments.

	Three Months Ended September 30,			Six Months Ended September 30,
	2006	2005		2006	2005
U.S.	$ 306,020	$ (499,272	)	$ 1,231,884	$ (655,306	)
Foreign	713,834	307,121		1,057,590	391,085
	$ 1,019,854	$ (192,151	)	$ 2,289,474	$ (264,221	)

~~Summarized,~~Provisions ~~approximate,~~for ~~unaudited,~~income ~~financial~~taxes ~~information~~and ~~for~~effective ~~TURA~~tax rates for the three and ~~nine~~six months ended ~~December~~September ~~31,~~30 ~~2003~~were isas ~~shown below~~follows:

	Unaudited For the Three Months Ended		Unaudited For the Nine Months Ended
	Three Months Ended September 30,				Six Months Ended September 30,
	December 31, 2003		December 31, 2003
	2006		2005		2006	2005
Condensed Statement of Operations:
Provision for income taxes	$160,000		$21,000		$358,000	$88,000
Net revenue	$ 4,958,000		$ 13,341,000
Effective tax rate	15.7%		(10.9%)		15.6%	(33.3%)
Cost of sales	3,848,000		10,369,000
Operating expenses	1,034,000		3,101,000
Operating loss	76,000		(129,000	)
Interest expense	108,000		284,000
Net loss	$ (32,000	)	$ (413,000	)
Condensed Balance Sheet:
Current assets			$ 8,348,000
Non-current assets			4,050,000
			$ 12,398,000
Current liabilities			$ 9,112,000
Non-current liabilities			1,581,000
Shareholders' equity			1,705,000
			$ 12,398,000

5 For the second quarter and six months ended September 30, 2006, the tax provision and resulting effective rate reflect the tax expense related to CPAC Asia Imaging Products Limited profits, due to the expiration of the seven--year ~~GOODWILL~~tax ~~AND~~holiday ~~INTANGIBLE~~in ~~ASSETS~~fiscal 2007, as well as the continued tax benefit realized from the utilization of CPAC Africa's net operating loss carry forward. In addition, it reflects assumed, continued profitability of CPAC Europe and CPAC Italia. The 2007 effective rate also reflects the utilization of domestic net operating loss carry forwards against domestic taxable income, with an offsetting adjustment to the deferred tax asset valuation reserve attributable to the NOL carry forward. This has effectively limited the domestic provision to certain minimum state income taxes, due to the existence of a full valuation allowance on the Company's remaining domestic deferred tax assets.

~~The~~For ~~Company~~the ~~follows~~second ~~SFAS~~quarter ~~No.~~and six months ended September ~~142~~30, ~~"Goodwill~~2005, ~~and~~the ~~Other~~Company's ~~Intangible~~consolidated ~~Assets,"~~tax ~~which~~provision ~~requires~~and aneffective ~~annual~~rate ~~impairment~~reflected ~~test~~the ~~(comparison~~recognition of ~~estimated~~a ~~fair~~valuation ~~value~~allowance toon ~~carrying~~the ~~value)~~deferred intax ~~lieu~~assets of ~~monthly~~CPAC ~~amortization~~Europe, ~~for~~due ~~goodwill~~to continuing losses. AtIn ~~December 31~~addition, ~~2004~~the ~~and~~domestic ~~March 31,~~provision ~~2004,~~was ~~all~~impacted ofby ~~the~~not ~~recorded~~recording ~~goodwill~~tax ~~pertained~~benefits to(expenses) on losses (income) generated in the ~~Imaging~~U.S. ~~Segment~~(other ~~and~~than ~~amounted~~minimum state income taxes), due to ~~$192~~continuing losses,~~426,~~ ~~respectively~~which required a full valuation allowance on domestic deferred tax assets.

At 6 ~~December 31,~~-- ~~2004,~~STOCK-BASED ~~other intangible assets consisted primarily of a contractual license agreement allowing the~~ COMPENSATION

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004),"Share-Based Payment" (SFAS 123R), which replaces SFAS No. 123, "Accounting for Stock Based Compensation" (SFAS 123), and supersedes Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to Employees" (APB). SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements at fair value. The Company implemented the provisions of SFAS 123R on April 1, 2006 following the modified-prospective transition method and accordingly began expensing share-based payments in the first quarter of fiscal 2007. In accordance with the modified-prospective transition method of SFAS 123R, the Company has not restated prior periods.

The Company maintains an Executive Long-Term Stock Investment Plan (the Plan) for key employees, which allows issuance of incentive stock options, nonqualified stock options, reload options, and restricted performance shares. The Plan has reserved for issuance to key employees 350,000 shares of the Company's common stock to be granted based on specific performance goals or issued directly, subject to the possibility of forfeiture and without cash consideration. Options are granted at the fair market value of the stock at the date of grant. Upon exercise, an employee granted an option under the Plan may pay for the Company's stock either with cash or with Company stock already owned by the employee, valued at the fair market value of the stock on the exercise date. The term of the option is determined by the Compensation Committee (the Committee), with most grants having terms of ten years (five years in the case of a greater than 10% shareholder). The options generally may be exercised in cumulative annual increments of the greater of 25% or 2,500 shares commencing one year after the date of the grant.

The Company toalso ~~manufacture~~maintains ~~and~~a ~~distribute~~Non-Employee ~~products~~Directors ~~through~~Stock Option Plan (Directors Plan). At the ~~use~~inception of the ~~trademarks~~Plan, ~~and~~each ~~formulas~~non-employee ofdirector ~~Stanley~~was ~~Home~~granted ~~Products.~~an ~~The~~option ~~license~~to ispurchase ~~being~~10,000 ~~amortized~~shares ~~over~~of the ~~contract~~Company's ~~period~~common stock, ~~which~~on ~~expires~~a onone-time ~~March 31~~basis for past service rendered to the Board of Directors, ~~2010~~at the fair market value at the date of the grant. The ~~original~~term ~~cost~~of ~~pertaining~~the tooption ~~this~~grants ~~intangible~~is atfor ~~December 31,~~ten ~~2004~~years. ~~and~~In ~~March 31~~addition, ~~2004~~the ~~was~~Directors ~~$2,250,000,~~Plan ~~while~~calls ~~accumulated~~for ~~amortization~~an atannual ~~December 31,~~automatic ~~2004~~grant ~~and~~for ~~March 31,~~the ~~2004~~purchase ~~were~~of $13,~~462~~000 shares,~~500~~ ~~and~~per $1director,~~350~~ of the Company's common stock,~~000,~~ ~~respectively.~~on ~~Annual~~the ~~amortization~~first ofFriday after the ~~license~~annual ismeeting ~~$150~~of Shareholders,~~000,~~ ~~which~~at ~~will~~a ~~continue~~price ~~until~~equal ~~expiration~~to the fair market value at that date. ~~Other~~The ~~amortizable~~term of these grants is also ten years. In addition, ~~intangible~~the ~~assets~~Company ~~and~~has ~~their~~customarily ~~related~~granted ~~amortization~~new ~~expense~~Directors ~~are~~options ~~not~~to ~~material.~~purchase 15,000 shares upon their election.

6 As --of ~~IMAGING~~September 30, ~~RESTRUCTURING~~2006, total options outstanding are summarized as follows:

During fiscal 2004, the Company shifted its domestic manufacturing of photochemicals from its St. Louis, Missouri, facility to its CPAC Imaging manufacturing facility in Norcross, Georgia. The transfer of the manufacturing fixed assets, as well as retrofitting the Georgia facility to absorb this production, was completed during the fourth quarter of fiscal 2004.

	Shares		Range of Option Price Per Share
Options outstanding -- March 31, 2006	860,800		$ 5.01	--	$ 11.63
Exercised	0
Expired	(121,500	)	5.06	--	11.56
Granted	15,000		5.76
Options outstanding -- September 30, 2006	754,300		$ 5.01	--	$ 11.63

Options exercisable:
September 30, 2006	708,300		$ 5.01	--	$ 11.63

~~Related~~Included toin ~~this endeavor,~~ the ~~Company adopted SFAS No. 146,~~ "~~Accounting for Costs Associated with Exit or Disposal Activities~~expired" ~~and~~options ~~accounted~~amount ~~for~~shown ~~the~~above ~~employee~~were ~~termination~~31,250 ~~costs~~options ~~and~~that ~~other~~were ~~costs~~forfeited ~~associated~~before ~~with~~vesting, ~~the~~31,750 ~~move~~options ~~under~~that ~~its guidelines. The total expenses incurred in this project~~ were ~~approximately~~vested ~~$1,275,000.~~but ~~As of September 30~~canceled, ~~2004~~due ~~all~~to ~~termination~~employees ~~benefit~~no ~~costs~~longer ~~and~~working ~~other~~for ~~move-related~~the ~~costs~~Company, ~~accrued~~and ~~at March 31~~58,500 ~~2004,~~options ~~were~~that ~~fully paid~~expired.

7 The --following ~~GUARANTEES~~table summarizes information about options outstanding at September 30, 2006:

The Company guarantees the following debt and other obligations for some of its subsidiaries under agreements with banks:

Year Granted	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Fair Value of Options	Number Exercisable	Weighted Average Exercise Price
1998	79,000	0.80	$4.02	79,000	$11.64
1999	87,000	1.74	3.80	87,000	10.14
2000	98,500	2.69	2.45	98,500	7.56
2001	44,500	3.66	2.15	44,500	6.77
2002	187,800	4.74	1.72	187,800	6.33
2003	34,000	5.80	1.54	34,000	6.46
2004	149,000	6.82	0.76	132,000	5.52
2005	12,000	7.87	0.65	8,000	5.30
2006	47,500	8.66	0.46	37,500	5.04
2007	15,000	9.88	0.97	5,000	5.76
Totals	754,300	4.51	--	713,300	$ 7.25

~~-- A~~ 15,000 ~~standby~~options ~~letter~~were ofgranted ~~credit~~during ~~issued~~the byquarter ~~Bank~~ended ofSeptember 30, ~~America~~2006 ~~for~~pursuant $6to the Directors Plan.2 ~~million~~The isfair ~~used~~values byof ~~the~~these ~~Company~~options towere ~~collateralize~~estimated at grant date using the ~~Fuller~~Black-Scholes ~~Brands'~~option-pricing ~~Industrial~~model ~~Revenue~~with ~~Bonds.~~the following weighted-average assumptions:

The Company has warranty obligations in connection with sales of its Imaging equipment. The warranty period generally ranges from 6 to 12 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, 2004 to December 31, 2004 was as follows (in thousands):

	Three Months Ended September 30,		Six Months Ended September 30,
	2006	2005	2006	2005
Expected life	6 years	5 years	6 years	5 years
Historical volatility	24%	16%-18%	24%	16%-18%
Risk free rate of return	4.8%	3.8%-4.0%	4.8%	3.8%-4.0%
Expected dividend yield	4.9%	5.5%-5.6%	4.9%	5.5%-5.6%

Accrued warranty obligations at March 31, 2004		$ 33
Accrued warranty experience April 1 to December 31, 2004		(5)
April 1 to December 31, 2004 warranty provisions		2
Accrued warranty obligations at December 31, 2004		$ 30

Compensation expense related to previously issued stock options, included in selling, general, and engineering expenses was approximately $10,000 and $17,000 for the three and six months ended September 30, 2006, respectively. Due to the full valuation allowance of the Company's domestic operations, no income tax benefit was recorded. As of September 30, 2006, the unrecognized compensation expense related to non-vested, fixed stock options, to be recognized over the next 12 to 24 months, is approximately $27,000.

8 Prior --to ~~STOCK-BASED~~adopting ~~COMPENSATION~~SFAS No. 123R, the Company applied the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for employee stock options. Had compensation cost been determined based on the fair value at the grant dates for awards under the Company's stock plans in accordance with SFAS No. 123R, net income and diluted earnings per share for the three and six months ended September 30, 2005 would have been as follows:

The Company accounts for its stock option plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25. Accordingly, no expense is charged to net income as all options granted included 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 stock-based, employee compensation.

	Three Months Ended September 30, 2005		Six Months Ended September 30, 2005
Net income (loss) as reported	$ (213,151	)	$ (352,221	)
Total stock-based compensation:
Expense determined under fair value method for all awards, net of tax	14,000		39,000
Proforma net income (loss)	$ (227,151	)	$ (391,221	)
Net income (loss) per common share:
Basic -- as reported	$ (0.04	)	$ (0.07	)
Basic -- proforma	$ (0.05	)	$ (0.08	)
Diluted -- as reported	$ (0.04	)	$ (0.07	)
Diluted -- proforma	$ (0.05	)	$ (0.08	)

Three Months Ended December 31, Nine Months Ended December 31,
2004 2003 2004 2003
Net income (loss) as reported $ (57,537 ) $ (822,188 ) $ 281,618 $ (635,629 )
Total stock-based compensation:
Expense determined under fair value method for all awards, net of tax 20,000 33,000 59,000 72,000
Proforma net income (loss) $ (77,537 ) $ (855,188 ) $ 222,618 $ (707,629 )
Net income (loss) per common share:
Basic -- as reported $ (0.01 ) $ (0.17 ) $ 0.06 $ (0.13 )
Basic -- proforma $ (0.02 ) $ (0.17 ) $ 0.05 $ (0.14 )
Diluted -- as reported $ (0.01 ) $ (0.17 ) $ 0.06 $ (0.13 )
Diluted -- proforma $ (0.02 ) $ (0.17 ) $ 0.05 $ (0.14 )
7 -- GUARANTEES

The ~~fair~~Company ~~value~~guarantees ofthe ~~these~~following ~~options~~debt ~~was~~and ~~estimated~~other atobligations ~~grant~~for ~~date~~some ~~using~~of ~~the~~its ~~Black-Scholes~~subsidiaries ~~option-pricing~~under ~~model.~~agreements ~~There~~with ~~have~~banks: ~~been~~a nostandby ~~charges~~Letter toof ~~income~~Credit inissued ~~any~~by Bank of ~~the~~America, ~~periods~~NA, ~~above~~for in$6.2 million ~~connection~~(and ~~with~~backed ~~these~~by ~~options~~a ~~other~~Secondary ~~than~~Letter ~~incidental~~of ~~expenses~~Credit ~~related~~issued by HSBC for $6.5 million) is used by the Company to ~~options~~collateralize The Fuller Brush Company, Inc.'s Industrial Revenue Bonds.

98 -- EARNINGS PER SHARE

Basic earnings per share are based upon the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average common shares outstanding during the period plus the dilutive effect of shares issuable through stock options and warrants. The shares used in calculating basic and diluted earnings per share are reconciled as follows:

	Three Months Ended December 31,		Nine Months Ended December 31,
	Three Months Ended September 30,		Six Months Ended September 30,
	2004	2003	2004	2003
	2006	2005	2006	2005
Basic weighted average number of shares outstanding	4,946,774	4,~~945~~946,~~670~~774	4,946,774	4,~~945~~946,~~365~~774
Effect of dilutive stock options	18,903	--	59,~~024~~452	--
Dilutive shares outstanding	4,~~946~~965,~~774~~677	4,~~945~~946,~~670~~774	4,~~951~~956,~~798~~226	4,~~945~~946,~~365~~774

~~Unexercised~~For the three and six months ended September 30, 2006, unexercised stock options to purchase ~~955~~561,~~911~~800 ~~and 790,936~~ shares of the Company's common stock ~~as of December 31, 2004 and 2003, respectively,~~ were not included in the ~~computations~~computation of diluted earnings per share, because the exercise prices of these options were greater than the average market price of the Company's common stock during the ~~respective periods~~period. These options, issued at various dates ~~from~~during ~~1995~~fiscal 1998 to ~~2004~~fiscal 2006, are still outstanding at the end of the period. For the three months ended December 31, 2004, and the three and nine months ended December 31, 2003, unexercised stock options to purchase 960,911 and 1,114,936 shares of the Company's stock were not included in the computation of EPS, because they would be anti-dilutive, due to the net loss incurred by the Company during the respective quarter and nine month periods.

10 For the three and six months ended September 30, 2005, unexercised stock options to purchase 1,020,349 shares of the Company's stock were not included in the computation of earnings per share, because they would have been anti--dilutive, ~~COMPREHENSIVE~~due ~~INCOME~~to the net loss incurred by the Company.

9 -- COMPREHENSIVE INCOME

Other comprehensive income includes foreign currency translation adjustments.

10 -- IMAGING SEGMENT AGREEMENTS

During the second quarter, CPAC Imaging Americas, the Company's domestic Imaging operation, negotiated several agreements with outside imaging companies in the U.S. Two of the agreements will enable the Company to distribute photographic paper and other consumables in the United States; the third agreement allows the licensing of formulas used in the manufacture of graphic arts chemistry in the U.S. These agreements, ranging from nine months to two years with options for renewal, give CPAC Imaging Americas the opportunity to sell these branded products to the outside companies' customer base, as well as to its own distribution network.

For the three months ended September 30, 2006, net sales as a result of these agreements totaled approximately $2.9 million. While gross profits attributable to some of the distributed products (i.e. photographic paper) were lower than those earned on sales of Imaging chemistry, the Company believes the additional business from sales of these products will help to improve the Company's domestic Imaging operating profits over the near-term. As a result of these agreements, the Company purchased significant quantities of these products during the quarter, to help maintain a continual supply of inventory for present and future customer needs, resulting in a short-term increase in inventory. The Company expects to be able to reduce on-hand inventory quantities, as a result of these agreements during its third and fourth quarters, to relieve temporary working capital pressures.

In October 2006, CPAC Asia, the Company's Asian-based Imaging operation, entered into an agreement with Konica Minolta Photochem Thailand (PCTH) to assist them in their previously announced exit from the manufacturing of silver halide chemistry in Thailand. This agreement will allow CPAC Asia to manufacture and sell chemistry to Konica's former distributors in the Asian, African, and Middle East marketplace. Related to the agreement, CPAC Asia purchased some of Konica Minolta Photochem Thailand's remaining raw material inventory and specific manufacturing equipment amounting to approximately $800,000. CPAC Asia will begin selling to these distributors starting October 1, 2006 and expects to transition all manufacturing to its own Thailand facility by January 1, 2007.

11 -- SEGMENT INFORMATION

The Company operates in two industry segments: the Fuller Brands Segment and the CPAC Imaging (Imaging) Segment. Information concerning the Company's business Segments' net sales and income before non-operating income (expense) and income taxes for the quarters and ~~nine~~six months ended ~~December~~September 3130, ~~2004~~2006 and ~~2003~~2005 are as follows:

	Three Months Ended December 31,				Nine Months Ended December 31,
	Three Months Ended September 30,				Six Months Ended September 30,
	2004		2003		2004		2003
	2006		2005		2006		2005
Net sales to customers:
Fuller Brands	$ 1113,~~505~~141,~~566~~402		$ 1112,~~165~~738,~~235~~441		$ 3928,~~123~~562,~~129~~136		$ 3927,~~162~~232,~~422~~596
Imaging	812,~~879~~771,~~793~~177		98,~~343~~718,~~537~~838		2521,~~644~~285,~~755~~210		2816,~~058~~648,~~833~~250
Total net sales to customers	$ 2025,~~385~~912,~~359~~579		$ 2021,~~508~~457,~~772~~279		$ 6449,~~767~~847,~~884~~346		$ 6743,~~221~~880,~~255~~846
Operating income (loss):
Fuller Brands	$ ~~(421~~234,~~998~~636	)	$ (~~323~~31,~~393~~418	)	$ 1,~~091~~567,~~471~~911		$ ~~964~~325,~~250~~396
Imaging	~~282~~973,~~325~~164		~~(639~~37,~~521~~760	)	~~(74~~1,~~051~~086,819	)	(1203,~~066,375~~702	)
	(139,673	)	(962,914	)	1,017,420		(102,125	)
	1,207,800		6,342		2,654,730		121,694
Corporate income (expense)	(2,591	)	28,420		(55,862	)	(58,049	)
Corporate expense	(55,021	)	(64,843	)	(107,298	)	(148,669	)
Interest expense, net	(~~111~~118,~~850~~489	)	(~~128~~124,~~157~~145	)	(~~297~~233,~~095~~152	)	(~~387~~223,~~605~~258	)
Income (loss) before non-operating expense and income taxes	$ ~~(254~~1,~~114~~034,290	)	$ (1182,~~062,651~~646	)	$ ~~664~~2,~~463~~314,280		$ (~~547~~250,~~779~~233	)

Sales between Segments are not material.

Information concerning the identifiable assets of the Company's business Segments at ~~December~~September 3130, ~~2004~~2006 and March 31, ~~2004~~2006 are as follows:

	December 31, 2004	March 31, 2004
	September 30, 2006	March 31, 2006
Identifiable assets:
Fuller Brands	$ 2830,~~255~~062,~~785~~179	$ 29,~~337~~675,~~358~~456
Imaging	2526,~~032~~517,~~887~~058	2521,~~267~~714,~~273~~710
Total identifiable assets of the segment	5356,~~288~~579,~~672~~237	5451,~~604~~390,~~631~~166
Corporate short-term investments	21,~~599~~694,~~135~~653	32,~~771~~660,~~295~~659
Deferred income tax assets	3,874,481	4,102,481
Other corporate assets	3,738,771	3,994,323
Other corporate assets	2,969,024	2,947,583
Total consolidated assets	$ 62,012,661	$ 58,045,148
Total consolidated assets	$ 62,731,312	$ 65,425,990

12 -- RECENT ACCOUNTING PRONOUNCEMENTS

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 January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first reporting period beginning after March 15, 2004 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption did not have an impact on the Company's reported results of operations and financial position.

In December 2003, the Financial Accounting Standards Board issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits--an amendment of FASB Statements No. 87, 88, and 106." This statement requires new annual disclosures about the types of plan assets, investment strategy, measurement date, plan obligations, and cash flows, as well as the net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The statement is effective for financial statements with fiscal years ending after December 15, 2003,

~~with~~12 ~~disclosure~~-- ofRECENT ~~information~~ACCOUNTING about foreign plans effective for fiscal years ending after June 15, 2004. The Company does not provide a defined benefit pension plan, nor any defined benefit postretirement plan; the impact of this pronouncement is expected to be minimal. Disclosures concerning the Company's defined contribution plans in its foreign operating units will be made for the fiscal year ending March 31, 2005.PRONOUNCEMENTS

In ~~November~~February ~~2004~~2006, the FASB issued SFAS No. ~~151~~155, "~~Inventory~~Accounting ~~Costs,~~for anCertain ~~amendment~~Hybrid ofFinancial ~~ARB~~Instruments ~~No. 43,~~- ~~Chapter 4."~~an ~~This~~amendment ~~statement~~of ~~amends~~FASB ~~the~~Statements ~~guidance in ARB~~ No. ~~43,~~133 ~~Chapter 4,~~and 140"~~Inventory~~ ~~Pricing,"~~(SFAS 155). toSFAS 155 ~~require~~is ~~the~~effective ~~accounting~~ for ~~abnormal~~all ~~amounts~~financial ofinstruments ~~idle~~acquired ~~facility~~or ~~expense,~~issued ~~freight~~after April 1, ~~handling costs~~2007, and ~~wasted~~amends ~~material~~SFAS ~~(spoilage)~~No. 133, to"Accounting befor ~~handled~~Derivative asInstruments aand ~~current~~Hedging ~~period~~Activities," ~~charge.~~and ~~The~~SFAS ~~statement~~No. 140, ~~also~~"Accounting ~~requires~~for ~~that~~Transfers ~~the~~and ~~allocation~~Servicing of ~~fixed~~Financial ~~production~~Assets ~~overheads~~and toExtinguishments ~~the costs~~ of ~~conversion~~Liabilities." beThis ~~based~~Statement onresolves ~~the~~issues ~~normal~~addressed ~~capacity~~in ofStatement 133 ~~the~~Implementation ~~production~~Issue ~~facilities. SFAS~~ No. ~~151~~D1, is"Application ~~effective~~of ~~for inventory costs incurred during fiscal years beginning after June~~Statement ~~15,~~133 ~~2005,~~to ~~with~~Beneficial ~~earlier~~Interests ~~application~~in ~~permitted~~Securitized ~~during~~Financial ~~fiscal years beginning after the date the statement was issued (November 2004)~~Assets." The Company isdoes ~~currently~~not ~~assessing~~expect the ~~impact~~ adoption of ~~this~~SFAS 155 ~~pronouncement~~to ~~will~~ have a material impact on ~~the~~its ~~reported~~consolidated results of operations and financial ~~position~~condition.

In ~~December~~June ~~2004~~2006, the FASB issued ~~SFAS~~Interpretation No. ~~123 (revised 2004)~~48, "~~Share-Based~~Accounting ~~Payment"~~for ~~("SFAS~~Uncertainty ~~123(R)").~~in ~~This~~Income ~~statement~~Taxes-an isinterpretation ~~a revision~~ of FASB Statement No. ~~123,~~ 109"~~Accounting~~ ~~for~~(FIN ~~Stock-Based~~48). ~~Compensation,"~~This ~~and~~interpretation ~~will~~clarifies ~~supercede~~the ~~APB~~accounting ~~Opinion No. 25, "Accounting~~ for ~~Stock~~uncertainty ~~Issued~~in toincome ~~Employees,"~~taxes ~~and~~recognized ~~its related implementation guidance. The revised statement focuses primarily on accounting for transactions~~ in ~~which~~ an ~~entity~~enterprise's ~~obtains~~financial ~~employee~~statements ~~services~~ in ~~share-based~~accordance ~~payment~~with ~~transactions~~SFAS No. 109, It"Accounting ~~requires~~for ~~entities~~Income toTaxes." ~~measure~~This ~~the~~Interpretation ~~cost~~prescribes ofa ~~employee~~recognition ~~services~~threshold ~~received~~and inmeasurement ~~exchange~~attribute for anthe ~~award~~financial ofstatement ~~equity~~recognition ~~instruments~~and ~~based~~measurement ~~on the grant-date fair value~~ of ~~the~~a ~~award,~~tax ~~over~~position ~~the~~taken ~~period~~or ~~during~~expected ~~which an employee is required~~ to ~~provide~~be ~~service~~taken in ~~exchange~~a ~~for~~tax ~~the award~~return. InThis ~~addition,~~Interpretation ~~the~~also ~~adoption~~provides ofguidance ~~SFAS 123(R)~~on ~~requires~~derecognition, ~~additional~~classification, ~~accounting~~interest and ~~disclosure~~penalties, ~~related~~accounting toin ~~the~~interim ~~income~~periods, ~~tax~~disclosure, and ~~cash flow effects, resulting from share-based payment arrangements~~transition. ~~SFAS~~FIN ~~123(R)~~48 is effective asfor offiscal ~~the~~years ~~first interim or annual reporting period~~ beginning after ~~June~~December 15, ~~2005~~2006. The Company is currently ~~assessing~~evaluating the impact ~~adoption~~ of ~~this~~FIN 48 ~~pronouncement will have~~ on ~~the~~its ~~reported~~consolidated results of operations and financial ~~position~~condition.

In ~~December~~September ~~2004~~2006, the FASB issued SFAS No. ~~153~~157, "~~Exchanges~~Fair ofValue ~~Nonmonetary~~Measurements" ~~Assets-an amendment of APB Opinion No.~~(SFAS 29157)." ~~This statement amends APB Opinion No.~~SFAS 29157 todefines ~~eliminate~~fair ~~the~~value, ~~specific~~establishes ~~exception~~a ~~regarding~~framework ~~the~~for ~~basic~~measuring ~~measurement principle (~~fair value) ~~for~~in ~~exchanges~~applying ofgenerally ~~similar~~accepted ~~productive~~accounting ~~assets~~principles, and ~~replaces~~expands itdisclosures ~~with~~about afair ~~general~~value ~~exception for exchange transactions that do not have commercial substance (i~~measurements.e. --This ~~are~~Statement ~~not~~applies ~~expected~~under toother ~~result~~accounting inpronouncements ~~significant~~that ~~changes~~require ofor ~~the~~permit ~~cash~~fair ~~flows~~value ~~of the reporting entity)~~measurements. ~~SFAS~~This ~~No. 153~~Statement is effective for ~~non-monetary~~financial ~~asset~~statements ~~exchanges~~issued ~~occurring~~for in fiscal ~~periods~~years beginning after ~~June~~November 15, ~~2005, with earlier application permitted regarding non-monetary exchanges beginning after the statement was issued (December 2004)~~2007. The Company is currently ~~assessing~~evaluating the impact ~~adoption~~ of ~~this~~SFAS 157 ~~pronouncement may have, if any,~~ on ~~the~~its ~~reported~~consolidated results of operations and financial ~~position~~condition.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - An amendment of FASB Statements No. 87, 88, 106, and 132(R)" (SFAS 158). SFAS 158 requires employers to recognize the over funded or under funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. The recognition and disclosure requirements described above are effective for fiscal years ended after December 15, 2006, except for the change in measurement date, which is effective as of the beginning of the fiscal year beginning after December 15, 2008. Since the Company does not have any defined benefit pension or other Company-funded postretirement plans, the Company does not expect this pronouncement to have any impact on its consolidated results of operations and financial condition.

In September 2006, the FASB issued FASB Staff Position ("FSP") No. AUG AIR-1, "Accounting for Planned Major Maintenance Activities." The FSP prohibits companies from accruing the cost of planned major maintenance in advance of the activities actually occurring. This FSP is effective for fiscal years beginning after December 15, 2006. The adoption of FSP No. AUG AIR-1 is not expected to have a material impact on the Company's consolidated results of operations and financial condition.

In September 2006, the SEC staff issued Staff Accounting Bulletin (SAB), "Financial Statements - Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB 108). The SEC staff is providing guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year's financial statements are materially misstated. SAB 108 is effective for fiscal years beginning after November 15, 2006. The adoption of SAB 108 is not expected to be material to the Company's consolidated results of operations and financial condition.

13 -- LITIGATION

No material litigation is pending to which the Company and/or its subsidiaries are a party, or which property of the Company and/or its subsidiaries is the subject.

14 -- RECLASSIFICATION

Certain March 31, 2004 financial statement and related footnote amounts have been reclassified to conform to the December 31, 2004 presentation.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

The Company operates in two industry segments. The Fuller Brands Segment is involved in developing, manufacturing, distributing, and marketing branded industrial and consumer cleaning and personal care products in North America and internationally. The CPAC Imaging ~~(Imaging)~~ Segment includes the Company's color photographic, health care, and graphic arts imaging operations in the United States, Belgium, China, Italy, South Africa, and Thailand. Sales between Segments are not material.

The Company's financial results for the nine months ended December 31, 2004 include income after tax of $0.01 per diluted share, resulting from the sale of its former imaging manufacturing site in St. Louis, Missouri.
The Company's financial results for the quarter and nine months ended December 31, 2003 include an after tax charge of $0.07 and $0.16 per diluted share, respectively, for the Imaging Restructuring initiative (See Note 6 to the Consolidated Financial Statements).
Net Sales

The Company's net sales ~~decreased~~increased 120.08% and 313.6% for the three and ~~nine~~six months ended ~~December~~September 3130, ~~2004~~2006, ~~respectively,~~ as compared to the same ~~periods~~period last year (~~decreased~~increased 120.82% and 513.01%, excluding the impact of foreign currency exchange).

For the Fuller Brands Segment ([consisting of The Fuller Brush Company, Inc. (Fuller Brush); Stanley, Home Products (Stanley); and Cleaning Technologies Group (CTG)], net sales for the three and six months ended ~~December~~September 3130, ~~2004~~2006, as compared to the same period last year increased 3.2%, ~~while~~and ~~net sales for the nine months ended December 31, 2004, as compared to the nine months ended December 31, 2003 were flat~~4.9%.

Fuller Brush ~~continued~~sales ~~its~~decreased ~~exceptional~~2.7% ~~performance~~for ~~with~~the three months ended September 30, 2006 and increased 4.7% for the six months ended September 30, 2006, as compared to the same period last year. Declines in private label business and direct selling channel sales during this year's second quarter as compared to the second quarter of last year, were partially offset by continued fiscal 2007 increases in the custom brush, retail and home shopping network distribution channels. The increase in sales for the six months ended September 30, 2006, as compared to the six months ended September 30, 2005, was largely a function of 31the increase in sales into the home shopping network, with increases totaling approximately $153,000 (12.51%) and 19$859,000 (26.25%,) ~~respectively,~~ for the three and ~~nine~~six months ended ~~December~~September 3130, ~~2004~~2006, as compared to last year's similar periods. Due to the nuances of product seasonality of on-air television scheduling, sales in the third quarter are not expected to be of the same ~~period~~magnitude ~~last~~of those experienced during the first and second quarters of this fiscal year. ~~Continued~~However, ~~increases~~the indivision ~~its~~expects ~~QVC~~sales ~~home~~to ~~shopping~~that ~~business~~channel to rebound in the fourth quarter, ~~coupled~~providing ~~with~~a ~~sales~~year-over-year ~~from~~increase ~~its~~in ~~newly~~sales ~~launched~~to ~~retail~~this ~~initiatives,~~distribution ~~drove~~channel for the ~~strong increases~~year.

Stanley's net sales ~~declined~~increased 232.1% for the three months ended September 30, 2006 and 14decreased 1.59% for the ~~quarter~~six ~~and nine~~ months ended ~~December~~September 3130, ~~2004~~2006, as compared to the same periods last year. ~~The~~Recent ~~Company~~changes ~~has~~with ~~been~~product inofferings, ~~the~~coupled ~~process~~with ofindependent ~~updating~~representative ~~its 75-year-old business model and~~ compensation plan toimprovements ~~appeal~~have helped to ~~new~~reduce ~~recruits.~~the ~~Although~~decline ~~recruiting~~in ~~numbers~~sales ~~have~~from ~~been~~previous ~~improving~~quarters. However, ~~increases~~opportunities ~~have~~for ~~not~~future ~~been~~sales ~~aggressive~~growth ~~enough~~will ~~yet~~continue to ~~offset~~be ~~the~~contingent ~~attrition~~on ofattracting ~~the~~and ~~older~~retaining ~~field~~increasing ~~sales~~numbers ~~leaders.~~of ~~Utilizing~~independent ~~its~~sales ~~revamped~~representatives ~~compensation~~in ~~plan~~all ~~the~~regions ~~company~~of isthe ~~focused~~United onStates, ~~opening~~which ~~new~~may ~~field~~require ~~territories~~additional ~~in high~~incentive-~~growth~~type ~~Hispanic~~program ~~markets, but does not expect to see improvement until fiscal 2006~~offerings.

~~Cleaning Technologies Group~~CTG's ~~(CTG)~~ net sales for the ~~quarter~~three and ~~nine~~six months ended ~~declined~~September 30, 92006 increased 10.17% and 128.02%, ~~respectively,~~as ~~primarily~~compared ~~from~~to ~~slowdown~~the same periods last year. National accounts business obtained late in ~~distribution~~fiscal 2006 has contributed to the strong quarter and six month sales increases, as compared to the quarter and ~~its~~six ~~remaining~~months ~~Kmart~~ended ~~business~~September 30, 2005. ~~The~~Distribution ~~division~~account issales ~~focused~~increases onin ~~field~~both ~~development~~the first and second quarter of fiscal 2007, as compared to ~~expand~~similar periods in fiscal 2006, have also contributed to the division's overall sales growth. Traditionally, CTG's sales into the distribution ~~coverage~~business ~~and~~channel ~~has~~decline ~~added~~in ~~new~~its ~~manufacturing~~fiscal ~~representative~~third ~~agencies~~and ~~that~~fourth ~~are~~quarters, ~~currently~~putting ~~being~~pressure ~~trained~~on divisional profitability during those periods. ~~The~~However, the Company ~~believes~~does ~~that~~not ~~there~~expect ~~are~~much ~~significant~~variability ~~opportunities~~in ~~within~~its national account business during the ~~fragmented,~~remainder ~~commercial~~of ~~cleaning~~fiscal ~~market~~2007, which ifshould ~~obtained,~~help ~~could~~to ~~improve~~mitigate the ~~viability~~impact of ~~this~~the lower seasonal distribution business,. ~~and~~CTG continues to ~~seek~~pursue ~~appropriate~~other national account business opportunities to help offset overall sales variability and also remains committed in its search for business partners to strengthen its ~~competitive~~ position in the commercial cleaning marketplace.

In the Imaging Segment, net sales ~~decreased~~increased 546.05% and 827.69% for the three and ~~nine~~six months ended ~~December~~September 3130, ~~2004~~2006, ~~respectively,~~ as compared to the same ~~periods~~period in fiscal ~~2004~~2006 (~~decreased~~increased 745.70% and 1126.86%, excluding the impact of foreign currency exchange). The ~~shift~~significant ~~from~~increases ~~conventional~~for ~~film-based~~fiscal ~~to digital imaging continues to hamper the Company~~2007's ~~domestic~~second ~~medical and photographic chemistry and equipment markets with sales declines during the~~ quarter and ~~nine~~year-to-date ~~months ended December 31~~results, ~~2004~~as ~~ranging~~compared ~~from 8.7%~~ to ~~16%.~~fiscal ~~Although~~2006, were the ~~Company~~result ~~removed~~of ~~capacity in~~ the ~~U.S.~~new ~~last~~domestic ~~year~~Imaging bydistribution ~~consolidating~~business ~~manufacturing~~of ~~plants,~~photographic ~~the~~paper ~~revenue~~and ~~slide~~consumables, ~~has~~coupled with continued, tostrong ~~depress~~increases ~~profitability.~~in ~~The~~the ~~Company~~international isImaging ~~currently~~operation's ~~pursuing~~sales ~~outsource~~(see ~~manufacturing~~footnote ~~opportunities~~10 ~~within~~and ~~its~~the ~~markets~~Foreign ~~and~~Operations ~~believes~~section itof ismanagement's indiscussion ~~good~~and ~~position,~~analysis asof afinancial ~~competitive~~conditions ~~supplier~~and ~~for~~results ~~North~~of ~~America~~operations).

~~In Europe~~Domestically, the ~~shift~~Company's totraditional ~~digital,~~medical ~~coupled~~and ~~with~~photographic ~~the~~chemistry ~~strengthening~~business ofdeclined ~~the~~approximately ~~Euro~~7% ~~versus~~and ~~the~~4% ~~dollar,~~for ~~impacted~~ the ~~Company's~~three ~~operations~~and insix ~~Belgium~~months ~~and~~ended ~~Italy~~September 30, ~~and~~2006, ~~the~~as ~~markets~~compared ~~they~~to ~~sell~~similar ~~into.~~periods ~~Both~~last ~~companies~~year. ~~had~~Equipment ~~significant~~sales ~~reductions~~for inthe ~~sales~~Segment's ~~and~~domestic ~~profitability~~operation ~~for~~also ~~the~~declined ~~quarter~~approximately 19% and ~~nine~~14%, ~~months~~respectively, ofduring ~~fiscal~~those ~~2005~~periods, as compared to similar periods last year. ~~The~~However, ~~European difficulties in~~ the ~~third~~sales ~~quarter~~ of ~~fiscal~~photographic ~~2005~~paper ~~were~~and ~~offset~~consumables, ~~however,~~as ~~with~~well ~~solid~~as ~~increases~~licensed atgraphic ~~CPAC~~arts ~~Asia and CPAC Africa (See Foreign Operations discussions for international operations' results).~~

~~Despite~~chemistry added approximately $2.9 million in new revenues contributing to the ~~current~~significant ~~climate,~~increase the Segment enjoyed. Since the agreements the Company's ~~global~~entered ~~Imaging~~into ~~Segment~~during ~~believes~~the itquarter ~~can~~range ~~position~~from ~~itself~~nine months to ~~become~~two ayears ~~competitive~~in duration, ~~outsource~~the ~~private~~Company ~~label~~is ~~imaging~~not ~~chemical~~certain ~~supplier~~as to ~~major~~the ~~industry~~sustainability ~~players,~~of assales ~~they~~of ~~invest~~these ~~resources~~products in ~~digital~~future ~~technology~~periods. ~~Due~~The Company continues to discuss with the ~~strategic~~applicable ~~locations~~parties the potential of ~~its~~extending ~~worldwide~~certain ~~manufacturing~~of ~~facilities~~these agreements, ~~augmented~~but ~~with~~has anot ~~plan~~reached ~~for~~any ~~necessary~~further ~~reduction~~agreement inat ~~future,~~this ~~fixed~~time. ~~operating~~It ~~costs~~appears, ~~the~~however, ~~Company~~that ~~believes~~for the ~~Segment~~remainder ~~has~~of ~~the~~fiscal ~~potential~~2007, ~~for~~this ~~improved~~additional ~~performance~~business should help to mitigate decreases in its traditional Imaging chemistry business and continue to improve its domestic operation's profitability.

Internationally, the Segment's operations continue to enjoy strong chemistry sales, supplemented with selected sales of other Imaging products such as photographic paper and other consumable products, although the magnitude of quarter-over-quarter increases is expected to decline in the operations' third and fourth quarters. However, the agreement in Thailand between CPAC Asia and Konica Minolta Photochem Thailand (PCTH) should provide additional sales during the fourth quarter, as CPAC Asia assists PCTH in meeting their customer base's need for chemistry, as PCTH exits the business.

The Company believes that the recent distribution and licensing agreements signed demonstrate that its strategy of providing outsource opportunities to other domestic and foreign companies exiting the traditional photochemical markets is viable. Continuing to find additional non-imaging manufacturing opportunities for both its domestic and international operations is also a key component of continuing to improve the Imaging Segment's profitability.

Gross Margins

Consolidated gross margins, ~~exclusive of the Imaging restructuring charges in fiscal 2004,~~ were 4238.5% for the quarter ended ~~December~~September 3130, ~~2004~~2006, as compared to 4342.0% for the year ended March 31, ~~2004~~2006 and 4240.23% for the quarter ended ~~December~~September 3130, ~~2003~~2005, respectively.

Gross margins in the Fuller Brands Segment were 46.94% for the quarter ended ~~December~~September 3130, ~~2004~~2006, as compared to 4847.57% for the year ended March 31, ~~2004~~2006, and 4845.78% for the quarter ended ~~December~~September 3130, ~~2003~~2005, respectively. ~~Increased~~Revenue ~~raw~~increases ~~material~~in ~~costs~~CTG's ~~being~~national ~~experienced~~account inbusiness, ~~many~~coupled ofwith ~~its~~sales ~~chemical~~increases ~~and~~to ~~petroleum-based~~a ~~products~~home shopping network customer at Fuller Brush, asprovided ~~well~~increased asvolume ~~product~~in ~~mix~~the ~~fluctuations~~Segment's ~~between~~Great ~~periods~~Bend, ~~contributed~~Kansas, tomanufacturing facility, which improved gross margins at September 30, 2006 versus the ~~decline~~quarter ended September 30, 2005. ~~Increasing~~Gross ~~manufacturing~~margins ~~through-put~~for ~~through~~the quarter ended September 30, 2006 were lower than those experienced for the ~~Great~~year ~~Bend~~ended ~~facility~~March 31, is2006, adue ~~key~~to ~~factor~~the impact of lower margins in ~~maintaining~~the ~~and~~growing ~~improving~~CTG ~~gross~~business, ~~margins~~primarily in its national account business. In addition, the Segment continues to be impacted by various material cost increases, which may continue to pressure future ~~periods~~gross margins, if they are unable to be passed on to end-user customers, due to the competitive nature of many of the channels the Segment operates in.

Gross margins in the Imaging Segment, ~~exclusive of the restructuring charges in fiscal 2004,~~ were 3630.74% for the quarter ended December 31, 2004, as compared to 35.6% for the year ended March 31, 2004 and 34.5% for the quarter ended December 31, 2003, respectively. Volume increases at CPAC Asia and CPAC Africa contributed to the margin improvement, as well as realization of manufacturing efficiencies in the Segment's Norcross, Georgia, manufacturing facility. Despite the improvement, the Company believes that margins may continue to erode slightly, due to pricing pressures and declining domestic volumes. September

30, 2006, as compared to 33.8% for the year ended March 31, 2006, and 32.4% for the quarter ended June 30, 2005, respectively. The decline at September 30, 2006 in gross margins domestically was partially a result of the recently acquired distribution business where margins on photographic paper and consumables are much less than those earned on Imaging chemistry. In addition, reduced production volume of chemistry and equipment have impacted the operation's fixed production cost absorption. Internationally, despite increasing business significantly during the first six months of fiscal 2007, competitive pressures in selling Imaging chemistry in a declining market, as well as sales of lower margin consumables (such as photographic paper and batteries), have resulted in lower gross margins. The Company continues to aggressively pursue outsource non-imaging manufacturing opportunities, both domestically and internationally, to increase production throughput in its facilities.

Selling, Administrative, and Engineering Expenses

Consolidated selling, administrative, and engineering costs for the quarter ended ~~December~~September 3130, ~~2004,~~2006 ~~exclusive of the Imaging restructuring charges,~~ were 4233.03% of net sales, versus 4140.10% and 4339.37% for the year ended March 31, ~~2004~~2006 and the quarter ended ~~December~~September 3130, ~~2003~~2005, respectively.

For the Fuller Brands Segment, selling, administrative, and engineering expenses for the quarter ended ~~December~~September 3130, ~~2004~~2006 ~~were~~declined 49to 43.16% of net sales, as compared to 45.32% and 5044.49% for the year ended March 31, ~~2004~~2006 and ~~the~~ quarter ended ~~December~~September 3130, ~~2003~~2005, respectively. The ~~increase~~decrease in the ~~expense, as a~~ percentage of ~~net sales in the current quarter, as compared to March 31, 2004, is a function of increased business through the home shopping network and retail industry, which have higher~~ selling ~~costs associated with these business channels. The decrease in selling~~, administrative, and engineering ~~costs,~~expenses asto ~~a percentage of~~ net sales infor the ~~current~~second quarter of fiscal 2007, as compared to ~~the~~previous ~~third quarter of fiscal 2004~~periods, isreflects areduced ~~function~~employee ofand ~~certain~~other ~~non-recurring~~fixed ~~selling~~costs ~~and~~during ~~marketing~~this ~~expenses~~fiscal ~~incurred last~~ year, ~~prior~~as compared to ~~the~~fiscal ~~Company's~~2006 ~~entry into the retail marketplace~~periods.

In the Imaging Segment, selling, administrative, and engineering costs for the quarter ended ~~December~~September 3130, ~~2004,~~2006 ~~exclusive of the Imaging restructuring charges,~~ were 3222.73% of net sales, versus 3530.29% and 3531.13% for the year ended March 31, ~~2004~~2006 and the quarter ended ~~December~~September 3130, ~~2003~~2005, respectively. The decrease in the expense, as a percentage of net sales in the current quarter, as compared to previous periods, ~~reflects~~was ~~cost~~impacted ~~containment~~by ~~efforts~~the inlarge ~~the~~increase in domestic ~~imaging~~distribution ~~operations.~~business Induring ~~addition,~~the ~~revenues~~second ~~increased~~quarter ~~greater~~of ~~than~~fiscal ~~related~~2007, ~~selling~~with ~~and~~minimal ~~marketing~~increases ~~costs~~ in ~~CPAC~~selling, ~~Asia~~administrative, and ~~Africa,~~engineering ~~which~~expenses ~~were~~attributable ~~somewhat~~to ~~mitigated~~that bybusiness. ~~revenue~~In ~~declines~~addition, ~~exceeding~~domestic ~~expense~~and ~~containment~~international ~~efforts~~Imaging ~~in the Segment's European~~ operations. ~~The~~have ~~Company~~continued ~~will~~efforts ~~continue~~ to ~~try to~~ reduce ~~expenses~~costs ~~further~~to inimprove ~~its domestic and European subsidiaries, if revenue declines continue~~profitability.

Research and Development Expenses

Research and development expenses, as a percentage of sales, increased to 1.2% of net sales for the quarter ended December 31, 2004, as compared to 0.8% of net sales for the year ended March 31, 2004 and 0.9% for the same quarter last year. Both Segments increased expenditures slightly in an effort to improve existing product capabilities, as well as to develop new innovative products to promote in the marketplaces in which they operate.

For 2005 the Fuller Brands Segment's focus will continue developing new products to enhance its entry into the retail marketplace and growing television shopping business, stimulate recruitment efforts in its direct selling business, as well as continuing to enhance CTG's commercial 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 innovative wrap-around-programs, involving chemistry, paper, and equipment for use in domestic and overseas imaging markets. The Company stands committed to spend what is feasible to remain competitive in the mature markets they operate in.

During the quarter and six months ended September 30, 2006, corporate expenses were less than those incurred in the comparative periods of fiscal 2006, due to the absence of certain one-time expenses that occurred in fiscal 2006.

Research and Development Expenses

Research and development expenses, as a percentage of sales, were 0.8% for the quarter ended September 30, 2006, as compared to 1.0% for the year ended March 31, 2006, and the same quarter last year. The Company expects research and development expenses to remain in the 0.8% to 1.0% range through most of fiscal 2007.

In the Fuller Brands Segment, research and development priorities in 2007 will be directed towards developing new products for the retail and home shopping channel businesses, as well as enhancement of CTG's commercial cleaning product offerings, to compete in the highly-competitive janitorial sanitation business. In addition, product development of new or enhanced products for the Stanley direct selling operation will also continue to be explored, as a potential tool in attracting increasing numbers of new independent sales representatives.

In the Imaging Segment, continued effort will be placed on developing easy-to-use prepackaged, chemical formulations and innovative wrap-around-programs, which can be offered when soliciting new business or working with former competitors of the Company, as an example of its worldwide capabilities in the Imaging marketplace. The Company intends to spend what is feasible to remain competitive in its mature markets.

Net Interest Expense

Net interest expense (interest expense less interest income) decreased slightly for the quarter ended September 30, 2006, as compared to the quarter ended September 30, 2005, and increased for the six months ended September 30, 2006, as compared to the six months ended September 30, 2005, as a result of higher interest rates related to the Fuller IRB debt (interest is a variable, tax exempt rate).

Net interest expense (interest expense less interest income) decreased 12.7% and 23.4% for the quarter and nine months ended December 31, 2004, as compared to the quarter and nine months ended December 31, 2003. Lower debt levels at CPAC Europe and CPAC Asia contributed to lower interest expense, offsetting slightly lower interest income, due to reduced consolidated cash in fiscal 2005.
Income Taxes

The Company's ~~effective~~recognized ~~tax rate for the three and nine months ended December 31, 2004 was~~ a net tax ~~benefit~~expense of ~~80.9%~~$160,000 and ~~12.4%~~$358,000 ason ~~compared~~pretax toearnings ~~a net tax benefit~~ of ~~28.6%~~$1,019,854 and ~~30.5%~~$2,289,474 for the ~~three~~quarter and ~~nine~~six months ended ~~December~~September 3130, ~~2003.~~2006, ~~The~~as ~~benefits~~compared ~~recorded~~to ina ~~fiscal~~net ~~2005~~tax ~~and~~expense ~~2004 are largely a function~~ of ~~domestic tax losses~~$21,000 ~~which are available to be carried back against previously remitted federal taxes. The significant fluctuation in effective rates between fiscal 2005~~ and ~~2004 reflects the increase in CPAC Asia and CPAC Africa's earnings during the current year~~$88,000 ason ~~CPAC~~pretax ~~Asia's~~losses ~~earnings~~of ~~are largely exempt from tax~~ $(~~Asia~~192,151) ~~operates~~and ~~under a seven-year tax holiday on manufacturing operation earnings)~~$(264,221) ~~while CPAC Africa's taxable income has been offset from the utilization of net operating loss carryforwards. Tax provisions~~ for the ~~Company's~~quarter ~~other foreign operations in Belgium~~ and ~~Italy~~six ~~were~~months ~~not~~ended ~~material in fiscal 2005~~September 30, ~~due to reduced profitability of the subsidiaries~~2005.

The Company's ~~domestic~~has ~~imaging~~estimated ~~operations~~its ~~continue~~2007 annual effective tax rate on the consolidated earnings of the Company to ~~incur~~be ~~pretax~~approximately ~~losses~~15.6%. inDomestically, ~~2005~~this rate reflects the utilization of domestic net operating loss carry forwards against domestic taxable income, with an offsetting ~~year-~~adjustment to~~-date~~ ~~pretax~~the ~~income~~deferred ~~from~~tax ~~the~~asset ~~Fuller~~valuation ~~Brands~~reserve ~~Segment.~~attributable ~~While~~to the ~~Company~~NOL ~~expects~~carry ~~its~~forward. ~~combined,~~This has effectively limited the domestic ~~operations~~provision to ~~earn~~certain minimum state income intaxes, due to the ~~fourth~~existence ~~quarter,~~of ~~the~~a ~~inability~~full tovaluation ~~achieve~~allowance ~~that~~on ~~would~~the ~~impact~~Company's ~~its~~remaining ~~effective~~domestic deferred tax assets. The rate, ~~both~~also ~~due~~reflects tothe ~~limitations~~continued inutilization of CPAC Africa's net operating loss ~~carryback~~carry ~~opportunities~~forward, which reduces its taxable income and assumes certain levels of profitability of the ~~potential~~Company's ~~for~~Belgian ~~recording~~and aItalian ~~valuation~~operations, ~~reserve~~which ~~against~~will ~~its~~result ~~net~~in ~~deferred~~taxable income and overall tax ~~asset~~expense ~~position~~for the year. AtThe ~~December 31,~~valuation ~~2004,~~allowance ~~the~~against ~~Company~~CPAC ~~has~~Europe's ~~gross~~net deferred tax assets, ofrecorded ~~approximately~~in ~~$4,242,000~~the first quarter of ~~which~~fiscal $32006,~~874,000~~ ~~are~~has ~~attributable~~been adjusted to ~~domestic~~reflect ~~operations~~Belgian ~~(remaining~~taxable ~~balance~~income isin ~~attributable~~the tolast six months of fiscal 2006 and expected CPAC ~~Africa's~~Europe ~~net~~profits ~~operating~~throughout ~~loss~~fiscal ~~carryforward)~~2007. ~~Realization~~Most ofsignificantly, the ~~domestic~~rate ~~deferred~~also ~~tax~~reflects ~~assets~~the isexpiration ~~dependent~~of ~~upon~~the ~~profitable~~Company's ~~operations~~seven-year tax holiday in ~~the~~Thailand, ~~United~~which ~~States~~expires ~~during~~in ~~future~~the ~~years.~~third ~~The~~quarter ~~Company~~of ~~believes~~fiscal ~~that~~2007, ~~although~~at ~~realization~~which istime ~~not~~its ~~certain,~~taxable itincome isfor ~~more~~the ~~likely~~last ~~than~~five ~~not~~months ~~that~~of ~~such~~fiscal ~~assets~~2007 will be ~~realized,~~subject ~~following~~to a 30% statutory tax rate. However, the ~~criteria~~Company ~~specified~~has inobtained ~~SFAS~~from ~~No. 109~~Thailand's Board of Investment (BOI) new tax incentives related to a specific business expansion project, ~~"Accounting~~which ~~for~~may ~~Income~~be ~~Taxes."~~used ~~Should~~to ~~the~~offset ~~Company~~a ~~continue~~portion of future taxes owed. Due to ~~experience~~the ~~domestic~~uncertainty ~~losses~~as into when the ~~fourth~~actual ~~quarter~~expansion ofproject ~~fiscal~~will ~~2005~~be completed and ~~beyond~~generating income, orthus ~~incur~~earning athe ~~significant~~tax benefit, ~~unexpected~~the ~~impairment~~Company ordid ~~restructuring~~not ~~charge~~adjust its effective tax rate downward during fiscal 2007's second quarter, auntil ~~valuation~~realization ~~reserve~~of ~~would~~this ~~most~~benefit ~~likely~~becomes bemore ~~required~~certain. ~~Based~~It onis ~~CPAC~~possible ~~Africa~~that the Company's ~~increasing~~fiscal ~~profitability~~2007 effective rate may change in ~~fiscal~~subsequent ~~2005~~quarters, if it ~~appears~~becomes ~~likely~~probable that the ~~deferred~~Thailand tax ~~assets~~benefit ~~from their net operating loss carryforward~~ will be realized, ~~prior~~during tothis ~~its~~fiscal ~~expiration~~year.

OnFor ~~October 22, 2004,~~ the ~~"American~~second ~~Jobs~~quarter ~~Creation~~ended ~~Act of 2004" (the "Act") was signed into law. Key provisions of the Act include a temporary incentive for U.S. multinational corporations to repatriate foreign earnings~~September 30, ~~a domestic manufacturing deduction~~2005, ~~and~~the ~~international~~Company's consolidated tax ~~reforms~~expense ~~designed~~reflected ~~to improve~~ the ~~global~~recognition ~~competitiveness~~ of ~~U.S.~~a ~~businesses.~~valuation ~~The~~allowance ~~Company~~on ~~continues to evaluate~~ the ~~potential~~deferred oftax ~~repatriating~~assets ~~a portion~~ of CPAC ~~Asia's cumulative foreign earnings under the Act~~Europe, ~~but~~due ~~has not yet concluded as~~ to ~~whether~~continuing ~~any~~losses. ~~potential~~In ~~repatriation~~addition, ~~would meet~~ the ~~requirements~~domestic ~~under~~provision ~~the~~was ~~tax~~impacted ~~legislation.~~by ~~As such, the Company has~~ not ~~yet~~recording ~~determined~~tax ~~its~~benefits ~~impact~~(expenses) on ~~the~~losses ~~Company's~~(income) ~~effective~~generated ~~tax~~in ~~rate~~the ~~and deferred tax assets and liabilities~~U.S. In(other ~~accordance~~than ~~with~~minimum ~~Statement~~state ofincome ~~Financial Accounting Standards No. 109~~taxes), ~~"Accounting~~due ~~for~~to ~~Income~~continuing ~~Taxes~~losses," ~~the~~which ~~Company~~necessitated ~~will~~a ~~reflect~~valuation ~~the~~allowance ~~effects~~to ofbe ~~the~~established ~~Act, if any,~~ in ~~subsequent~~the ~~periods,~~fourth asquarter ~~part~~ of ~~its~~fiscal ~~consolidated income tax provision~~2005.

Net Income

The Company's net loss decreased approximately $765,000, as compared to the third quarter of fiscal 2004, and net income increased approximately $917,000, as compared to the nine months ended December 31, 2003 net loss. Lack of Imaging restructuring expenses and increased earnings in Africa and Asia contributed to the improved quarterly and nine-month results.

Foreign Operations

The results of operations for the Company's foreign subsidiaries, including the impacts of currency exchange, are reported on a three-month lag. Inter-company sales between foreign operations have been eliminated in discussions of year-over-year fluctuations on a U.S. dollar basis, as well as disclosures concerning amounts and percentages, with foreign currency impacts excluded.

Combined net sales for the Company's operations in Thailand, South Africa, Belgium, and Italy for the three and nine months ended in the third quarter of fiscal 2005, as compared to the same periods of the third quarter of fiscal 2004, increased approximately $167,000 or 4.5% and decreased approximately $46,000 or 0.5% (or decreased approximately $87,000 or 2.3% and decreased $948,000 or 8.9%, excluding the impact of currency exchange), respectively. For the three and nine months ended of the third quarter of fiscal 2005 CPAC Europe and Italia net sales combined decreased 7.9% and 12.7% (decreased 15.1% and 20.4%, after removing currency impact), respectively. CPAC Asia's sales increased 5.0% and 2.4% (increased 5.0% and decreased 2.1%, after removing currency impact), respectively, for the three and nine months ended of

~~the~~Net ~~third~~Income ~~quarter ended December 31, 2004. CPAC Africa experienced strong growth, as net sales increased approximately $309,000 and $731,000~~ (~~increased $234,000 and $490,000, after removing currency impact), respectively, for the three and nine months of the third quarter ended December 31, 2004.~~Loss
)

~~Combined~~The ~~pretax~~Company's ~~profits~~net ~~for~~income ~~the third quarter of fiscal 2005, prior to minority interests and equity in losses of TURA,~~ increased approximately $941,~~000 or 22.4%~~073, ~~as compared to the previous year's quarter (increased $72,~~000 orfor ~~17.0%, excluding impact of currency exchange). For~~ the ~~nine~~three months ~~ending~~ended ~~December~~September 3130, ~~2004~~2006, ~~combined pretax profits decreased $119,000 or 10.4%,~~ as compared to the ~~comparable~~to ~~period~~the ~~last~~second ~~year~~quarter ~~(decreased~~of ~~$187~~fiscal 2006,~~000~~ ordue ~~16.4%,~~largely ~~excluding~~to ~~the~~increased ~~impact~~profitability of ~~currency~~the ~~exchange).~~Imaging ~~CPAC Europe and Italia~~Segment's ~~pretax~~international ~~profits~~and ~~combined~~domestic ~~decreased~~operations, ~~approximately~~as ~~$139,000~~well ~~and~~as ~~$449,000~~profitable ~~(or~~operations ~~decreased~~in ~~approximately~~the ~~$148,000~~Fuller ~~and~~Brands' ~~$447,000,~~Segment ~~excluding~~versus ~~impact~~quarterly oflosses ~~currency~~incurred ~~exchange),~~in ~~respectively.~~Fuller ~~CPAC~~Brands ~~Africa's~~in fiscal ~~2005~~2006. ~~pretax~~For ~~income~~the ~~increased~~six ~~approximately~~months ~~$91~~ended September 30,~~000~~ ~~and $162~~2006,~~000~~ ~~(or~~net income increased ~~approximately~~ $772,~~000 and $126~~284,000, ~~after~~as ~~removing~~compared ~~currency~~to ~~impact),~~the ~~respectively,~~six ~~while~~months ~~CPAC~~ended ~~Asia's profits increased approximately $143~~September 30,~~000~~ ~~and $168~~2005,~~000~~ ~~(increased~~largely ~~approximately~~due ~~$143,000~~to ~~and~~increased ~~$134,000,~~profits ~~after~~at ~~removing~~Fuller ~~currency impact)~~Brush, ~~respectively~~CTG, ~~over~~and the ~~three~~Imaging ~~and~~Segment's ~~nine~~international ~~months ended December 31, 2003~~operations.

AsForeign disclosed in Note 4 to the Consolidated Financial Statements, the Company accounts for its 40% investment in TURA under the equity method. However, the Company's recognition of the 40% share of the losses of TURA during the first six months of fiscal 2005 effectively reduced the basis of its investment to zero. Since the Company has no obligation to fund any future losses experienced by TURA, it will not record its 40% share of TURA's equity earnings in future periods, until such time as TURA becomes profitable. Therefore, no additional equity in losses of TURA were recognized during the quarter ended December 31, 2004, as compared to the quarter ended December 31, 2003, in which the Company recognized 40% of the proportionate share of TURA's net losses, plus amortization of the excess purchase price related to the Company's investment. The nine months ended December 31, 2003 reflect 19% of TURA's losses for the first quarter, combined with 40% of TURA's losses for the second and third quarter, plus amortization of the excess purchase price related to the Company's investment.Operations

InThe ~~January~~results ~~2005,~~of ~~TURA~~operations ~~has~~for ~~restructured~~the ~~and~~Company's ~~reduced~~foreign ~~its workforce in Germany~~subsidiaries, including ~~replacing~~the ~~its~~impact ~~former~~of ~~president~~currency ~~and~~exchange, ~~terminating~~are ~~sales~~reported ~~and~~on ~~financial~~a ~~management~~three-month inlag. anInter-company ~~effort~~sales tobetween ~~reduce~~foreign ~~operating~~operations ~~losses~~have ~~and~~been ~~improve~~eliminated ~~cash~~in ~~flows.~~discussions ~~The~~of ~~Company~~year-over-year ~~has~~fluctuations ~~not~~on ~~received~~a ~~full~~U.S. ~~financial~~dollar ~~statements from TURA~~basis, ~~since~~as ~~its~~well ~~second~~as ~~quarter,~~disclosures ~~and~~concerning ~~does~~amounts ~~not believe TURA has returned to profitability at this time. Because of the continued uncertainty~~ and ~~lack~~percentages, ~~of information~~ with ~~regards~~foreign tocurrency ~~TURA's~~impacts ~~day-to day operations, the Company's representative resigned his position on TURA's supervisory board in December 2004~~excluded.

~~The~~Combined net sales for the Company's ~~has~~operations ~~exposure~~in toBelgium, ~~currency~~China, ~~fluctuations~~Italy, South Africa, and ~~occasionally~~Thailand ~~has~~for ~~utilized~~the ~~hedging~~three ~~programs~~and six months ended in the second quarter of fiscal 2007, as compared to the same period in fiscal 2006, increased approximately $1,548,000 (~~primarily~~41.1%) ~~forward~~and ~~foreign~~$2,136,000 ~~currency~~(30.6%) ~~exchange~~[increased ~~contracts~~approximately $1,421,000 (38.0%) toand ~~help~~$1,923,000 ~~minimize~~(27.5%), excluding the impact of ~~these~~currency ~~fluctuations~~exchange]. onFor ~~results~~the three and six months ended in the second quarter of ~~operations~~fiscal 2007, CPAC Europe and Italia net sales combined increased 47.6% Atand ~~December 31~~34.3%, ~~2004~~as compared to the same period in fiscal 2006 (increased approximately 45.8% and 30.0%, noexcluding ~~forward~~the ~~foreign~~impact of currency exchange). ~~contracts~~Combined ~~were~~CPAC ~~outstanding~~Asia and CPAC Imaging China's net sales increased $541,000 or 44.0% ~~The~~and ~~Company~~$748,000 ~~does~~or ~~not~~33.2% ~~hold~~(increased approximately $445,000 or ~~issue~~36.2% ~~derivatives~~and $677,000 or 30.1%, excluding the impact of currency exchange) for ~~trading~~the ~~purposes~~three and issix ~~not~~months aended ~~party~~in tothe ~~leveraged~~second ~~derivative~~quarter ~~transactions~~of fiscal 2007, as compared to fiscal 2006. OnCPAC aAfrica's ~~consolidated~~operations ~~basis~~continued strong growth, ~~foreign~~with ~~currency~~net ~~exchange~~sales ~~losses~~increasing ~~are~~$40,000 ~~included~~or in7.8% ~~income~~and $100,000 or ~~expense~~10.2% as(increased ~~incurred~~approximately $46,000 or 9.1% and ~~are~~$118,000 ~~not~~or ~~material~~12.0%, toexcluding the ~~results~~impact of ~~operations~~currency exchange), as compared to the same period in fiscal 2006.

Combined pretax profits for the three and six months ended in the second quarter of fiscal 2007, as compared to the similar period in fiscal 2006, increased approximately $412,000 or 133% and $677,000 or 173% (increased approximately $386,000 or 124.7% and $639,000 or 163.5%, excluding the impact of currency exchange). CPAC Europe and Italia pretax profits combined for the three and six months ended in the second quarter of fiscal 2007 increased approximately $328,000 and $512,000, as compared to the same period in fiscal 2006 (currency impact on combined pretax income was negligible). CPAC Africa's pretax profits increased approximately $19,000 and $38,000 (currency impact on pretax income was negligible), for the three and six months ended in the second quarter of fiscal 2007, as compared to the similar period in fiscal 2006. Combined CPAC Asia and CPAC Imaging ~~Restructuring~~China's pretax profits increased approximately $64,000 and $127,000 (increased approximately $39,000 and $103,000, excluding the impact of currency exchange), for the three and six months ended in the second quarter of fiscal 2007, as compared to the similar period in fiscal 2006.

~~During~~While ~~fiscal~~the ~~2004,~~Company's international operations for the ~~Company~~July ~~completed~~1st to September 30th 2006 period (results of the ~~shift~~operations of ~~its~~the ~~domestic~~Company's ~~manufacturing~~foreign ofsubsidiaries ~~photochemicals~~are ~~from~~consolidated ~~its~~and ~~St. Louis~~reported on a three-month lag) will show solid sales for the combined operations to be reported in the Company's third quarter of fiscal 2007, ~~Missouri~~pretax profits may be slightly less than those earned in fiscal 2006, ~~facility~~due to ~~its~~product mix issues, and other gross margin pressures. However, expected additional fourth quarter business at CPAC ~~Imaging~~Asia, ~~manufacturing~~as ~~facility~~a inresult ~~Norcross~~of their agreement with PCTH, ~~Georgia~~should result in the combined international operations having a strong fourth quarter. The ~~transfer~~Company ofcontinues to believe that the ~~manufacturing~~strong ~~fixed~~showing ~~assets,~~by asits ~~well~~international asunits is the ~~retrofitting~~result of other worldwide imaging companies reducing their presence in the ~~Georgia~~traditional ~~facility~~silver halide imaging market, enabling the Company's international subsidiaries to ~~absorb~~gain ~~this~~additional ~~production~~business. Despite the continued decline in traditional silver halide products, ~~was~~the ~~completed~~Company ~~during~~believes that in the ~~fourth~~short-term, ~~quarter~~it ofcan ~~fiscal~~operate ~~2004~~with traditional products, servicing the remaining demand throughout Europe, Africa, Asia, and Australia.

~~Related~~The toCompany ~~this~~has ~~endeavor,~~exposure ~~the~~to ~~Company~~currency ~~adopted~~fluctuations ~~SFAS~~and ~~No. 146,~~occasionally ~~"Accounting~~has ~~for~~utilized ~~Costs~~hedging ~~Associated~~programs ~~with~~(primarily ~~Exit~~forward orforeign ~~Disposal~~currency ~~Activities"~~exchange ~~and~~contracts) ~~accounted~~to ~~for~~help minimize the ~~employee~~impact ~~termination~~of ~~costs~~these ~~and~~fluctuations ~~other~~on ~~costs~~results ~~associated~~of ~~with~~operations. ~~the~~At ~~move~~September 30, ~~under~~2006, ~~its~~no ~~guidelines~~forward foreign currency exchange contracts were outstanding. The ~~total~~Company ~~expenses~~does ~~incurred~~not inhold ~~this~~or ~~project~~issue ~~were~~derivatives ~~approximately~~for ~~$1,275,000~~trading purposes and is not a party to leveraged derivative transactions. AsOn ofa ~~September 30,~~consolidated ~~2004~~basis, ~~all~~foreign ~~termination~~currency ~~benefit~~exchange ~~costs~~losses ~~and~~are ~~other~~included ~~move-related~~in ~~costs,~~income ~~accrued~~or atexpense ~~March 31,~~as ~~2004,~~incurred ~~were~~and ~~fully~~are ~~paid~~not significant to the results of operations.

The Company completed the sale of the St. Louis facility on September 27, 2004 and recorded a gain on the sale of approximately $63,000. The Company continues to lease 35,000 square feet of warehouse space in St. Louis, Missouri, under an obligation requiring monthly rental payments of approximately $14,000. The lease term contains an option, which after twelve months notification, would allow the Company to effectively terminate the lease in three years. Alternatives being explored at this time include utilizing the space as a central distribution point for both the Fuller Brands and CPAC Imaging Segments, subleasing a portion or all of the space to third parties, or negotiating a potential lease buy-out with the present landlord. The Company expects to finalize its plans with the leased facility in the next three to six months, and as such, has not recorded a lease impairment or termination expense at December 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations and acquisitions with internally generated cash flows, supplemented with outside borrowings. It believes its major source of funding in the near term will be its existing balance of cash and short-term investments supplemented with borrowings from its recently negotiated Finance Agreement. It also believes it has sufficient liquidity, domestically and internationally, to fund operations, restructurings, research and development, and capital expenditures and to make scheduled debt repayments. The Company is currently exploring various alternatives to improve cash flows, including other financial and operational initiatives. The following table summarizes CPAC, Inc.'s consolidated cash flow information (in thousands):

	For the Nine Months Ended December 31,
	For the Six Months Ended September 30,
	2004		2003
	2006		2005
Cash provided by (used in):
Operating activities	$ ~~539~~1,041		$ ~~4,086~~47
Investing activities	77(614	)	(~~3,628~~155	)
Financing activities	(~~1,201~~913	)	(~~1,752~~884	)
Currency impact on cash	(517	)	19(18	)
Net decrease in cash and cash equivalents	$ (590	)	$ (1,275	)
Net increase (decrease) in cash and cash equivalents	$ (469	)	$ (1,010	)

Net cash provided by (used in) operating activities

Consolidated ~~net~~ cash provided by operating activities ~~decreased~~increased for the ~~nine~~six months ended ~~December~~September 3130, ~~2004~~2006, asdue ~~compared~~ to the ~~nine~~increase ~~months~~in ~~ended~~net ~~December 31,~~income ~~2003,~~of ~~largely~~approximately ~~due~~$2.3 million, toreceipt anof ~~increase~~income intax ~~inventory.~~refunds ~~The~~from ~~largest~~domestic ~~increase~~tax inloss ~~inventory~~carry ~~was~~backs, ~~attributable~~and tooffset ~~Fuller,~~by ~~which~~the islarge ~~increasing~~buildup ~~levels~~in inventory, as a result of ~~its~~the ~~retail~~CPAC ~~initiative~~Imaging distribution agreements.

Net cash provided by (used in) investing activities

~~Consolidated net cash from investing activities of $77~~Property,~~000~~ ~~was provided for the nine months ended December 31~~plant, ~~2004,~~and asequipment ~~compared~~additions toof approximately $3614,~~628,~~000 ~~used~~in ~~for~~fiscal ~~the~~2007 ~~nine~~were ~~months~~higher ~~ended~~than ~~December 31,~~those ~~2003.~~experienced ~~This~~in ~~change was primarily~~ the ~~result~~first ofsix ~~the~~months ~~sale~~ of ~~the~~fiscal ~~Trebla~~2006. ~~manufacturing~~The ~~facility~~Company inanticipates ~~St. Louis~~ that ~~occurred~~property, ~~in September 2004 providing cash~~plant, ~~versus the investment in TURA~~ and ~~capital~~equipment ~~expenditures~~additions ~~related~~for to the ~~expansion~~year ofwill ~~the~~continue ~~Norcross manufacturing facility~~ to ~~absorb~~be ~~the~~less ~~relocated~~than ~~color~~its ~~photochemical~~annual ~~production from St~~depreciation. ~~Louis that used cash during the nine months ended December 31, 2003.~~

Net cash provided by (used in) financing activities

Consolidated net cash used in financing activities ~~decreased~~increased induring the ~~third~~six ~~quarter~~months ofended ~~2005~~September 30, ~~over~~2006, ~~2004~~as compared to the six months ended September 30, 2005, due to debt financing costs incurred in connection with the new HSBC Financing Agreement, offset by lower debt ~~repayments~~payments inat ~~fiscal~~CPAC ~~2005~~Europe asand ~~compared~~CPAC Africa during the period. During the quarter, the Company borrowed $1,500,000 on its domestic line of credit to ~~fiscal~~help ~~2004~~finance Imaging inventory purchases, but paid down the borrowings prior to completing its new Financing Agreement with HSBC.

The following table presents working capital information at ~~December~~September 3130, ~~2004~~2006, March 31, ~~2004~~2006, and ~~December~~September 3130, ~~2003~~2005:

	December 31, 2004	March 31, 2004	December 31, 2003
	September 30, 2006	March 31, 2006	September 30, 2005
Working capital (in thousands)	$ 3132,~~608~~132	$ 30,~~068~~039	$ 2923,~~680~~427
Working capital ratio	43.8159 to 1	43.0689 to 1	42.2864 to 1
Receivable days outstanding	4543.67 days	4746.35 days	4442.16 days
Annual inventory turns	2.76 times	2.96 times	2.98 times

~~The~~On ~~Company~~September 28, ~~amended~~2006, ~~its~~CPAC, ~~line~~Inc. of("CPAC") ~~credit~~entered ~~agreement~~into a Financing Agreement (the "Financing Agreement") with ~~Bank~~HSBC ofBusiness ~~America,~~Credit ~~N.A.~~ (~~BOA~~USA) ~~on September 27~~Inc., ~~2004~~("HSBC"), ~~with~~under ~~the~~which ~~line~~HSBC ~~maturing~~will onprovide ~~October~~up to $12 ~~31,~~million ~~2005.~~in ~~The~~Senior ~~Agreement~~Secured ~~includes~~Revolving aCredit ~~maximum~~for ~~borrowing~~a ~~capability~~period of ~~$5,000,000~~three ~~with~~years ~~interest~~from at the ~~30-day~~date ~~LIBOR~~of ~~rate~~the ~~plus~~Financing 1Agreement.~~25%~~ toThe ~~2.00%~~Financing ~~based~~Agreement onprovides ~~funded~~asset ~~debt~~based lending capabilities to ~~EBITDA~~CPAC's ~~parameters~~U.S. ~~The~~operations ~~Company~~and ~~had~~is ~~previously~~collateralized ~~extended~~by ~~its~~CPAC's $6U.2S. ~~million~~subsidiaries ~~letter~~and oftheir ~~credit~~respective ~~facility,~~assets. ~~which~~The ~~collateralizes~~Financing ~~the~~Agreement ~~Fuller~~allowed ~~Brands'~~CPAC ~~Industrial Revenue Bonds~~ to ~~October 31,~~terminate ~~2005.~~and Atreplace ~~December 31,~~its ~~2004,~~prior ~~the~~credit ~~Company~~facility ~~had~~with ~~not~~Bank ~~accessed its line~~ of ~~credit.~~America, NA.

The ~~amended~~Financing Agreement ~~requires~~allows ~~the~~up ~~Company~~ to ~~meet~~$7.5 million ~~various~~for ~~quarterly~~the ~~and~~issuance ~~annual~~of ~~debt~~Letters ~~covenants,~~of ~~including~~Credit ~~minimum~~and ~~net~~the ~~worth,~~balance ~~debt~~for ~~service~~working ~~coverage,~~capital ~~funded~~needs. ~~debt~~An toannual ~~EBITDA,~~fixed asfee ~~well~~payment asof ~~limitations~~2.0% on ~~capital expenditures, and amounts spent on acquisitions. At December 31, 2004,~~ the ~~Company~~outstanding ~~was~~Letters inof ~~compliance~~Credit ~~with~~values ~~its~~will ~~various~~be ~~quarterly loan covenants~~charged. ~~The~~Revolving ~~minimum~~Advances ~~net~~are ~~worth~~available ~~covenant~~under ~~calculation~~the isFinancing ~~measured~~Agreement onbased anupon ~~annual~~availability ~~basis. The Company has received waiver~~ of ~~the~~receivables ~~previously~~and ~~required~~inventory ~~net~~in ~~worth~~accordance ~~covenant~~with ~~amount~~computational atformulas ~~March 31,~~included ~~2005,~~and ~~subject~~defined toin ~~renegotiation of this covenant over~~ the ~~next~~Financing ~~several months~~Agreement. InInterest ~~addition,~~on ~~the~~revolving ~~Company~~advances ~~intends~~is tocharged ~~enter~~at ~~negotiations~~either ~~shortly for an extension of~~ the ~~October 31,~~U.S. ~~2005~~prime ~~line~~rate ofplus ~~credit~~0.25% ~~and~~or ~~letter~~at ofLIBOR ~~credit~~plus ~~agreement~~2.0%.

InHSBC ~~addition,~~has ~~the~~provided ~~Company's~~a ~~Asian~~Secondary ~~subsidiary,~~Letter ~~CPAC~~of ~~Asia~~Credit ~~Imaging~~under ~~Products~~the ~~Limited~~Agreement ~~has~~for a$6.5 million, ~~line~~which ofwill ~~credit~~support ~~with~~the anpreviously ~~international~~issued ~~bank~~Bank of 20America $6.2 million ~~baht~~Letter ~~(approximately~~of ~~$483~~Credit facility,~~000~~ ~~based~~which onpresently ~~the~~is ~~third~~collateralizing ~~quarter~~The ~~conversion~~Fuller ~~rate~~Brush inCompany, ~~Thailand)~~Inc. ~~Interest is payable at the bank~~'s ~~announced~~Industrial ~~prime~~Revenue ~~rate~~Bonds inuntil ~~Thailand, which was 7.75% at December~~October 31, ~~2004~~2007. ~~CPAC~~The ~~Asia~~Company ~~Imaging~~expects ~~Products~~to ~~Limited~~finalize ~~had no outstanding borrowings against~~ the ~~line~~substitution of ~~credit at~~ the ~~end of its third quarter.~~

HSBC Letter of Credit facility with the Industrial Revenue Bond's trustee, at which time the Bank of America Letter of Credit facility will be canceled. The $6.5 million HSBC Secondary Letter of Credit issued at September 30, 2006 reduces the $12 million available borrowing capacity under the Agreement. No revolving advances were outstanding under the Financing Agreement at September 30, 2006. During the second quarter and prior to entering into the Agreement with HSBC, the Company had borrowed $1,500,000 on its line of credit with Bank of America, NA. This borrowing was paid off at the time of the refinancing.

The Agreement also contains certain covenants, including a fixed rate ratio coverage, which the Company was in compliance with at September 30, 2006.

In addition, the Company's Asian subsidiary, CPAC Asia Imaging Products Limited has a line of credit with an international bank of 20 million baht (approximately $525,000 based on the second quarter conversion rate in Thailand). Interest is payable at the bank's announced prime rate in Thailand, which was 8.25% at September 30, 2006. CPAC Asia Imaging Products Limited had no outstanding borrowings against the line of credit at the end of its second quarter.

Critical Accounting Policies and Estimates

The accompanying unaudited interim financial statements and footnotes presented have been prepared by the Company and 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.

17 The Company continues to follow the critical accounting policies and estimates as disclosed in the Company's March 31, 2006 Annual Report to Shareholders in preparing the interim financial statements for the six months ended September 30, 2006. Management's assumptions and judgements have not changed significantly from that previously disclosed.

The Company continues to follow the critical accounting policies and estimates as disclosed in the Company's March 31, 2004 Annual Report to Shareholders in preparing the interim financial statements for the three and nine months ended December 31, 2004. Management's assumptions and judgements have not changed significantly from that previously disclosed.
Forward-Looking Statements

This Form 10-Q 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:

a. general economic and competitive conditions in the markets and countries in which the Company operates; b. risk inherent in international operations including, but not limited to, safeguarding of assets such as cash, inventories, and property, plant and equipment, as well as protection of other intellectual properties; c. the level of competition and consolidation within the commercial cleaning supply industry; d. the success of Fuller Brands' entry into the retail marketplace; e. the effect of changes in the distribution channels for Fuller Brands; f. the ability to increase volume through the Great Bend manufacturing plant to absorb fixed overhead; g. the success of Stanley Home Products' new direct sales strategy that involves changes to its compensation plan, product focus, and recruiting methods to attract new independent representatives; h. the level of demand for the Company's Imaging products and the impact of digital imaging; i. the ability of the CPAC Imaging Segment to become a provider of worldwide manufacturing services for other companies in the traditional imaging markets; j. the strength of the U.S. dollar against currencies of other countries where the Company operates, as well as cross-currencies between the Company's operations outside of the U.S. and other countries with which it transacts business; jk. changes in business, political and economic conditions, and the threat of future terrorist activity in the U.S. and other parts of the world and related U.S. military action; and kl. ~~changes~~costs inassociated ~~accounting~~with ~~standards~~meeting ~~promulgated by~~ the ~~Financial~~requirements ~~Accounting~~of ~~Standards~~Section ~~Board,~~404 ~~the~~of ~~Securities and Exchange Commission, or~~ the ~~American~~Sarbanes-Oxley ~~Institute~~Act of ~~Certified Public Accountants, which may require adjustments to financial statements~~2002.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There has been no material change in the Company's assessment of its sensitivity to interest rate or foreign currency risks since its disclosure in Item 7(a) of the Company's Form 10-K for the year ended March 31, ~~2004~~2006.

Item 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

~~The Company's chief executive officer and chief financial officer have informed the Board of Directors that~~CPAC, ~~based~~Inc. ~~upon their evaluations of~~ (the Company~~'s disclosure controls and procedures as of the end of the period covered by its quarterly report (Form 10-Q~~), ~~such~~maintains disclosure controls and procedures that are ~~effective~~designed to ensure that information required to be disclosed by the Company in ~~the~~ reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported on a timely basis and that such information is accumulated and communicated to management, (including the chief executive officer and the chief financial officer), as appropriate, to allow for timely decisions regarding required disclosure.

~~Changes~~ The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in ~~Internal~~Rule 13a-15(e) ~~Controls~~of the Exchange Act) as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2006.

~~Management,~~Changes ~~with the participation of the Company's chief executive officer and chief financial officer, has concluded that there were no changes~~ in ~~the~~Internal ~~Company's~~Control ~~internal~~Over ~~control~~Financial over financial reporting that occurred during the Company's third fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.Reporting

18 The management of the Company maintains a system of internal control over financial reporting that is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with GAAP. There were no changes in the Company's internal controls over financial reporting that occurred during the quarter ended September 30, 2006 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

PART II -- OTHER INFORMATION

Item 1.	Legal Proceedings. None
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds. None
Item 1A.	Risk Factors. The risk factors in Item 1A of the Company's March 31, 2006 Form 10-K have not materially changed other than as set forth below. The information presented below updates and should be read in conjunction with the risk factors discussed in that Form 10-K: Fluctuation of sales into the television home shopping network distribution channels could significantly impact future sales and profitability of the Fuller Brands Segment. Year-to-date sales and profits of the Fuller Brands Segment reflect the significance of its home shopping network distribution channel customer. During the first six months of fiscal 2007, sales increased over $859,000 to this customer, contributing to the significant improvement in results of the Segment and Company, as compared to the similar period last year. Since customer orders are somewhat conditional on planned television on-air scheduling, quarter-to-quarter fluctuations can be expected. In addition, new product development is also crucial in achieving additional television showings, as older product demand decreases over time. If the Fuller Brush division is unable to expand and grow its sales into other distribution channels, it may be unable to insulate itself from wide variability in sales and profits in future periods. This would impact sales and profitability of the overall Fuller Brands Segment.
Item 3.	Defaults Upon Senior Securities. None
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds. None
Item 4.	Submission of Matters to a Vote of Security Holders. None
Item 3.	Defaults Upon Senior Securities. None
Item 5.	Other Information. None
Item 6.	Exhibits.
	Exhibits as required by Item 601 of Regulation S-K, as applicable, are attached to this Quarterly Report (Form 10-Q). The Exhibit Index is found on the page immediately succeeding the signatures page, and the Exhibits follow on the pages immediately succeeding the Exhibit Index.
	(2) Plan of acquisition, reorganization, arrangement, liquidation, or succession -- Not applicable
	(3) (i) Articles of incorporation
	3.1	Certificate of Incorporation, as amended September 11, 1996, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1996, and further amended by Certificate of Amendment dated August 19, 1999, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1999
	(3) (ii) By-laws
	3.2	By-laws, as amended, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1998, as further amended, effective October 12, 2004, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2004
	(4) Instruments defining the rights of security holders, including indentures
	4.1	Loan Agreement dated February 9, 1994, and Letter of Commitment dated December 16, 1993, incorporated herein by reference to Form 10-K filed for period ended March 31, 1994, as amended, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1994, and amended by Letter of Extension and Increase dated October 29, 1996, incorporated herein by reference to Form 10-Q for the period ended September 30, 1996, and further amended by First Amendment to Second Amended and Restated Loan Agreement dated October 31, 1996, incorporated herein by reference to Form 10-Q for the period ended December 31, 1996, and further amended by Agreement dated September 12, 1997, incorporated herein by reference to Form 10-Q for the period ended September 30, 1997, and further amended by Second Amendment to Second Amended and Restated Loan Agreement dated July 10, 1998, incorporated herein by reference to Form 10-Q for the period ended June 30, 1998, and further amended by Agreement dated April 27, 2000, incorporated herein by reference to Form 10-K for the period ended March 31, 2000, and further amended by Third Amendment to Third Amended and Restated Loan Agreement dated August 29, 2002, incorporated herein by reference to Form 10-Q for the period ended September 30, 2002, and further amended by Second Amendment to Restated Loan and Security Agreement and Note dated September 27, 2004, incorporated herein by reference to Form 10-Q for the period ended September 30, 2004
	4.2	Bank Letter of Commitment dated May 24, 2002, incorporated herein by reference to Form 10-K filed for the period ended March 31, 2002
	(10) Material contracts
	10.1	Employment Agreement between Thomas N. Hendrickson and CPAC, Inc. dated September 30, 1995, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1995, and amended by Extension of Employment Agreement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999
	10.2	CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated herein by reference to Form S-8 Registration Statement filed on October 29, 1994, as amended and incorporated by reference to Form S-8 Registration Statements filed on October 3, 1996 and September 24, 1999
	10.3	CPAC, Inc. 1996 Nonemployee Directors Stock Option Plan, incorporated herein by reference to Form S-8 Registration Statement filed October 3, 1996, as amended and incorporated by reference to Form S-8 Registration Statements filed on November 5, 1997, November 24, 1998, September 24, 1999, September 29, 2000, September 7, 2001, November 8, 2002, November 17, 2003 and November 23, 2004

	10.4	Deferred Compensation Arrangement between Thomas N. Hendrickson and CPAC, Inc. dated October 13, 1992, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1992, and amended by Amendment to Deferred Compensation Arrangement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999, and further amended by Amendment to Deferred Compensation Arrangement dated October 25, 2001, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2001, and further amended by Third Amendment to Deferred Compensation Arrangement dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004
Item 4.	Submission of Matters to a Vote of Security Holders.
	10.5	CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 30, 1999, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1999, and amended by CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004
	The Annual Meeting of the Shareholders of the Registrant was held on August 15, 2006; and our shareholders voted on the following proposals:
	10.6	Severance Compensation Agreement between Thomas J. Weldgen and CPAC, Inc. dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004
	1. Elect Directors of the Registrant to serve until the next Annual Meeting of Shareholders and until their successors are duly elected and qualified, with votes cast as follows:
	(11) Statement regarding computation of per share earnings -- Not applicable
		Name Thomas N. Hendrickson . . . . . . . . . . . . . Robert Oppenheimer . . . . . . . . . . . . . . . . . Thomas J. Weldgen . . . . . . . . . . . . . . . . . . Jerold L. Zimmerman, Ph.D. . . . . . . . . . . . Stephen J. Carl, Esq. . . . . . . . . . . . . . . . . . José J. Coronas. . . . . . . . . . . . . . . . . . . . . . William M. Carpenter. . . . . . . . . . . . . . . .		Votes For 4,410,281 3,955,997 4,399,462 4,403,320 4,410,551 4,409,551 4,410,551		Votes Against 23,201 477,485 34,020 30,162 22,931 23,931 22,931
	(15) Letter regarding unaudited interim financial information -- Not applicable
	2. Ratify the appointment by the Audit Committee of the Board of Directors of PricewaterhouseCoopers LLP as the Independent Registered Public Accounting Firm of the Registrant for its fiscal year ending March 31, 2007, with votes cast as follows:
	(18) Letter regarding change in accounting principles -- Not applicable
	For 4,418,568		Against 11,940		Abstain 2,974
	(19) Report furnished to security holders -- Not applicable
Item 5.	Other Information. None
	(22) Published report regarding matters submitted to vote of security holders -- Not applicable
Item 6.	Exhibits.
	(23) Consent of experts and counsel -- Not applicable
	Exhibits as required by Item 601 of Regulation S-K, as applicable, are attached to this Quarterly Report (Form 10-Q). The Exhibit Index is found on the page immediately succeeding the signatures page, and the Exhibits follow on the pages immediately succeeding the Exhibit Index.
	(24) Power of attorney -- Not applicable
	(2) Plan of acquisition, reorganization, arrangement, liquidation, or succession -- Not applicable
	(31) Rule 13a-14(a)/15d-14(a) Certifications
	(3) (i) Articles of incorporation
	31.1	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Executive Officer
	3.1	Certificate of Incorporation, as amended September 11, 1996, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1996, and further amended by Certificate of Amendment dated August 19, 1999, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1999
	31.2	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Financial Officer
	(3) (ii) By-laws
	(32) Section 1350 Certifications
	3.2	By-laws, as amended, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1998, as further amended, effective October 12, 2004, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2004
	(99) Additional exhibits-- Not applicable
	(4) Instruments defining the rights of security holders, including indentures
	4.1	Rights Agreement by and between CPAC, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent, dated March 19, 1999 together with Exhibits thereto, incorporated herein by reference to Form 8-K filed on March 24, 1999
	4.2	Notice and Summary of Rights to Purchase Common Stock as sent to the Registrant's Shareholders dated February 10, 1999, incorporated herein by reference to Form 8-K filed on March 24, 1999
	(10) Material contracts
	10.1	Employment Agreement between Thomas N. Hendrickson and CPAC, Inc. dated September 20, 1995, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1995, and amended by Extension of Employment Agreement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999
	10.2	CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated herein by reference to Form S-8 Registration Statement filed on October 29, 1994, as amended and incorporated by reference to Form S-8 Registration Statements filed on October 3, 1996 and September 24, 1999
	10.3	CPAC, Inc. 1996 Nonemployee Directors Stock Option Plan, incorporated herein by reference to Form S-8 Registration Statement filed October 3, 1996, as amended and incorporated by reference to Form S-8 Registration Statements filed on November 5, 1997, November 24, 1998, September 24, 1999, September 29, 2000, September 7, 2001, November 8, 2002, November 17, 2003 and November 23, 2004

	10.4	Deferred Compensation Arrangement between Thomas N. Hendrickson and CPAC, Inc. dated October 13, 1992, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1992, and amended by Amendment to Deferred Compensation Arrangement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999, and further amended by Amendment to Deferred Compensation Arrangement dated October 25, 2001, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2001, and further amended by Third Amendment to Deferred Compensation Arrangement dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004
	10.5	CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 30, 1999, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1999, and amended by CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004
	10.6	Severance Compensation Agreement between Thomas J. Weldgen and CPAC, Inc. dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004
	10.7	CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated herein by reference to Form S-8 Registration Statement filed on August 17, 2006
	10.8	Financing Agreement dated September 28, 2006 with HSBC Business Credit (USA) Inc., incorporated herein by reference to Form 8-K filed on October 4, 2006
	(11) Statement regarding computation of per share earnings -- Not applicable
	(15) Letter regarding unaudited interim financial information -- Not applicable
	(18) Letter regarding change in accounting principles -- Not applicable
	(19) Report furnished to security holders -- Not applicable
	(22) Published report regarding matters submitted to vote of security holders -- Not applicable
	(23) Consent of experts and counsel -- Not applicable
	(24) Power of attorney -- Not applicable
	(31) Rule 13a-14(a)/15d-14(a) Certifications
	31.1	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Executive Officer
	31.2	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Financial Officer
	(32) Section 1350 Certifications
	(99) Additional exhibits -- Not applicable

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		CPAC, INC.
		(Registrant)
Date February 11, 2005	By	/s/ Thomas N. Hendrickson Thomas N. Hendrickson, President, Chief Executive Officer, Treasurer
Date November 13, 2006	By	/s/ Thomas N. Hendrickson Thomas N. Hendrickson, President, Chief Executive Officer, Treasurer
Date February 11, 2005	By	/s/ Thomas J. Weldgen Thomas J. Weldgen, Vice President Finance and Chief Financial Officer
Date November 13, 2006	By	/s/ Thomas J. Weldgen Thomas J. Weldgen, Vice President Finance and Chief Financial Officer
Date February 11, 2005	By	/s/ James W. Pembroke James W. Pembroke, Chief Accounting Officer
Date November 13, 2006	By	/s/ James W. Pembroke James W. Pembroke, Corporate Secretary and Chief Accounting Officer

EXHIBIT INDEX

Exhibit				Page
3.	(i) Articles of incorporation, By-laws
	3.1		Certificate of Incorporation, as amended September 11, 1996, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1996, and further amended by Certificate of Amendment dated August 19, 1999, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1999	N/A
3.	(ii) By-laws
	3.2		By-laws, as amended, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1998, as further amended, effective October 12, 2004, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2004	N/A
4.	Instruments defining the rights of security holders, including indentures
	4.1		Loan Agreement dated February 9, 1994, and Letter of Commitment dated December 16, 1993, incorporated herein by reference to Form 10-K filed for period ended March 31, 1994, as amended, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1994, and amended by Letter of Extension and Increase dated October 29, 1996, incorporated herein by reference to Form 10-Q for the period ended September 30, 1996, and further amended by First Amendment to Second Amended and Restated Loan Agreement dated October 31, 1996, incorporated herein by reference to Form 10-Q for the period ended December 31, 1996, and further amended by Agreement dated September 12, 1997, incorporated herein by reference to Form 10-Q for the period ended September 30, 1997, and further amended by Second Amendment to Second Amended and Restated Loan Agreement dated July 10, 1998, incorporated herein by reference to Form 10-Q for the period ended June 30, 1998, and further amended by Agreement dated April 27, 2000, incorporated herein by reference to Form 10-K for the period ended March 31, 2000, and further amended by Third Amendment to Third Amended and Restated Loan Agreement dated August 29, 2002, incorporated herein by reference to Form 10-Q for the period ended September 30, 2002, and further amended by Second Amendment to Restated Loan and Security Agreement and Note dated September 27, 2004, incorporated herein by reference to Form 10-Q for the period ended September 30, 2004	N/A
	4.2		Bank Letter of Commitment dated May 24, 2002, incorporated herein by reference to Form 10-K filed for the period ended March 31, 2002	N/A
10.	Material contracts
	10.1	Employment Agreement between Thomas N. Hendrickson and CPAC, Inc. dated September 30, 1995, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1995, and amended by Extension of Employment Agreement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999		N/A
	10.2	CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated herein by reference to Form S-8 Registration Statement filed on October 29, 1994, as amended and incorporated by reference to Form S-8 Registration Statements filed on October 3, 1996 and September 24, 1999		N/A
	10.3	CPAC, Inc. 1996 Nonemployee Directors Stock Option Plan, incorporated herein by reference to Form S-8 Registration Statement filed October 3, 1996, as amended and incorporated by reference to Form S-8 Registration Statements filed on November 5, 1997, November 24, 1998, September 24, 1999, September 29, 2000, September 7, 2001, November 8, 2002, November 17, 2003 and November 23, 2004		N/A
	10.4	Deferred Compensation Arrangement between Thomas N. Hendrickson and CPAC, Inc. dated October 13, 1992, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1992, and amended by Amendment to Deferred Compensation Arrangement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999, and further amended by Amendment to Deferred Compensation Arrangement dated October 25, 2001, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2001, and further amended by Third Amendment to Deferred Compensation Arrangement dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004		N/A
	10.5	CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 30, 1999, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1999, and amended by CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004		N/A
	10.6	Severance Compensation Agreement between Thomas J. Weldgen and CPAC, Inc. dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004		N/A
31.	Rule 13a-14(a)/15d-14(a) Certifications
	31.1	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Executive Officer		22
	31.2	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Financial Officer		23
32.	Section 1350 Certifications			24

EXHIBIT INDEX

Exhibit				Page
3.	(i) Articles of incorporation, By-laws
	3.1		Certificate of Incorporation, as amended September 11, 1996, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1996, and further amended by Certificate of Amendment dated August 19, 1999, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1999	N/A
3.	(ii) By-laws
	3.2		By-laws, as amended, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1998, as further amended, effective October 12, 2004, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2004	N/A

4.	Instruments defining the rights of security holders, including indentures
	4.1		Rights Agreement by and between CPAC, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent, dated March 19, 1999 together with Exhibits thereto, incorporated herein by reference to Form 8-K filed on March 24, 1999	N/A
	4.2		Notice and Summary of Rights to Purchase Common Stock as sent to the Registrant's Shareholders dated February 10, 1999, incorporated herein by reference to Form 8-K filed on March 24, 1999	N/A

10.	Material contracts
	10.1	Employment Agreement between Thomas N. Hendrickson and CPAC, Inc. dated September 20, 1995, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 1995, and amended by Extension of Employment Agreement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999		N/A
	10.2	CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated herein by reference to Form S-8 Registration Statement filed on October 29, 1994, as amended and incorporated by reference to Form S-8 Registration Statements filed on October 3, 1996 and September 24, 1999		N/A
	10.3	CPAC, Inc. 1996 Nonemployee Directors Stock Option Plan, incorporated herein by reference to Form S-8 Registration Statement filed October 3, 1996, as amended and incorporated by reference to Form S-8 Registration Statements filed on November 5, 1997, November 24, 1998, September 24, 1999, September 29, 2000, September 7, 2001, November 8, 2002, November 17, 2003 and November 23, 2004		N/A
	10.4	Deferred Compensation Arrangement between Thomas N. Hendrickson and CPAC, Inc. dated October 13, 1992, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1992, and amended by Amendment to Deferred Compensation Arrangement dated July 20, 1998, incorporated herein by reference to Form 10-K filed for the period ended March 31, 1999, and further amended by Amendment to Deferred Compensation Arrangement dated October 25, 2001, incorporated herein by reference to Form 10-Q filed for the period ended September 30, 2001, and further amended by Third Amendment to Deferred Compensation Arrangement dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004		N/A
	10.5	CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 30, 1999, incorporated herein by reference to Form 10-Q filed for the period ended December 31, 1999, and amended by CPAC, Inc. Nonqualified Deferred Compensation Plan dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004		N/A
	10.6	Severance Compensation Agreement between Thomas J. Weldgen and CPAC, Inc. dated December 22, 2004, incorporated herein by reference to Form 8-K filed on December 22, 2004		N/A
	10.7	CPAC, Inc. Executive Long-Term Stock Investment Plan, incorporated herein by reference to Form S-8 Registration Statement filed on August 17, 2006		N/A
	10.8	Financing Agreement dated September 28, 2006 with HSBC Business Credit (USA) Inc., incorporated herein by reference to Form 8-K filed on October 4, 2006		N/A

31.	Rule 13a-14(a)/15d-14(a) Certifications
	31.1	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Executive Officer		23
	31.2	Rule 13a-14(a)/15d-14(a) Certification of CPAC, Inc.'s Chief Financial Officer		24

32.	Section 1350 Certifications			25

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