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<SEC-DOCUMENT>0001169232-03-003373.txt : 20030501
<SEC-HEADER>0001169232-03-003373.hdr.sgml : 20030501
<ACCEPTANCE-DATETIME>20030501163253
ACCESSION NUMBER:		0001169232-03-003373
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		13
CONFORMED PERIOD OF REPORT:	20021231
FILED AS OF DATE:		20030501

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			CTI INDUSTRIES CORP
		CENTRAL INDEX KEY:			0001042187
		STANDARD INDUSTRIAL CLASSIFICATION:	FABRICATED RUBBER PRODUCTS, NEC [3060]
		IRS NUMBER:				362848943
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10KSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-23115
		FILM NUMBER:		03677223

	BUSINESS ADDRESS:	
		STREET 1:		22160 N PEPPER RD
		CITY:			BARRINGTON
		STATE:			IL
		ZIP:			60010

	MAIL ADDRESS:	
		STREET 1:		22160 N PEPPER RD
		CITY:			BARRINGTON
		STATE:			IL
		ZIP:			60010
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<FILENAME>d55197_10ksb.txt
<DESCRIPTION>FORM 10KSB
<TEXT>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
                            ANNUAL REPORT PURSUANT TO
                      SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the Fiscal Year Ended December 31, 2002

Commission File Number
      000-23115

                           CTI INDUSTRIES CORPORATION
             (Exact name of Registrant as specified in its charter)

            Illinois                                    36-2848943
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

        22160 North Pepper Road
          Barrington, Illinois                             60010
(Address of principal executive offices)                (Zip Code)

                                 (847) 382-1000
               Registrant's telephone number, including area code

Securities registered pursuant to Sections 12(b) and 12(g) of the Act:

                                                   Name of each exchange
Title of Class                                      on which registered:
- --------------                                     ---------------------

Common Stock, no par value                         NASDAQ SmallCap Market

      Check 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.

            |X| Yes |_| No

      Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated in Part III of the Form 10-KSB or any amendment to the Form 10-KSB.

      The Registrant's revenues for the fiscal year ended December 31, 2002,
were $41,236,000.

      Based upon the closing price of $5.01 per share of Registrant's Common
Stock as reported on NASDAQ SmallCap Market at April 11, 2003, the aggregate
market value of the voting stock held by non-affiliates of the Registrant was
then approximately $4,645,523 (Determination of stock ownership by
non-affiliates was made solely for the purpose of responding to the requirements
of the Form and the Registrant is not bound by this determination for any other
purpose).

      The number of shares of the Registrant's Common Stock outstanding as of
April 11, 2003, was 1,918,419 (excluding treasury shares).

      Transitional Small Business Disclosure Format (check one): |_| Yes |X| No
<PAGE>

PART I

Item No. 1 Description of Business

Business Overview

      CTI Industries Corporation is engaged in the development, manufacture,
sale and distribution of two principal lines of products:

      o     Novelty products, principally balloons, including metalized
            balloons, latex balloons, punch balls and other inflatable toy
            items.

      o     Specialty and printed films and flexible containers, for food
            packaging, specialized consumer uses and various commercial
            applications.

      The Company was organized in 1976 and initially was principally engaged in
the business of manufacturing bag-in-box plastic packaging systems. In 1978, the
Company began manufacturing metalized balloons (sometimes referred to as "foil"
balloons), balloons made of nylon based material with vacuum deposited aluminum
and polyethylene coatings. These balloons remain buoyant when filled with helium
for much longer periods than latex balloons and permit the printing of graphic
designs on the surface. They grew in popularity quickly and the Company's sales
of metalized balloons expanded rapidly during the 1980's.

      In 1985, the Company began marketing latex balloons and, in 1988, began
manufacturing latex balloons. In 1994, the Company sold its latex balloon
manufacturing equipment to a company in Mexico and entered into an arrangement
with that company to manufacture latex balloons for the Company. The Company
since has acquired majority ownership of the Mexican latex manufacturing
company.

      The Company's metalized and latex balloons and toy products are sold
throughout the United States and in 30 foreign countries through a wide variety
of retail outlets including general merchandise and drugstore chains, grocery
chains, card and gift shops, and party goods stores, as well as through florists
and balloon decorators.

      Most metalized balloons contain printed characters, designs and social
expression messages. The Company maintains licenses on numerous characters and
designs, including, for example, Peanuts(R) characters, Garfield(R), Precious
Moments(R) and Hallmark. During 2002, the Company entered into agreements with
Hallmark Cards to produce metalized balloons. The Party Express Division of
Hallmark distributes these balloons to its customers and the Company also
distributes these balloons to its distributors and customers.

      On an increasing basis over the past five years, the Company also has
engaged in the production, lamination, coating and printing of films and
provides custom film products for a variety of commercial applications. These
include (i) laminated and printed films for use in packaging applications and
(ii) completed products for customer storage applications and for packaging
applications. Revenues from this activity have grown rapidly and, during 2002,
represented 48% of total company revenue.


                                       2
<PAGE>

Background

      CTI Industries Corporation (the "Company") was incorporated as Container
Merger Company, Inc. under the laws of the State of Delaware on October 14,
1983, and changed its name to CTI Industries Corporation on August 2, 1985. A
predecessor company, Creative Technology, Inc., was organized as an Illinois
corporation on December 9, 1975 and was merged into the Company in February,
1984. On November 19, 2001, the Company was reincorporated in Illinois and is
now an Illinois corporation. CTI Balloons Ltd. ("CTI Balloons"), the Company's
wholly-owned subsidiary, was organized as a corporation under the laws of the
United Kingdom on October 2, 1996. On October 24, 1996, the Company entered into
an agreement with CTI Balloons pursuant to which all of the assets and
liabilities of the Company in its branch operation in the United Kingdom were
sold and transferred to CTI Balloons and all of the capital stock of CTI
Balloons was issued and delivered to the Company. Unless otherwise specified,
all references to the Company refer to the Company, its predecessor Creative
Technology, Inc., its wholly-owned subsidiaries, CTI Balloons, CTF
International, S.A. de C.V., and its majority-owned subsidiaries, CTI Mexico,
S.A. de C.V. and Flexo Universal, S.A. de C.V.

      In March and May of 1996, a group of investors made an equity investment
of $1,000,000 in the Company in return for 366,300 shares of Preferred Stock,
$.91 par value. Each share of Preferred Stock was entitled to an annual
cumulative dividend of 13% of the purchase price, and was convertible into one
share of Common Stock. The shares of Preferred Stock, voting separately as a
class, were entitled to elect four of the Company's directors. Members of such
investment group included Howard W. Schwan, John H. Schwan and Stephen M.
Merrick, current members of management.

      In July, 1997, the Company effected a recapitalization (the
"Recapitalization") without a formal reorganization. As part of the
Recapitalization, the Board of Directors approved the creation of Class B Common
Stock, approved a 1 for 2.6 reverse stock split on both the Common Stock and
Preferred Stock, and negotiated a conversion of all then outstanding shares of
the Company's Convertible Preferred Stock into an aggregate of 366,300 shares of
Class B Common Stock. The conversion was effective upon the closing of an
initial public offering of 575,000 shares of the Company's Common Stock on
November 5, 1997. The shares of Class B Common Stock contained rights identical
to shares of Common Stock, except that shares of Class B Common Stock, voting
separately as a class, had the right to elect four of the Company's seven
directors. Shares of Common Stock and Class B Common Stock, voting together as a
class, vote on all other matters, including the election of the remaining
directors. The recapitalization, initial public offering and related
transactions were approved by written consent of the shareholders. On July 1,
2002, all outstanding shares of Class B Common Stock, by their terms, were
converted to common stock.

      On October 15, 1999, the Company's Board of Directors approved a 1 for 3
reverse split of the Company's Common Stock and Class B Common Stock. The 1 for
3 reverse stock split became effective at the close of business on November 4,
1999, upon the approval and consent of a majority of Common and Class B Common
Stockholders voting together as a single class. As a result of the reverse stock
split, every three shares of the Company's Common Stock were reclassified and
changed into one share of the Company's Common Stock with a new par value of
$.195 per share, and every three shares of the Company's Class B Common Stock
were reclassified and changed into one share of the Company's Class B Common
Stock, with a new par


                                       3
<PAGE>

value of $2.73 per share. After the reincorporation of the Company in the State
of Illinois, the Company's Common and Class B Common Stock ceased to have any
par value.

      On December 13, 2002, the Board of Directors of the Company declared a
stock dividend of one share of Common Stock for each 5.25 shares of Common Stock
outstanding. The record date for the dividend was December 27, 2002. Except for
the elimination of par values and as otherwise indicated, share figures in this
document have been restated to reflect the stock splits and stock dividends
described above.

      During February and March, 2003, two members of management of the Company
entered into agreements with the Company pursuant to which such individuals
loaned to the Company the aggregate amount of $1,630,000 in exchange for (i) two
year notes bearing interest at 9% per annum and (ii) five year warrants to
purchase up to 163,000 shares of Common Stock of the Company at $4.87 per share
(the market price of the Company's Common Stock on the date of issuance of the
Warrants). The funds were provided to re-finance an existing loan to CTI Mexico
and Flexo Universal, the Company's Mexico subsidiaries, of $880,000 and to
provide funds for capital investment and working capital.

      Mexico Operations. The Company's latex balloons are manufactured by CTI
Mexico S.A. de C.V. ("CTI Mexico"), formerly known as Pulidos y Terminados Finos
S.A. de C.V., a Guadalajara, Mexico company engaged principally in the
manufacture of latex balloons, and commencing in March, 2003 by Flexo Universal,
S.A. de C.V. ("Flexo Universal"), also a majority owned subsidiary. In 1995, the
Company entered into an agreement with CTI Mexico under which (i) the Company
sold to CTI Mexico all of its latex balloon manufacturing equipment (for the
manufacture of decorator balloons), (ii) CTI Mexico agreed for a period of 10
years to supply balloons exclusively to the Company for sale in the United
States and Canada manufactured on such equipment and (iii) for such 10 year
period, CTI Mexico agreed to supply to the Company, exclusively in the United
States except as to two other companies, all balloons manufactured by CTI
Mexico. Commencing in 1996, CTI Mexico began manufacturing latex balloons for
the Company.

      In January, 1998, the Company and CTI Mexico entered into an agreement
whereby (i) the Company subscribed for 45% of the outstanding capital stock of
CTI Mexico for $800,000, (ii) the Company loaned to CTI Mexico $850,000, which
loan was collateralized by certain latex balloon manufacturing equipment, and
(iii) the 1995 equipment purchase agreement between the parties was cancelled
with respect to two pieces of latex balloon manufacturing equipment; this
equipment was then owned by CTI and leased to CTI Mexico. The purchase of the
capital stock was consummated in February, 1998, and the purchase price for the
capital stock was paid by (i) applying $400,000 of advances made to CTI Mexico
prior to closing and (ii) a cash payment for the balance. The $400,000 debt
owing to the Company from the 1995 acquisition was extinguished as a result of
the cancellation of the sale of the two pieces of equipment to CTI Mexico.

      In November, 1999, the Company acquired additional shares of capital stock
of CTI Mexico, resulting in the Company's ownership of approximately 72% of CTI
Mexico's total outstanding capital stock. The November, 1999 acquisition was
concluded through an agreement with a principal shareholder of CTI Mexico and
the approval of the requisite number of CTI Mexico shareholders at a
shareholders' meeting held on November 12, 1999. In the November, 1999
acquisition transaction, the Company allowed CTI Mexico to capitalize certain of
CTI


                                       4
<PAGE>

Mexico's outstanding indebtedness to the Company, amounting to approximately
$989,000, and contributed certain equipment with a total value of approximately
$855,000, in exchange for capital stock of CTI Mexico. In addition, in May of
2000 and August of 2002, the Company purchased additional shares of stock from
certain of CTI Mexico's shareholders, resulting in the Company's ownership of
approximately 98% of CTI Mexico's total outstanding capital stock.

      During 2002, the Company, through CTI Mexico, maintained two manufacturing
facilities in Guadalajara, Mexico totaling approximately 95,000 square feet of
manufacturing, office and warehouse space and operated seven latex balloon
machines.

      On February 22, 2003, the CTI Mexico effected a spin-off under Mexican law
under which a portion of the assets, liabilities and capital of CTI Mexico were
transferred to a newly-organized entity. This new entity will operate under the
name Flexo Universal, S.A. de C.V. and is owned 98% by the Company. Flexo
Universal has entered into a lease for approximately 43,000 square feet of
manufacturing, office and warehouse space in Guadalajara, Mexico and will
conduct latex balloon manufacturing, printing and packaging activities at that
location. Operations at that location commenced on March 1, 2003.

Products

      Metalized Balloons. The metalized balloon is actually composed of a base
nylon material which is coated on one side with a vacuum deposited aluminum
coating and on the other with polyethylene. Typically, the balloon film is
printed with graphic designs and messages.

      The Company manufactures over 450 balloon designs, in different shapes and
sizes, including the following:

      o     Superloons(R) - 18" balloons in round or heart shape, generally made
            to be filled with helium and remain buoyant for long periods. This
            is the predominant metalized balloon size.

      o     Ultraloons(R) - 34" balloons made to be filled with helium and
            remain buoyant.

      o     Miniloons(R)- 9" balloons made to be air-filled and sold on
            holder-sticks or for use in decorations.

      o     Card-B-Loons(R) (4 1/2") and Pixiloons(TM) (2 1/2") - air-filled
            balloons, often sold on a stick, used in floral arrangements or with
            a container of candy.

      o     Shape-A-Loons(R) - shaped balloons made to be filled with helium.

      o     Minishapes - small shaped balloons designed to be air filled and
            sold on sticks as toys or inflated characters.

      o     Walk-abouts(R) - helium filled shaped balloons with attached arms
            and legs.

      o     Smackers(R)- helium filled red lip-shaped balloons.


                                       5
<PAGE>

      o     You Name It(R) - balloons to which lettering can be attached for a
            personalized message.

      In addition to size and shape, a principal element of the Company's
metalized balloon products is the printed design or message contained on the
balloon. These designs include figures and licensed characters many of which are
well-known. The Company maintains many of its own licenses for several
characters, and, under an arrangement with Hallmark Cards Incorporated
(`Hallmark"), manufactures and distributes balloons bearing a number of
additional licensed characters. Some of these characters include Peanuts(R),
Garfield(R), Precious Moments(R), Party Express(R), Betty Boop(R), Kinka(R),
Head First(R), Hallmark Shoebox(R), Scooby Doo(R), Barbie(R), Batman(R),
Spirit(R), Nascar(R), Hotwheels(R), Major League Baseball(R), Hamtaro(R),
Justice League(R), Star Wars(R), Butt Ugly Martians(R), Madeline(R), Samurai
Jack(R), Rescue Hereos(R) and several others. See "Patents, Trademarks and
Copyrights" below.

      Latex Balloons. The Company sells a high end line of latex balloons under
the product line name Hi-Tex(R) and a standard line of latex balloons marketed
under the name Partyloons(R). The Company also manufactures toy balloon products
including punch balls and water bombs.

      Packaging Films. The Company laminates, extrusion coats and prints films
for use in packaging applications, including food packaging.

      Custom Film Products. The Company fabricates custom film products for
various commercial and industrial purposes. These now include "dunnage" bags
(inflatable film products) used in the packaging of goods and flexible
containers for the storage of clothing and personal items.

The Industries

      Metalized Balloons

      The metalized balloon came into existence in the late 1970s. During the
1980s, the market for metalized balloons grew rapidly. Initially, the product
was sold principally to individual vendors, small retail outlets and at fairs,
amusement parks, shopping centers and other outdoor facilities and functions.
Metalized balloons remain buoyant when filled with helium for extended periods
of time and they permit the printing and display of graphics and messages. As a
result, the product has significant appeal as a novelty and message item.
Metalized balloons became part of the "social expression" industry, carrying
graphics designs, characters and messages like greeting cards. In the mid-1980s,
the Company and other participants in the market began licensing character and
cartoon images for printing on the balloons and directed marketing of the
balloons to retail outlets including grocery, general merchandise and drug store
chains, card and gift shops, party goods stores as well as florists and balloon
decorators. These outlets now represent the principal means for the sale of
metalized balloons throughout the United States and in a number of other
countries.

      Metalized balloons are sold in the United States and in Europe, several
countries in the Far East, Canada and to an increasing extent in Latin America.
The United States, however, is by far the largest market for these products.


                                       6
<PAGE>

      There are presently at least six manufacturers of metalized balloons whose
products are sold in the United States. Five of these companies maintain their
own production facilities in the United States. Several companies market and
sell metalized balloons designed by them and manufactured by others for them.

      Metalized balloons are marketed in the United States and foreign countries
through wholesalers or distributors and directly to retail customers. Often the
sale of metalized balloons by the wholesalers/distributors is accompanied by
related products including latex balloons, floral supplies, candy containers,
mugs, plush toys, baskets and a variety of party goods. Although the latex
balloon market overlaps the metalized balloon market, the latex balloon market
has been in existence for a longer period than metalized balloons and extends to
more customers and market categories than metalized balloons.

      Latex Balloons

      There are several latex balloon product lines: (i) high quality decorator
balloons, (ii) standard novelty balloons; (iii) printed balloons and (iv) toy
categories. The high quality decorator balloons are generally sold to and
through balloon decorators and are generally of higher quality and price than
the standard line of balloons. The standard line of balloons is sold widely in
retail stores including many of the same outlets as metalized balloons. Printed
latex balloons are sold both in retail outlets and for balloon decoration
purposes including floral designs. "Toy" balloons include novelty balloons sold
in toy departments or stores, punch balls, water bombs and other specialty
designs.

      Latex balloons are sold through many of the same outlets as metalized
balloons including grocery, general merchandise and drug store chains, card and
gift shops, party goods stores, florists and balloon decorators. Latex balloons
are sold in retail stores in packaged form as well as inflated. Also, certain
latex items are sold in retail stores, generally in packaged form, as toy items.

      There are at least seven manufacturers of latex balloons whose products
are sold in the United States.

      Printed and Specialty Films

      The industry and market for printed and specialty films is highly
fragmented and includes many participants. There are literally hundreds of
manufacturers of printed and specialty film products in the United States and in
other markets. In many cases, companies produce films and film packages for the
packaging of products manufactured and sold by those companies. Many of these
film products are utilized for packaging of a variety of goods, including foods.
Films are utilized for a wide variety of specialized uses - including for
medical applications, "dunnage" in packages and containers for consumer and
other uses.

      The total volume of products manufactured and sold in this industry is
estimated to be well in excess of $3 billion.


                                       7
<PAGE>

Marketing, Sales and Distribution

      The Company markets and sells its metalized balloon, latex balloon and
related novelty products throughout the United States and in over 30 foreign
countries. The Company maintains a marketing, sales staff and support staff of
10 individuals and a customer service department of 7 individuals. European
sales are conducted by CTI Balloons, the Company's subsidiary located in Rugby,
England. CTI Mexico and Flexo Universal conduct sales and marketing activities
for the sale of balloon products in Mexico, Latin America, and certain other
markets. Sales in other foreign countries are made generally to distributors in
those countries and are managed at the Company's principal offices.

      The Company sells and distributes its products principally through a
network of approximately 600 distributors and wholesalers situated throughout
the United States and in a number of foreign countries. These distributors and
wholesalers are engaged principally in the sale of balloons and related products
(including such items as plush toys, mugs, containers, floral supplies and other
items). These distributors and wholesalers, in turn, sell balloons and related
products to retail outlets including grocery, general merchandise and drug store
chains, card and gift shops, party goods stores as well as florists and balloon
decorators. Most sales are on an individual order basis.

      The Company also sells balloons and related products to certain retail
outlets including some chain stores. The Company's largest chain store customer
is Eckerd Drug Stores.

      In March, 2002, the Company entered into an arrangement with Hallmark,
under which the Company agreed to produce metalized balloons for the Party
Express Division of Hallmark incorporating designs provided by Party Express as
well as licensed character designs under licenses held by Hallmark. Under the
arrangement, the Company is also entitled to market and sell balloons
incorporating these designs to its other customers. During 2002, sales to
Hallmark were $5,111,000 or 12.4% of the Company's total sales revenue.

      The Company engages in a variety of advertising and promotional activities
to promote the sale of its balloon products. Each year, the Company produces a
complete catalog of its balloon products, and also prepares various flyers and
brochures for special or seasonal products, which are disseminated to thousands
of customers, potential customers and others. The Company participates in
numerous trade shows for the gift, novelty, balloon and other industries and
advertises in a number of trade and other publications. The Company also attends
licensing shows for the purpose of seeking out additional design licenses.

      The Company markets and sells its printed and laminated films and
converted film products directly and through independent sales representatives.
The Company markets these products to companies which package their products in
plastic wrapping, in particular food products such as candies and coffee. The
Company markets its custom film products, including its "dunnage" bags
(inflatable film products) directly. During the 2002 fiscal year, the Company
sold such products to five principal, and a number of smaller customers. One
customer represented 29% ($12,086,000) of the Company's total sales revenue in
2002 and another represented 17% ($7,000,000) of total sales revenue.


                                       8
<PAGE>

Manufacturing

      Production and Operations.

      At its Barrington, Illinois headquarters, the Company owns and operates a
modern facility. The facility includes converting machines of the Company's own
design and construction which fabricate metalized balloons and packaging bags.
These production systems include a patented system for the production and
insertion of valves in balloons. These machines have the capacity to manufacture
in excess of 60 million 18" balloons annually.

      The Company owns and operates equipment for the development of films and
plates utilized in the printing of films for metalized balloons and packaging
films. The Company owns and operates one state of the art high-speed eight color
press and two six color presses at its facility in Barrington, Illinois. The
Company's utilizes a water-based ink process for printing.

      The Company owns and operates one extrusion coating and lamination machine
and one solventless laminator to produce films for use in metalized balloons,
packaging films and specialty film products. A new extrusion coating and
laminating machine was acquired in 1999 and the laminator was acquired in 2002.
This equipment significantly increased the Company's production capacity and
capabilities.

      The Company maintains a graphic arts and development department which
designs its balloon products and graphics. The Creative Department operates a
networked, computerized graphic arts system for the production of these designs
and of printed materials including catalogues, advertisements and other
promotional materials.

      The Barrington facility also includes a computerized customer service
department which receives and fulfills over 60,000 orders annually.

      The Company maintains a finished goods inventory of all balloon products
at the Barrington facility and provides fulfillment for orders throughout the
United States and in a number of foreign countries.

      CTI Mexico and Flexo Universal. Through CTI Mexico and Flexo Universal,
the Company operates several facilities in Guadalajara, Mexico, comprising, in
2002, approximately 95,000 square feet of production, warehouse and office
space. At these locations, the Company produces all of its latex balloon
products and also prints and packages latex balloons. During 2002, CTI Mexico
owned and operated, or leased, seven latex balloon manufacturing machines, two
high-speed latex printing machines and several other latex printing machines.
Balloon products are warehoused at these facilities and order fulfillment is
provided for Mexico and Latin America, as well as to the United States and
United Kingdom facilities of the Company. CTI Mexico, and now Flexo Universal,
also conduct sales and marketing activities for the sale of balloon products in
Mexico, Latin America and certain other markets.

      CTI Balloons Ltd. Through its wholly-owned subsidiary, CTI Balloons Ltd,
the Company conducts a warehouse, fulfillment and sales operation in Rugby,
United Kingdom. Sales and fulfillment for all of the United Kingdom, Europe and
the Middle East are conducted from this facility.


                                       9
<PAGE>

Competition

      The balloon and novelty industry is highly competitive, with numerous
competitors. There are presently six principal manufacturers of metalized
balloons whose products are sold in the United States including Anagram
International, Inc., Pioneer Balloon, Convertidora International, Barton
Enterprises and Betallic. Several companies, including American Greetings,
Amscan Holdings, Inc. and Flowers, Inc., market and sell metalized balloons
designed by them and manufactured by others for them. In 1998, Anagram
International, Inc. was acquired by Amscan and in 2000 M&D Balloons was acquired
by American Greetings. During 2002, Amscan completed the purchase of M&D
Balloons from American Greetings.

      There are at least seven manufacturers of latex balloons whose products
are sold in the United States. The market for film packaging and custom products
is fragmented, and competition in this area is difficult to gauge. However,
there are numerous participants in this market and the Company can expect to
experience intense quality and price competition.

      Many of these companies offer products and services which are the same or
similar to those offered by the Company and the Company's ability to compete
depends on many factors within and outside its control. There are a number of
well-established competitors in each of the Company's product lines, several of
which possess substantially greater financial, marketing and technical resources
and established, extensive, direct and indirect channels of distribution for
their products and services. As a result, such competitors may be able to
respond more quickly to new developments and changes in customer requirements,
or devote greater resources to the development, promotion and sale of their
products and services than the Company. Competitive pressures include, among
other things, price competition, new designs and product development and
copyright licensing.

Patents, Trademarks and Copyrights

      In connection principally with its metalized balloon business, the Company
has developed or acquired a number of intellectual property rights which are
significant to its business.

      Copyright Licenses. The most significant of these rights are licenses on a
number of popular characters. The Company presently maintains approximately 22
licenses and produces balloon designs utilizing the characters covered by the
licenses. Licenses are generally maintained for a one or two year term, although
the Company has maintained long term relationships with several of its licensors
and has been able to obtain renewal of its license agreements with them.

      Trademarks. The Company is the owner of 21 registered trademarks in the
United States relating to its products. Many of these trademarks are registered
in foreign countries, principally in the European Community.

      Patent Rights. The Company is the owner of, or licensee under, several
patents. These include (i) ownership of two patents, and a license under a
third, relating to self-sealing valves for metalized balloons and methods of
making balloons with such valves, (ii) a patent on a combination of a greeting
card and balloon connected by a ribbon contained in single package, (iii) a
patent on a method of inserting and affixing a zipper-closure system in a bag,
and (iv) various metalized balloon design patents, including various shapes for
Valentine's Day, Halloween and birthday parties.


                                       10
<PAGE>

Research and Development

      The Company maintains a product development and research department of 7
individuals for the development or identification of new balloons and related
products, product components and sources of supply. Research and development
includes (i) creative product development, (ii) creative marketing, and (iii)
engineering development. During the fiscal years ended December 31, 2001 and
December 31, 2002, the Company estimates that the total amount spent on research
and development activities was approximately $325,000 and $333,000,
respectively.

Employees

      As of December 31, 2002, the Company had 246 full-time employees in the
United States, of whom 18 are executive or supervisory, 10 are in sales, 188 are
in manufacturing and 30 are clerical. As of that same date, the Company had 13
full-time employees in England, of whom one is executive or supervisory, 4 are
in sales, 6 are in warehousing and 2 are clerical. In Mexico, as of December 31,
2002, the Company had 213 full-time employees, of whom 6 are executive or
supervisory, 4 are in sales, 187 are in manufacturing and 16 are clerical. The
Company is not a party to any collective bargaining agreement in the United
States, has not experienced any work stoppages and believes that its
relationship with its employees is satisfactory.

Regulatory Matters

      The Company's manufacturing operations are subject to the U.S.
Occupational Safety and Health Act ("OSHA"). The Company believes it is in
material compliance with OSHA. The Environmental Protection Agency regulates the
handling and disposal of hazardous materials. As the Company's printing
operations utilize only water-based ink, the waste generated by the Company's
production process is not deemed hazardous. The Company believes it is in
material compliance with applicable environmental rules and regulations. Several
states have enacted laws limiting or restricting the release of helium filled
metalized balloons. The Company does not believe such legislation will have any
material effect on its operations.

Item No. 2 Description of Property

      The Company owns its principal plant and offices located in Barrington,
Illinois, approximately 45 miles northwest of Chicago, Illinois. The facility
includes approximately 75,000 square feet of office, manufacturing and warehouse
space.

      In August, 1998, the Company purchased a building that is adjacent to its
principal plant and offices. This facility includes approximately 29,000 square
feet of combined office and warehouse space. In November, 1999, the Company sold
this building to a related party, and entered into a 10 year lease for the
building at a monthly rental cost of $17,404.

      The Company also leases approximately 15,000 square feet of office and
warehouse space in Rugby, England at an annual lease cost of $51,700, expiring
2013. This facility is utilized for product packaging operations and to manage
and service the Company's operations in England and Europe.


                                       11
<PAGE>

      During 2002, CTI Mexico, the Company leased four buildings with
approximately 95,000 total square feet of production, warehouse and office space
in Guadalajara, Mexico. One plant, consisting of three buildings, is occupied at
a monthly lease rate of $5,500, and the other plant, consisting of one building,
has a three-year lease at a monthly lease rate of $4,500. In January 2003, Flexo
Universal entered into a 5 year lease agreement for the lease of approximately
43,000 square feet of manufacturing, warehouse and office space at the cost of
$17,000 per month.

Item No. 3 Legal Proceedings

      On September 5, 2002, Byrne Sales Associates, Inc. filed an action against
the Company for breach of contract in the Circuit Court of Jefferson County,
Wisconsin claiming as damages the amount of $150,805. In the action, the
plaintiff alleges that certain products manufactured by the Company and sold to
the plaintiff were defective. The Company has filed a responsive pleading in
this action denying the allegations contained in the Complaint. Management of
the Company believes the claims in the action are without merit in fact or law
and intends to vigorously defend the action. Due to the preliminary stage of
this action, neither an evaluation of the outcome or a range of probable loss
can be made.

In addition, the Company is also party to certain lawsuits arising in the normal
course of business. The ultimate outcome of these matters is unknown, but in the
opinion of management, the settlement of these matters is not expected to have a
significant effect on the future financial position or results of operations of
the Company.

Item No. 4 Submission of Matters to a Vote of Security Holders

Not Applicable.

PART II

Item No. 5 Market for Registrant's Common Equity and Related Stockholder Matters

      Market Information. The Company's Common Stock was admitted to trading on
the NASDAQ SmallCap Market under the symbol CTIB on November 5, 1997. Prior to
that time, there was no established public trading market for the Company's
Common Stock.

      The high and low sales prices for the last eight fiscal quarters
(retroactively adjusted to reflect post-reverse split share and stock dividend
values), according to the NASDAQ Stock Market's Stock Price History Report,
were:

                                                             High     Low
                                                             -------------

      January 1, 2001 to March 31, 2001                      2.07      .87
      April 1, 2001 to June 30, 2001                         1.68     1.10
      July 1, 2001 to September 30, 2001                     1.68     1.39
      October 1, 2001 to December 31, 2001                   1.68     1.13
      January 1, 2002 to March 31, 2002                      1.55     1.30
      April 1, 2002 to June 30, 2002                         6.26     1.52
      July 1, 2002 to September 30, 2002                     4.47     2.05
      October 1, 2002 to December 31, 2002                   6.90     2.23

      As of March 20, 2003, there were approximately 44 holders of record of the
Company's Common Stock. It is estimated that there are in excess of 300
beneficial owners of the Company's Common Stock.


                                       12
<PAGE>

      The Company has never paid any cash dividends on its Common Stock and does
not currently intend to pay cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain all its earnings to
finance the development and expansion of its business. Under the terms of its
current loan agreement, the Company is restricted from declaring any cash
dividends or other distributions on its shares unless certain minimum financial
performance levels are maintained. The Company expects it to be likely that it
will be required to agree to restrictions on the payment of dividends or other
distributions in connection with future financings, if any.

      Recent Sales of Unregistered Securities

      In June, 1999, the Company issued a note to John C. Davis, a former
director and officer, for $150,000 with a maturity of February 28, 2001,
replacing an existing note in that amount. Mr. Davis' June, 1997, warrant to
purchase up to 19,078 shares of the Company's Common Stock at an exercise price
of $7.86 per share was cancelled in September, 1999, and a new warrant to
purchase up to 19,078 shares of the Company's Common Stock at an exercise price
of $1.418 per share, with an expiration date of June 30, 2003, was issued in its
place. Mr. Davis' June, 1999, Note was paid in full by the Company in February,
2001.

      In June, 1999, notes of the Company to Howard W. Schwan, John Schwan, and
Stephen Merrick in the amounts of respectively, $50,000, $350,000 and $315,000,
came due. On November 9, 1999, new notes in the same principal amounts were
issued to Messrs. H. Schwan, J. Schwan and Merrick, in payment and replacement
of the prior notes with maturity dates for each of November 9, 2001. In
November, 1999, the June, 1997 warrants of Messrs. H. Schwan, J. Schwan and
Merrick to purchase up to (respectively) 6,359, 44,515 and 40,063 shares of the
Company's Common Stock at an exercise price of $7.86 per share were cancelled.
At that time, new warrants to purchase up to 35,263, 246,840 and 222,157 shares
of the Company's Common Stock at an exercise price of $1.418 per share were
issued to Messrs. H. Schwan, J. Schwan and Merrick, respectively. Each of these
warrants were exercised on June 3, 2002. The respective $50,000, $350,000 and
$315,000 notes were cancelled and used as payment for the warrant shares.

      The 1999 notes and 1999 warrants issued to Messrs. Davis, H. Schwan, J.
Schwan and Merrick were issued in a private offering which was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended, as a
transaction not involving a public offering as all participants were
sophisticated investors who had access to information about the Company.

      In July, 2001, the Company issued warrants to purchase up to 79,364 shares
of the Company's Common Stock to John H. Schwan and 39,683 shares of the
Company's Common Stock to Stephen M. Merrick. The warrants were issued in
consideration of Mr. Schwan and Mr. Merrick each personally guaranteeing and
securing loans to the Company in the amount of approximately $1,600,000. The
warrants are exercisable for a period of five years at a price of $1.50 per
share.

      On December 12, 2002, Messrs. John Schwan, Howard Schwan and Stephen
Merrick exercised warrants to purchase 24,572, 30,525 and 28,780 shares of the
Company's Common Stock, respectively. In each instance, the warrant holder
tendered shares of the Company's Common Stock already owned by him as full
payment for the warrant shares. The shares


                                       13
<PAGE>

tendered as payment were valued at the per share closing price for the Company's
Common Stock on the date of exercise.

      During February, 2003, John H. Schwan loaned $930,000 to the Company and
Stephen M. Merrick loaned $700,000 to the Company, each in exchange for (i) two
year promissory notes bearing interest at 9% per annum and (ii) five year
warrants to purchase up to 163,000 shares of Common Stock of the Company at
$4.87 per share, the market price of the Common Stock on the date of the
Warrants. The proceeds of these loans were to (i) re-finance the bank loan of
CTI Mexico in the amount of $880,000 and (ii) to provide financing for CTI
Mexico and Flexo Universal.

Item No. 6 Management's Discussion and Analysis of Financial Condition and
Results of Operations

General

      The Company's December 31, 2001 financial statements have been restated,
as further discussed in Amendment No. 1 to the Company's 2001 Form 10KSB.

      The following table sets forth selected financial data of the Company for
the years ended December 31, 2002 and December 31, 2001 (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                                  Year ended            Year ended
                                                                 December 31,          December 31,
                                                                     2002                  2001
                                                                 ----------------------------------
<S>                                                              <C>                   <C>
Consolidated Statement of Operations Data:
Net sales                                                        $    41,236           $    27,446
Cost of sales                                                         32,344                19,835
                                                                 ---------------------------------

Gross profit                                                           8,892                 7,611

Operating Expenses:
  General and administrative                                           4,225                 3,702
  Selling                                                              1,551                 1,760
  Advertising                                                          1,671                 1,133
                                                                 ---------------------------------

Total operating expenses                                               7,447                 6,595
                                                                 ---------------------------------

Operating income                                                       1,445                 1,016

Other expense                                                         (1,110)               (1,030)
                                                                 ---------------------------------

Income (loss) before income taxes and minority interest                  335                   (14)

Income tax expense                                                       (39)                 (277)
                                                                 ---------------------------------

Income (loss) before minority interest                                   296                  (290)

Minority interest in loss of subsidiary                                    6                    58
                                                                 ---------------------------------

Net income (loss)                                                $       302           $      (232)
                                                                 =================================

Net income (loss) applicable to common shares                    $       302           $      (232)
                                                                 =================================

Net income (loss) per share:
  Basic                                                          $      0.18           $     (0.19)
                                                                 =================================
  Diluted                                                        $      0.16           $     (0.19)
                                                                 =================================

Weighted average number of common and
  common equivalent shares outstanding:
  Basic                                                            1,688,384             1,511,958
                                                                 =================================
  Diluted                                                          1,884,405             1,511,958
                                                                 =================================
</TABLE>


                                       14
<PAGE>

Results of Operations

      Net Sales. The Company generates revenue from the sale of three product
lines - metalized balloons, latex balloons and laminated and printed films. All
of the production and revenues for printed and laminated films are generated in
the Company's plant in Barrington, Illinois and virtually all of those sales are
made to domestic U.S. customers. Latex balloons are produced for the Company by
CTI Mexico at its plants in Guadalajara. CTI Balloons sells latex balloons (i)
to the Company for resale in the U.S., (ii) in the domestic Mexico market, (iii)
to CTI Balloons, Ltd (the Company's UK subsidiary) for resale in the United
Kingdom and some other markets in Europe and the Middle East and (iii) to
various other customers in Latin America and other countries. All of the
metalized balloons of the Company are manufactured by the Company in Barrington,
Illinois. The Company sells metalized balloons (i) to domestic U.S. customers,
(ii) to international customers, (iii) to CTI Mexico for resale in Mexico and
(iv) to CTI Balloons, Ltd. for resale in the United Kingdom and Europe.

      For the fiscal year ended December 31, 2002, consolidated revenues from
the sale of all products were $41,236,000, compared to consolidated revenues of
$27,446,000 for the year ended December 31, 2001, an increase of 50%. This
increase in revenues is the result principally of (i) a 72% increase in sales of
printed and laminated films from 11,438,000 in 2001 to 19,621,000 in 2002 and
(ii) a 61% increase in sales of metalized balloons from $10,155,000 in 2001 to
$16,392,000 in 2002. These sales revenues increases are attributable principally
to increases in sales to three principal customers. Sales in 2002 to these three
customers were as follows: (i) $12,086,000, or 29% of total revenues to a
customer for consumer storage bags, (ii) $7,000,000 representing 17% of total
sales to a customer for packaging films and (iii) $5,111,000, representing 12.4%
of total sales, to a customer for metalized balloons. For the fiscal year 2002,
on a consolidated basis, metalized balloons represented 40% of sales, laminated
and printed films 48% of sales and latex balloons 12% of sales. During fiscal
2001, metalized balloons represented 37% of sales, laminated and printed films
44% of sales and latex balloons 19% of sales.

      Sales and selected financial information on a geographic basis for 2001
and 2002 are set forth below:

<TABLE>
<CAPTION>
                          United States     United Kingdom        Mexico         Eliminations        Consolidated
<S>                       <C>                 <C>              <C>                <C>                <C>
Year ended 12/31/01
Revenues                  $ 24,707,000        $1,672,000       $ 5,940,000        $(4,873,000)       $ 27,446,000
Operating income             1,089,000            67,000           128,000           (268,000)          1,016,000
Net income (loss)             (105,000)           50,000            47,000           (224,000)           (232,000)
Total Assets              $ 20,355,000        $  620,000       $ 5,785,000        $(2,096,000)       $ 24,664,000

Year ended 12/31/02
Revenues                  $ 37,418,000        $1,966,000       $ 5,235,000        $(3,383,000)       $ 41,236,000
Operating income             1,260,000            69,000           212,000            (96,000)          1,445,000
Net income (loss)              452,000            40,000           (99,000)           (91,000)            302,000
Total Assets              $ 26,311,000        $  980,000       $ 4,983,000        $(2,002,000)       $ 30,272,000
</TABLE>

(1)   All intercompany transactions are eliminated for consolidated information.

(2)   The United Kingdom facility is a warehouse and sales operation marketing
      and selling products manufactured in the United States and Mexico.

      Cost of Sales. For fiscal 2002, cost of sales increased to 78.4% of net
sales compared to 72.3% of net sales for fiscal 2001. In fiscal 2002, profit
margins on metalized balloons, latex balloons and laminated and printed film
were 24.3%, 17.5% and 27.5%, respectively, compared


                                       15
<PAGE>

to margins on the same product lines for 2001 of 27.1%, 14.1% and 33%. The
reduction in margins with respect to metalized balloons in 2002 is attributable
principally to sales of balloons to one significant customer at prices and
margins lower than other customers. Also, the Company experienced higher than
normal production costs during the second half of 2002 arising from the
installation of new equipment and the need to respond to large volume
requirements. With respect to laminated and printed films, the reduction in
margins during 2002 is attributable principally to (i) greater allocation of
production overhead costs to this product line, (ii) an increase in resin costs
and (iii) increased costs associated with the installation and operation of new
equipment.

      General and Administrative. For fiscal 2002, administrative expenses were
$4,225,000, or 10.2% of net sales, as compared to $3,702,000 or 13.5% of net
sales for fiscal 2001. The increase in administrative expenses is attributable
to increases in personnel and compensation, insurance premiums, litigation
settlement costs, audit expenses, consulting fees and travel expenses. In June,
2002, the Company entered into a settlement agreement of pending litigation,
incurring an expense of $105,000.

      Selling. For fiscal 2002, selling expenses were $1,551,000 or 3.8% of net
sales compared to $1,760,000, or 6.4% of net sales for fiscal 2001. The decline
in selling expense resulted from reductions in several expense items including
royalty payments and commissions.

      Advertising. For fiscal 2002, advertising and marketing expenses were
$1,671,000 or 4.1% of net sales, compared to $1,133,000 or 4.1% of sales for
fiscal 2001. The increase is attributable principally to the expense of
additional personnel and compensation expenses.

      Other Expense. For fiscal 2002, interest expense and loan fees totaled
$832,000. For fiscal 2001, interest expense was $1,126,000. The reduction in
interest expense is attributable principally to lower applicable interest rates.
The Company had currency exchange losses during 2002 of $281,000 compared to
currency gains during fiscal 2001 of $89,000.

      Net Income or Loss. For the fiscal year ended December 31, 2002, the
Company had income before taxes and minority interest of $335,000 compared to a
loss before taxes and minority interest for fiscal 2001 of $14,000. The net
income for fiscal 2002 was $303,000 compared to a net loss for fiscal 2001 of
$232,000.

      Income Taxes. For the fiscal year ended December 31, 2002, the Company had
income tax expense of $39,000 compared to an income tax expense of $277,000 for
fiscal 2001. The amount of the income tax expense recognized by the Company for
both 2002 and 2001 reflects adjustments in deferred tax assets and other items
arising from the operating results of the Company for each year.

      Contracts with foreign suppliers are stated in U.S. dollars and the
Company is not subject to currency rate fluctuations on these transactions. The
effect of currency rate fluctuations on intercompany transactions with the
Company's England subsidiary and Mexico subsidiary has not been material. As a
result, the Company has not hedged against currency rate fluctuations.


                                       16
<PAGE>

Financial Condition

      Cash Flow From Operations. Cash flow provided by operations for the fiscal
year ended December 31, 2002 was $3,039,000. In addition to earnings, the funds
provided resulted principally from increases in accounts payable of $3,910,000
and in depreciation and amortization of $1,588,000, offset by increases in
accounts receivable of $1,075,000 and in inventory of $1,965,000. Cash flow
generated by operations for the fiscal year ended December 31, 2001, was
$624,000.

      Cash Used in Investing Activities. During fiscal 2002, the Company
invested $2,478,000 in machinery and equipment. During fiscal 2001, the Company
invested $1,002,000 in machinery and equipment.

      Cash From Financing Activities. Cash used in financing activities during
fiscal 2002 was $513,000. The cash used in financing activities was principally
to pay down the credit facility. During fiscal 2001, cash flow provided by
financing activities was $102,000.

      In January, 2001, the Company entered into a Loan and Security Agreement
with an institutional lender under which the lender has provided the Company
with a credit facility in the amount of $9,500,000, collateralized by equipment,
inventory, receivables and other assets of the Company. The credit facility
includes a term loan of $1,426,000, at an interest rate of prime plus 0.75% per
annum, which is based upon the appraised value of the equipment of the Company
and a revolving line of credit at an interest rate of prime plus 0.5% per annum,
the amount of which is based on advances of up to 85% of eligible receivables
and up to 40% of the value of the Company's inventory. In 2002, the lender
advanced additional funds on the original term loan in the amount of $490,880
and advanced a second term loan in the amount of $1,740,000 and increased the
credit facility to $11,500,000. The term loans and revolving line of credit are
secured by substantially all assets of the Company. The term of this credit
facility is for a period of three years expiring on January 31, 2004, which may
be extended by either party for an additional year.

      Also in January, 2001, another bank loaned to the Company the sum of
$2,873,000 in a refinance of the Company's principal office building and
property situated in Barrington, Illinois. This loan is secured by this building
and property, and has been made in the form of two notes: one note is in the
principal amount of $2,700,000, bears interest of 9.75% per annum, and has a
term of five years with a 25 year amortization, and the second note is in the
principal amount of $173,000, bears interest at 10% per annum, and has a term of
three years.

      Cash and cash equivalents. The Company's cash management strategy includes
maintaining limited cash balances and utilizing the revolving line of credit for
liquidity. As of December 31, 2002, the Company had total cash and cash
equivalents of $160,000 compared to cash and equivalents of $110,000 as of
December 31, 2001.

      Current assets. As of December 31, 2002, the total current assets of the
Company were $16,138,000 compared to total current assets of $14,143,000 as of
December 31, 2001. The increase in current assets is attributable principally to
increases during 2002 in accounts receivable and inventory.


                                       17
<PAGE>

      Inventory. The net inventory of the Company increased from $8,458,000 as
of December 31, 2001 to $10,034,000 as of December 31, 2002. This increase was
the result principally of (i) higher levels of production arising from
increasing sales during 2001, (ii) a seasonal increase in balloon inventory for
anticipated levels of sales in the first quarter of 2002 and (iii) production of
balloons to order for a customer in the fourth quarter of 2002 for delivery in
the first quarter of 2003.

      Property, Plant and Equipment. During fiscal 2002, the Company invested
$4,709,000 in capital items, of which $2,016,000 was additional capital projects
in process substantially all of which will be recorded as capital investment in
plant and equipment during 2003. Most of this investment was in production
equipment. During 2001, the Company invested $1,002,00 in capital items.

      Current liabilities. Total current liabilities increased from $14,421,000
as of December 31, 2001 to $19,045,000 as of December 31, 2002. This increase is
attributable principally to an increase in accounts payable from $5,492,000 as
of December 31, 2001 to $9,585,000 as of December 31, 2002.

Liquidity and Financial Resources

      At December 31, 2002 the Company had negative working capital of
$2,907,000 compared to positive working capital as of December 31, 2001 of
$278,000. This decline in working capital arose principally as the result of the
Company's use of funds for investing activities, principally the purchase of
production equipment, and the corresponding increase in accounts payable.

      The Company has maintained relatively small cash balances and reserves and
relies on its credit facility for liquidity. Under the credit facility, the
Company is able to borrow up to 85% of its eligible receivables and up to 40% of
its eligible inventory, and utilizes the proceeds of these borrowings for its
cash requirements. If the Company's sales were to decline significantly in any
period, the Company's ability to borrow under this line would be reduced and its
ability to meet its current obligations would be adversely affected.

      The Company believes that existing capital resources and cash generated
from operations, and from borrowings on the credit facility, will be sufficient
to meet the Company's requirements for at least 12 months. The contractual
commitments of the Company over the next five years are as follows:

               Future Minimum
               Principal
Year           Payments          Operating Leases     Licenses        Total

2003           $1,742,658        $514,523             $271,700        $2,528,881
2004           $2,528,824        $511,883             $126,700        $3,167,401
2005           $   39,225        $507,974             $126,700        $  673,899
2006           $2,537,447        $499,775                   --        $3,037,222
2007           $       --        $499,775                   --        $  489,775


                                       18
<PAGE>

Seasonality

      In the metalized product line, sales have historically been seasonal with
approximately 20% to 30% of annual sales of metalized balloons being generated
in December and January, and 11% to 13% of annual metalized balloon sales being
generated in June and July in recent years. The sale of latex balloons and
laminated film products have not historically been seasonal, and as sales in
these products lines increase as a percentage of total sales, the seasonality of
the Company's total net sales has decreased.

Critical Accounting Policies

The financial statements of the Company are based on the selection and
application of significant accounting policies which require management to make
various estimates and assumptions. The following are some of the more critical
judgment areas in the application of our accounting policies that currently
affect our financial condition and results of operation.

      Revenue Recognition. Substantially all of the Company's revenues are
derived from the sale of products. With respect to the sale of products, revenue
from a transaction is recognized when (i) a definitive arrangement exists for
the sale of the product, (ii) delivery of the product has occurred, (iii) the
price to the buyer has been fixed or is determinable and (iv) collectibility is
reasonably assured. The Company generally recognizes revenue for the sale of
products when the products have been shipped and invoiced. In some cases,
product is provided on consignment to customers. In those cases, revenue is
recognized when the customer reports a sale of the product.

      Allowance for Doubtful Accounts. We estimate our allowance for doubtful
accounts based on an analysis of specific accounts, an analysis of historical
trends, payment and write-off histories. Our credit risks are continually
reviewed and management believes that adequate provisions have been made for
doubtful accounts. However, unexpected changes in the financial condition of
customers or changes in the state of the economy could result in write-offs
which exceed estimates and negatively impact our financial results.

      Inventory Valuation. Inventories are stated at the lower of cost or
market. Cost is determined using standard costs which approximate costing
determined on a first-in, first out basis. Standard costs are reviewed and
adjusted periodically based on actual direct and indirect production costs.
Labor, overhead and purchase price variances from standard costs are determined
on a monthly basis and inventory is adjusted monthly reflecting these variances.
On a periodic basis, the Company reviews its inventory levels for estimated
obsolescence or unmarketable items, in reference to future demand requirements
and shelf life of the products. As of December 31, 2002, the Company had
established a reserve for obsolescence, marketability or excess quantities with
respect to inventory in the aggregate amount of $335,000. As of December 31,
2001, the amount of the reserve was $303,000. In addition, on a periodic basis,
the Company disposes of inventory deemed to be obsolescent or unsaleable and, at
such time, records an expense for the value of such inventory.

      Valuation of Long-Lived Assets. We evaluate whether events or
circumstances have occurred which indicate that the carrying amounts of
long-lived assets (principally property and equipment and goodwill) may be
impaired or not recoverable. Significant factors which may trigger an impairment
review include: changes in business strategy, market conditions, the


                                       19
<PAGE>

manner of use of an asset, underperformance relative to historical or expected
future operating results, and negative industry or economic trends. In 2001, the
FASB issued Statement No. 142, "Goodwill and Other Intangible Assets," which
among other things, eliminates the amortization of goodwill and certain other
intangible assets and requires that goodwill be evaluated annually for
impairment by applying a fair-value based test. We retained a valuation
consulting firm to conduct an evaluation of our goodwill in our Mexico
subsidiary in June, 2002 and December, 2002. In the opinion of the consultant
the our goodwill valuation of our Mexico subsidiary, in the amount of $1,113,000
was not impaired.

      Income Taxes and Deferred Tax Assets. Income taxes are accounted for as
prescribed in SFAS No. 109-Accounting for Income Taxes. Under the asset and
liability method of Statement 109, the Company recognizes the amount of income
taxes currently payable and deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years these
temporary differences are expected to be recovered or settled.

      As of December 31, 2002, the Company had a net deferred tax asset of
$689,000, representing the amount the Company may recover in future years from
future taxable income. As of December 31, 2001, the amount of the deferred tax
asset was $652,000. Each year and period management must make a judgment to
determine the extent to which the deferred tax asset will be recovered from
future taxable income. As of December 31, 2002, management has determined that
an appropriate allowance against the deferred tax asset, for the possibility
that such amount will not be recovered, is $739,000. As of December 31, 2001,
the amount of this reserve was $739,000. These determinations involve the
exercise of significant management judgment and are made based upon historical,
current and projected levels of revenue and profit.

Safe Harbor Provision of the Private Securities Litigation Act of 1995 and
Forward Looking Statements

      The Company operates in a dynamic and rapidly changing environment that
involves numerous risks and uncertainties. The market for mylar and latex
balloon products is generally characterized by intense competition, frequent new
product introductions and changes in customer tastes which can render existing
products unmarketable. The statements contained in Item 1 (Description of
Business) and Item 6 (Management's Discussion and Analysis of Financial
Condition and Results of Operations) that are not historical facts may be
forward-looking statements (as such term is defined in the rules promulgated
pursuant to the Securities Exchange Act of 1934) that are subject to a variety
of risks and uncertainties more fully described in the Company's filings with
the Securities and Exchange Commission including, without limitation, those
described under "Risk Factors" in the Company's Form SB-2 Registration Statement
(File No. 333-31969) effective November 5, 1997. The forward-looking statements
are based on the beliefs of the Company's management, as well as assumptions
made by, and information currently available to the Company's management.
Accordingly, these statements are subject to significant risks, uncertainties
and contingencies which could cause the Company's actual growth, results,
performance and business prospects and opportunities in 2002 and beyond to
differ materially from those expressed in, or implied by, any such
forward-looking statements. Wherever possible, words such as "anticipate,"
"plan," "expect," "believe," "estimate," and similar expressions have been used
to identify these forward-looking statements, but are not the exclusive means of


                                       20
<PAGE>

identifying such statements. These risks, uncertainties and contingencies
include, but are not limited, to competition from, among others, national and
regional balloon, packaging and custom film product manufacturers and sellers
that have greater financial, technical and marketing resources and distribution
capabilities than the Company, the availability of sufficient capital, the
maturation and success of the Company's strategy to develop, market and sell its
products, risks inherent in conducting international business, risks associated
with securing licenses, changes in the Company's product mix and pricing, the
effectiveness of the Company's efforts to control operating expenses, general
economic and business conditions affecting the Company and its customers in the
United States and other countries in which the Company sells and anticipates
selling its products and services and the Company's ability to (i) adjust to
changes in technology, customer preferences, enhanced competition and new
competitors; (ii) protect its intellectual property rights from infringement or
misappropriation; (iii) maintain or enhance its relationships with other
businesses and vendors; and (iv) attract and retain key employees. There can be
no assurance that the Company will be able to identify, develop, market, sell or
support new products successfully, that any such new products will gain market
acceptance, or that the Company will be able to respond effectively to changes
in customer preferences. There can be no assurance that the Company will not
encounter technical or other difficulties that could delay introduction of new
or updated products in the future. If the Company is unable to introduce new
products and respond to industry changes or customer preferences on a timely
basis, its business could be materially adversely affected. The Company is not
obligated to update or revise these forward-looking statements to reflect new
events or circumstances.

Item No. 7 Financial Statements

      Reference is made to the Consolidated Financial Statements attached
hereto.

Item No. 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

      Effective July 24, 2002, the Company engaged McGladrey & Pullen, LLP as
the Registrant's principal accountants to audit the Company's financial
statements for the year ending December 31, 2002. McGladrey & Pullen, LLP
replaced Grant Thornton, LLP, which had previously been engaged for the same
purpose, and whose dismissal was effective July 24, 2002. The decision to change
the Company's principal accountants was approved by the Company's Audit
Committee and Board of Directors on July 24, 2002.

      The reports of Grant Thornton LLP, on the Company's financial statements
for the prior two fiscal years ended December 31, 2000, and December 31, 2001
did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.

      During the Company's last two fiscal years ended December 31, 2000, and
December 31, 2001, and in the subsequent interim periods through July 24, 2002,
there were no disagreements with Grant Thornton, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Grant
Thornton, LLP, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports on the financial statements for
such periods.


                                       21
<PAGE>

      Grant Thornton, LLP has not informed the Company of any reportable events
during the Company's two fiscal years ended December 31, 2000 and 2001 and in
subsequent interim periods through July 24, 2002.

PART III

Item No. 9 Directors and Executive Officers of the Registrant

Directors and Executive Officers

      The Company's current directors and executive officers and their ages, as
of April 1, 2003, are as follows:

Name                          Age                Position With The Company

John H. Schwan                58                 Chairman and Director

Howard W. Schwan              48                 President and Director

Stephen M. Merrick            61                 Executive Vice President,
                                                 Secretary and Director

Mark Van Dyke                 53                 Senior Vice President

Brent Anderson                36                 Vice President of Manufacturing

Samuel Komar                  46                 Vice President

Stanley M. Brown              56                 Director

Bret Tayne                    44                 Director

Alfred J. Lescher             38                 Controller

      All directors hold office until the annual meeting next following their
election and/or until their successors are elected and qualified. Officers are
elected annually by the Board of Directors and serve at the discretion of the
Board. Information with respect to the business expenses and affiliation of the
directors and the executive officers of the Company is set forth below:

      John H. Schwan, Chairman. Mr. Schwan has been an officer and director of
the Company since January, 1996. Mr. Schwan has been the President and principal
executive officer of Packaging Systems and affiliated companies for over the
last 15 years. Mr. Schwan has over 20 years of general management experience,
including manufacturing, marketing and sales. Mr. Schwan served in the U.S. Army
Infantry in Vietnam from 1966 to 1969, where he attained the rank of First
Lieutenant.

      Howard W. Schwan, President. Mr. Schwan has been associated with the
Company for 21 years, principally in the management of the production and
engineering operations of the


                                       22
<PAGE>

Company. Mr. Schwan was appointed as Vice President of Manufacturing in
November, 1990, was appointed as a director in January, 1996, and was appointed
as President in June, 1997.

      Stephen M. Merrick, Executive Vice President and Secretary. Mr. Merrick
was President of the Company from January, 1996 to June, 1997 when he became
Chief Executive Officer of the Company. In October, 1999, Mr. Merrick became
Executive Vice President. Mr. Merrick is a principal of the law firm of Merrick
& Klimek, P.C. of Chicago, Illinois and has been engaged in the practice of law
for more than 35 years. Mr. Merrick is also Senior Vice President, Director and
a member of the Management Committee of Reliv International, Inc. (NASDAQ), a
manufacturer and direct marketer of nutritional supplements and food products.

      Mark Van Dyke, Senior Vice President. Mr. Van Dyke rejoined the Company in
August, 2001. Mr. Van Dyke has over 25 years experience in the balloon industry
and was previously employed by the Company for 12 years. Prior to rejoining the
Company, Mr. Van Dyke was employed by M&D Balloons, Inc. for eight years and
became Executive Director of that Company.

      Brent Anderson, Vice President of Manufacturing. Mr. Anderson has been
employed by the Company since January, 1989, and has held a number of
engineering positions with the Company including Plant Engineer and Plant
Manager. In such capacities Mr. Anderson was responsible for the design and
manufacture of much of the Company's manufacturing equipment. Mr. Anderson was
appointed Vice President of Manufacturing in June, 1997.

      Samuel Komar, Vice President of Sales. Mr. Komar has been employed by the
Company since March of 1998, and was named Vice-President of Sales in September
of 2001. Mr. Komar has worked in sales for 16 years, and prior to his employment
with the Company, Mr. Komar was with Bob Gable & Associates, a manufacturer of
sporting goods. Mr. Komar received a Bachelor of Science Degree in Sales and
Marketing from Indiana University.

      Stanley M. Brown, Director. Mr. Brown was appointed as a director of the
Company in January, 1996. Since March, 1996, Mr. Brown has been President of
Inn-Room Systems, Inc., a manufacturer and lessor of in-room vending systems for
hotels. From 1968 to 1989, Mr. Brown was with the United States Navy as a naval
aviator, achieving the rank of Captain.

      Bret Tayne, Director. Mr. Tayne was appointed as a director of the Company
in December, 1997. Mr. Tayne has been the President of Everede Tool Company, a
manufacturer of industrial cutting tools, since January, 1992. Prior to that,
Mr. Tayne was Executive Vice President of Unifin, a commercial finance company,
since 1986. Mr. Tayne received a Bachelor of Science degree from Tufts
University and an MBA from Northwestern University.

      Alfred J. Lescher, Controller. Mr. Lescher has been employed by the
Company as Controller since February, 2002. He has been engaged in accounting
since 1994 and has held accounting positions with several companies. He received
a Bachelor of Science Degree in Finance from Arizona State University in 1988
and a Bachelor of Science in Accounting equivalency at DePaul University in
1993.

      John H. Schwan and Howard W. Schwan are brothers.


                                       23
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and with the NASDAQ Stock Market. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.

      Based solely on a review of such forms furnished to the Company, or
written representations that no Form 5's were required, the Company believes
that during calendar year 2001, all Section 16(a) filing requirements applicable
to the officers, directors and ten-percent beneficial shareholders were complied
with, except that Brent Anderson filed a late report on Form 4 to report 4
purchases and 4 sale transactions during 2002.

Item No. 10 Executive Compensation

The following table sets forth certain information with respect to the
compensation paid or accrued by the Company to its President, Chief Executive
Officer and any other officer who received compensation in excess of $100,000
("Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                              Annual Compensation             Long Term Compensation
                                              -------------------             ----------------------

                                                                                             All Other
  Name and Principal                      Salary          Other Annual      Underlying     Compensation
       Position               Year           $            Compensation        Options           ($)
<S>                           <C>        <C>               <C>               <C>             <C>
Howard W. Schwan              2002       $162,500          $ 8,100           14,285(2)       $1,925(6)
President                     2001       $150,000          $ 5,000               --          $1,765(6)
                              2000       $135,000          $ 9,719(1)        23,809(2)       $1,650(6)

Mark Van Dyke                 2002       $123,100               --               --              --
Senior Vice President         2001       $ 45,900               --           23,809(3)           --
                              2000             --               --               --              --

Brent Anderson                2002       $ 95,000               --            8,928(4)           --
Vice President of             2001       $ 86,700               --           17,857(4)           --
Manufacturing                 2000       $ 82,300               --               --              --

Samuel Komar                  2002       $104,200               --               --              --
Vice President of Sales       2001       $ 94,450               --           11,904(5)           --
                              2000       $ 89,500               --               --              --
</TABLE>

- ----------
(1)   Perquisites include country club membership of $3,950 in 2000.

(2)   Stock options to purchase up to 14,285 shares of the Company's Common
      Stock at $2.31 per share, and stock options to purchase up to 23,809
      shares of the Company's Common Stock at $1.89 per share.

(3)   Stock options to purchase up to 23,809 shares of the Company's Common
      Stock at $1.47 per share.

                       (footnotes continued on next page)


                                       24
<PAGE>

(4)   Stock options to purchase up to 8,928 shares of the Company's Common Stock
      at $2.31 per share, and stock options to purchase up to 17,857 shares of
      the Company's Common Stock at $1.47 per share. Stock options to purchase
      up to 8,928 shares of the Company's Common Stock at $2.31 per share.

(5)   Stock options to purchase up to 11,904 shares of the Company's Common
      Stock at $1.47 per share.

(6)   Company contribution to the Company's 401(k) Plan as a pre-tax salary
      deferral.

      Certain Named Executive Officers have received warrants to purchase Common
Stock of the Company in connection with their guarantee of certain bank loans
secured by the Company and in connection with their participation in a private
offering of notes and warrants conducted by the Company. See "Board of Director
Affiliations and Related Transactions" below. The following stock option grants
were made to certain of the Company's executive officers in the fiscal year
ending December 31, 2002.

                        Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                 Individual Grants

                         Number of
                         Securities           % of Total Options
                         Underlying         Granted to Employees in     Exercise Price          Expiration
     Name             Options Granted             Fiscal Year              ($/share)                Date
     ----             ---------------             -----------              ---------                ----
<S>                        <C>                       <C>                     <C>                <C>
Howard W. Schwan           14,285                    24.2%                   $2.31              10/12/2007

Brent Anderson              8,928                    15.2%                   $2.31              10/12/2007

Stephen M. Merrick          5,952                    10.1%                   $2.55              10/12/2007

John H. Schwan              5,952                    10.1%                   $2.55              10/12/2007
</TABLE>

    Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values

<TABLE>
<CAPTION>
                                                  Number of Securities Underlying    Value of Unexercised In-
                        Shares         Value           Unexercised Options at            the-Money Options
                      Acquired on     Realized              Year End (#)               at Fiscal Year End ($)
      Name            Exercise (#)      ($)          Exercisable/Unexercisable       Exercisable/Unexercisable
      ----            ------------      ---          -------------------------       -------------------------
<S>                        <C>           <C>                  <C>                          <C>
John H. Schwan             0             0                    45,633/0                     $121,603/0(1)

Howard W. Schwan           0             0                    53,966/0                     $160,471/0(1)

Stephen M. Merrick         0             0                    45,633/0                     $121,603/0(1)

Mark Van Dyke              0             0                    23,809/0                     $114,045/0(1)

Brent Anderson             0             0                    39,879/0                     $157,216/0(1)

Samuel Komar               0             0                    24,641/0                     $ 91,875/0(1)
</TABLE>

- ----------

(1)   The value of unexercised in-the-money options is based on the difference
      between the exercise price and the fair market value of the Company's
      Common Stock on December 31, 2002.


                                       25
<PAGE>

Employment Agreements

      In June, 1997, the Company entered into an Employment Agreement with
Howard W. Schwan as President, which provides for an annual salary of not less
than $135,000. The term of the Agreement was through June 30, 2002 and is
automatically renewed thereafter for successive one year terms. The Agreement
contains covenants of Mr. Schwan with respect to the use of the Company's
confidential information, establishes the Company's right to inventions created
by Mr. Schwan during the term of his employment, and includes a covenant of Mr.
Schwan not to compete with the Company for a period of three years after the
date of termination of the Agreement.

Director Compensation

      John Schwan was compensated in the amount of $78,000 in fiscal 2002 for
his services as Chairman of the Board of Directors. Directors other than members
of management received a fee of $1,000 for each Board meeting attended.

Item No. 11 Security Ownership of Certain Beneficial Owners and Management

Principal Stockholders

      The following table sets forth certain information with respect to the
beneficial ownership of the Company's capital stock, as of April 2, 2003, by (i)
each stockholder who is known by the Company to be the beneficial owner of more
than 5% of the Company's Common Stock, (ii) each director and executive officer
of the Company who owns any shares of Common Stock and (iii) all executive
officers and directors as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the shares listed below have sole
investment and voting power with respect to such shares.

<TABLE>
<CAPTION>
                                                    Shares of Common Stock
           Name and Address (1)                     Beneficially Owned (2)   Percent of Common Stock
           --------------------                     ----------------------   -----------------------
<S>                                                     <C>                         <C>
John H. Schwan                                            658,109(3)                30.8%(4)

Stephen M. Merrick                                        541,630(5)                26.1%(4)

Howard W. Schwan                                          178,901(6)                 9.1%(4)

Brent Anderson                                             51,128(7)                 2.6%(4)

Samuel Komar                                               24,879(8)                 1.3%(4)

Mark Van Dyke                                              23,809(9)                 1.2%(4)

Stanley M. Brown                                           11,250(10)                  *
  747 Glenn Avenue
  Wheeling, IL 60090

Bret Tayne                                                  9,923(11)                  *
6834 N. Kostner Avenue
Lincolnwood, IL 60712

Frances Ann Rohlen                                        169,933(12)                8.9%(4)
  747 Glenn Avenue
  Wheeling, IL 60090

All Directors and Executive Officers as a               1,499,629                     61%(4)
group (8 persons)
</TABLE>

- ----------
*Less than one percent

                       (footnotes continued on next page)


                                       26
<PAGE>

(1)   Except as otherwise indicated, the address of each stockholder listed
      above is c/o CTI Industries Corporation, 22160 North Pepper Road,
      Barrington, Illinois 60010.

(2)   A person is deemed to be the beneficial owner of securities that can be
      acquired within 60 days from the date set forth above through the exercise
      of any option, warrant or right. Shares of Common Stock subject to
      options, warrants or rights that are currently exercisable or exercisable
      within 60 days are deemed outstanding for purposes of computing the
      percentage ownership of the person holding such options, warrants or
      rights, but are not deemed outstanding for purposes of computing the
      percentage ownership of any other person.

(3)   Includes warrants to purchase up to 79,364 shares of Common Stock at $1.50
      per share, warrants to purchase up to 93,000 shares of Common Stock at
      $4.87 per share, options to purchase up to 15,872 shares of Common Stock
      at $6.93 per share granted under the Company's 1997 Stock Option Plan,
      options to purchase up to 23,809 shares of Common Stock at $2.08 per share
      granted under the Company's 1999 Stock Option Plan and options to purchase
      up to 5,952 shares of Common Stock at $2.55 per share granted under the
      Company's 2002 Stock Option Plan. Also includes indirect beneficial
      ownership of 130,821 shares of Common Stock through shares owned through
      CTI Investors, L.L.C. See "Board of Directors Affiliations and Related
      Transactions."

(4)   Assumes the exercise of all warrants and options owned by the named person
      into shares of Common Stock and all shares of Common Stock beneficially
      owned by the named person through CTI Investors, L.L.C.

(5)   Includes warrants to purchase up to 39,683 shares of Common Stock at $1.50
      per share, warrants to purchase up to 70,000 shares of Common Stock at
      $4.87 per share, options to purchase up to 15,872 shares of Common Stock
      at $6.93 per share granted under the Company's 1997 Stock Option Plan,
      options to purchase up to 23,809 shares of Common Stock at $2.08 per share
      granted under the Company's 1999 Stock Option Plan and options to purchase
      up to 5,952 shares of Common Stock at $2.55 per share granted under the
      Company's 2002 Stock Option Plan. Also includes indirect beneficial
      ownership of 87,214 shares of Common Stock through shares owned through
      CTI Investors, L.L.C. See "Board of Directors Affiliations and Related
      Transactions."

(6)   Includes options to purchase up to 15,872 shares of Common Stock at $6.30
      per share granted under the Company's 1997 Stock Option Plan, options to
      purchase up to 23,809 shares of Common Stock at $1.89 per share granted
      under the Company's 1999 Stock Option Plan and options to purchase up to
      14,285 shares of Common Stock at $2.31 per share granted under the
      Company's 2002 Stock Option Plan. Also includes indirect beneficial
      ownership of 65,410 shares of Common Stock through shares owned through
      CTI Investors, L.L.C. See "Board of Directors Affiliations and Related
      Transactions."

                       (footnotes continued on next page)


                                       27
<PAGE>

(7)   Includes options to purchase up to 4,761 shares of Common Stock at $6.30
      per share granted under the Company's 1997 Stock Option Plan, options to
      purchase up to 8,333 shares of Common Stock at $1.89 per share granted
      under the Company's 1999 Stock Option Plan, options to purchase up to
      17,857 shares of Common Stock at $1.47 per share, granted under the
      Company's 2001 Stock Option Plan and options to purchase up to 8,928
      shares of Common Stock at $2.31 per share granted under the Company's 2002
      Stock Option Plan.

(8)   Includes options to purchase up to 4,761 shares of Common Stock at $6.30
      per share granted under the Company's 1997 Stock Option Plan, options to
      purchase up to 7,976 shares of Common Stock at $1.89 per share granted
      under the Company's 1999 Stock Option Plan, options to purchase up to
      11,904 shares of Common Stock at $1.47 per share granted under the
      Company's 2001 Stock Option Plan, and 238 shares of Common Stock held by
      immediate family members.

(9)   Includes options to purchase up to 23,809 shares of Common Stock at $1.47
      per share granted under the Company's 2001 Stock Option Plan.

(10)  Includes options to purchase up to 1,984 shares of Common Stock at $6.30
      per share and options to purchase up to 1,984 shares of Common Stock at
      $10.08 per share, both granted under the Company's 1997 Stock Option Plan,
      options to purchase up to 3,571 shares of Common Stock at $1.89 per share
      granted under the Company's 1999 Stock Option Plan and options to purchase
      up to 2,976 shares of Common Stock at $2.31 per share granted under the
      Company's 2002 Stock Option Plan.

(11)  Includes options to purchase up to 1,984 shares of Common Stock at $6.30
      per share granted under the Company's 1997 Stock Option Plan, options to
      purchase up to 3,571 shares of Common Stock at $1.89 per share granted
      under the Company's 1999 Stock Option Plan and options to purchase up to
      2,976 shares of Common Stock at $2.31 per share granted under the
      Company's 2002 Stock Option Plan.

(12)  Also includes indirect beneficial ownership of 109,017 shares of Common
      Stock through shares owned through CTI Investors, L.L.C.

Item No. 12 Certain Relationships and Related Transactions

Board of Directors Affiliations and Related Transactions

      Stephen M. Merrick, Executive Vice President of the Company, is a
principal of the law firm of Merrick & Klimek, P.C., which serves as general
counsel of the Company. In addition, Mr. Merrick is a principal stockholder of
the Company. Other principals of the firm of Merrick &


                                       28
<PAGE>

Klimek, P.C. own less than 1% of the Company's outstanding Common Stock. Legal
fees incurred from the firm of Merrick & Klimek, P.C. for the fiscal years ended
December 31, 2001 and December 31, 2002 were $121,305 and $107,245,
respectively. Mr. Merrick is also an officer and director of Reliv
International, Inc. (NASDAQ-RELV).

      John H. Schwan is President of Packaging Systems, L.L.C. and affiliated
companies. The Company made purchases of packaging materials from these entities
in the amount of $143,000 and $118,011 during each of the years ended December
31, 2001 and December 31, 2002, respectively.

      In June, 1999, notes of the Company to Howard W. Schwan, John Schwan, and
Stephen Merrick in the amount of, respectively, $50,000, $350,000 and $315,000,
came due. On November 9, 1999, new notes in the same principal amounts were
issued to Messrs. H. Schwan, J. Schwan and Merrick, in payment and replacement
of the prior notes with maturity dates for each of November 9, 2001. As of that
date, each payee under the Notes had executed a consent to extend the maturity
on the Notes to March 1, 2004. In November, 1999, the June, 1997 warrants of
Messrs. H. Schwan, J. Schwan and Merrick to purchase up to (respectively) 6,359,
44,515 and 40,063 shares of the Company's Common Stock at an exercise price of
$7.86 per share were cancelled. At that time, new warrants to purchase up to
35,263, 246,840 and 222,157 shares of the Company's Common Stock at an exercise
price of $1.418 per share were issued to Messrs. H. Schwan, J. Schwan and
Merrick, respectively. Each of these warrants were exercised on June 3, 2002.
The respective $50,000, $350,000 and $315,000 notes were cancelled and used as
payment for the warrant shares.

      In July, 2001, the Company issued Warrants to purchase up to 79,364 shares
of the Company's Common Stock to John H. Schwan and 39,683 shares of the
Company's Common Stock to Stephen M. Merrick. The warrants were issued in
consideration of Mr. Schwan and Mr. Merrick guaranteeing and securing loans to
the Company in the aggregate amount of approximately $1,600,000. The warrants
are exercisable for a period of five years at a price of $1.50 per share.

      On December 12, 2002, Messrs. John Schwan, Howard Schwan and Stephen
Merrick exercised warrants to purchase 24,572, 30,525 and 28,780 shares of the
Company's Common Stock, respectively. In each instance, the warrant holder
tendered shares of the Company's Common Stock already owned by him as full
payment for the warrant shares. The shares tendered as payment were valued at
the per share closing price for the Company's Common Stock on the date of
exercise.

      During February, 2003, John H. Schwan loaned $930,000 to the Company and
Stephen M. Merrick loaned $700,000 to the Company, in exchange for (i) two year
promissory notes bearing interest at 9% per annum and (ii) five year warrants to
purchase up to an aggregate of 163,000 shares of Common Stock of the Company at
$4.87 per share, the market price of the Common Stock on the date of the
Warrants. The proceeds of these loans were to (i) re-finance the loan of bank
loan of CTI Mexico in the amount of $880,000 and (ii) to provide financing for
CTI Mexico and Flexo Universal.

      During March and April, 2003, an officer of the Company loaned to the
Company an additional aggregate amount of $690,000. Such amount is due on demand
and bears interest at the rate of 8% per annum.

      In or about May, 1998, the Company advanced on behalf of each of Howard W.
Schwan (President and Director), John H. Schwan (Chairman of the Board) and
Stephen M. Merrick (Executive Vice President and Director), the sum of $18,818
for the purchase of Company common stock from the estate of a deceased
shareholder. The loans bear interest at the rate of 6% per annum and are payable
in full on or before December 31, 2003. The loans are unsecured. Each of the
named persons is personally liable and responsible for the full amount of the
principal and all interest accrued on the loan to such person.

      In or about September, 1998, the Company advanced to Howard Schwan,
President, the sum of $24,896. This loan bears interest at the rate of 6% per
annum and is payable in full on or


                                       29
<PAGE>

before December 31, 2003. The loan is unsecured. Mr. Schwan is personally liable
and responsible for the full amount of the principal and all interest accrued on
the loan.

      On November 10, 1999, the Company entered into a Lease Agreement with
Pepper Road, Inc., an Illinois corporation, to lease certain warehouse and
office space located at 22222 North Pepper Road, Barrington, Illinois, the
building and property immediately adjacent to the Company's manufacturing
facilities at 22160 North Pepper Road, Barrington, Illinois. The lease has a 10
year term and calls for monthly rent payments of $17,400 ($208,800 annually),
plus all utility charges associated with the property. John Schwan, Howard
Schwan and Stephen M. Merrick are officers, directors, and the sole shareholders
of Pepper Road, Inc.

      The Company believes that each of the transactions set forth above were
entered into, and any future related party transactions will be entered into, on
terms as fair as those obtainable from independent third parties. All related
party transactions must be approved by a majority of disinterested directors.

Item No. 13 Exhibits and Reports on Form 8-K

Exhibits

   Exhibit
   Number                                   Description
   -------                                  -----------

*     3.1         Third Restated Certificate of Incorporation of CTI Industries
                  Corporation

**    3.2         By-laws of CTI Industries Corporation

**    4.1         Form of Certificate for Common Stock of CTI Industries
                  Corporation

***   10.1        CTI Industries Corporation 1999 Stock Option Plan

****  10.2        CTI Industries Corporation 2001 Stock Option Plan

***** 10.3        CTI Industries Corporation 2002 Stock Option Plan

**    10.4        Employment Agreement dated June 30, 1997, between CTI
                  Industries Corporation and Howard W. Schwan

      10.5        November, 1999 Lease Agreement between Pepper Road, Inc. and
                  CTI Industries Corporation

      10.6        Warrant dated July 17, 2001 to purchase 79,364 shares of
                  Common Stock - John H. Schwan

      10.7        Warrant dated July 17, 2001 to purchase 39,683 shares of
                  Common Stock - Stephen M. Merrick

      10.8        Note dated January 28, 2003, CTI Industries Corporation to
                  Stephen M. Merrick in the sum of $500,000

      10.9        Note dated February 28, 2003, CTI Industries Corporation to
                  Stephen M. Merrick in the sum of $200,000

      10.10       Note dated February 10, 2003, CTI Industries Corporation to
                  John H. Schwan in the sum of $150,000

      10.11       Note dated February 15, 2003, CTI Industries Corporation to
                  John Schwan in the sum of $680,000

      10.12       Note dated March 3, 2003, CTI Industries Corporation to John
                  H. Schwan in the sum of $100,000

      10.13       Warrant dated March 20, 2003, to purchase 70,000 shares of
                  Common Stock - Stephen M. Merrick


                                       30
<PAGE>

   Exhibit
   Number                                   Description
   -------                                  -----------

      10.14       Warrant dated March 20, 2003, to purchase 93,000 shares of
                  Common Stock - John H. Schwan

******10.15       Loan and Security Agreement dated January 12, 2001, between
                  the Company and Congress Financial Corporation (Central)

******10.16       Term Note in the sum of $1,426,000 dated January 12, 2001 made
                  by CTI Industries Corporation to Congress Financial
                  Corporation (Central)

******10.17       Mortgage dated January 12, 2001 for the benefit of Banco
                  Popular, N.A.

******10.18       Secured Promissory Note in the sum of $2,700,000 dated
                  December 15, 2000 made by CTI Industries Corporation to Banco
                  Popular, N.A.

******10.19       Secured Promissory Note in the sum of $173,000 dated December
                  15, 2000, made by CTI Industries Corporation to Banco Popular,
                  N.A.

******10.20       Guaranties dated January 12, 2001, by Stephen M. Merrick and
                  John H. Schwan for benefit of Congress Financial Corporation
                  (Central)

******10.21       Guaranties dated January 12, 2001, by John H. Schwan, Stephen
                  M. Merrick and Howard W. Schwan for the benefit of Banco
                  Popular, N.A.

      10.23       Consent of Independent Auditors

      11.1        Computation of Earnings Per Share (Incorporated by reference
                  to Note 17 of the Consolidated Financial Statements contained
                  in Part IV)

      21          Subsidiaries (description incorporated in Form 10-KSB under
                  Item No. 1)

      27          Financial Data Schedule

*           Incorporated by reference to Exhibit A contained in Registrant's
            Schedule 14A Definitive Proxy Statement for solicitation of written
            consent of shareholders, as filed with the Commission on October 25,
            1999.

**          Incorporated by reference to Exhibits, contained in Registrant's
            Form SB-2 Registration Statement (File No. 333-31969) effective
            November 5, 1997.

***         Incorporated by reference to Exhibit contained in Registrant's
            Schedule 14A Definitive Proxy Statement, as filed with the
            Commission on March 26, 1999.

****        Incorporated by reference to Exhibit contained in Registrant's
            Schedule 14A Definitive Proxy Statement, as filed with the
            Commission on May 21, 2001

*****       Incorporated by reference to Exhibit contained in Registrant's
            Schedule 14A Definitive Proxy Statement, as filed with the
            Commission on May 15, 2002

******      Incorporated by reference to Exhibits contained in the Registrant's
            2001 10-KSB, as filed with the Commission on April 16, 2002

Reports on Form 8-K

On July 30, 2002, the Company filed a report on Form 8-K to report the
replacement of its then auditors, Grant Thornton, LLP with McGladrey & Pullen,
LLP, effective July 24, 2002.

Item No. 14 Controls and Procedures

      (a)   Evaluation of disclosure controls and procedures. Our principal
            executive officer and principal financial officer, after evaluating
            the effectiveness of our disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of
            December 31, 2002, have determined subsequent to December 31, 2002,
            in connection with our independent audit, that there were
            deficiencies in the design or operation of internal controls during
            the fourth quarter of 2002. These deficiencies occurred because
            intercompany account reconciliations were not completed or reviewed
            on a timely basis, inventory cost standards have not been updated on
            a timely basis, corporate accounting office is understaffed, has
            experienced turnover and has been subject to a lack of supervision
            and review. As a result, there were material adjustments in the
            fourth quarter financial statements in order to correct intercompany
            account balances, accrued expenses and inventory balances.

      (b)   Changes in internal controls. The individual who was responsible for
            the reconciliation of intercompany account balances and inventory
            reconciliations has been terminated and management is in the process
            of hiring a replacement. Additional resources are being acquired,
            and management is conducting a review regarding changes which are
            appropriate to strengthen controls in these areas.


                                       31
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on April 29, 2003.

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Howard W. Schwan
                                            ------------------------------------
                                            Howard W. Schwan, President

      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant in the capacities and on the
dates indicated.

Signatures                     Title                          Date
- ----------                     -----                          ----


/s/ Howard W. Schwan           President and Director         April 29, 2003
- -------------------------
Howard W. Schwan


/s/ John H. Schwan             Chairman and Director          April 29, 2003
- -------------------------
John H. Schwan


/s/ Stephen M. Merrick         Executive Vice President,      April 29, 2003
- -------------------------      Secretary, Chief Financial
Stephen M. Merrick             Officer and Director


/s/ Stanley M. Brown           Director                       April 29, 2003
- -------------------------
Stanley M. Brown


/s/ Bret Tayne                 Director                       April 29, 2003
- -------------------------
Bret Tayne


                                       32
<PAGE>

                                 CERTIFICATIONS

      I, Howard W. Schwan, Chief Executive Officer of CTI Industries
Corporation, certify that:

      1. I have reviewed this annual report on Form 10-KSB of CTI Industries
Corporation;

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

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

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

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

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

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

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

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

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

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

Date: April 29, 2003

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Howard W. Schwan
                                            ------------------------------------
                                            Howard W. Schwan Chief Executive
                                            Officer


                                       33
<PAGE>

                                 CERTIFICATIONS

      I, Stephen M. Merrick, Chief Financial Officer of CTI Industries
Corporation, certify that:

      1. I have reviewed this annual report on Form 10-KSB of CTI Industries
Corporation;

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

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

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

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

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

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

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

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

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

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

Date: April 29, 2003

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Stephen M. Merrick
                                            ------------------------------------
                                            Stephen M. Merrick, Chief Financial
                                            Officer


                                       34
<PAGE>

                               SARBANES-OXLEY ACT
                            SECTION 906 CERTIFICATION

      I certify that the periodic report on Form 10-KSB containing the financial
statements fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information
contained in the periodic report on Form 10-KSB fairly presents, in all material
respects, the financial condition and results of operations of the issuer.

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Howard W . Schwan
                                            ------------------------------------
                                            Howard W. Schwan,
                                            Chief Executive Officer


                                       35
<PAGE>

                               SARBANES-OXLEY ACT
                            SECTION 906 CERTIFICATION

      I certify that the periodic report on Form 10-KSB containing the financial
statements fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information
contained in the periodic report on Form 10-KSB fairly presents, in all material
respects, the financial condition and results of operations of the issuer.

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Stephen M. Merrick
                                            ------------------------------------
                                            Stephen M. Merrick, Chief Financial
                                            Officer


                                       36
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
CTI Industries Corporation and Subsidiaries
Barrington, Illinois

We have audited the accompanying consolidated balance sheet of CTI Industries
Corporation and Subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CTI Industries
Corporation and Subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 10 to the consolidated financial statements, on January 1,
2002, the Company changed its method of accounting for goodwill to adopt
Statement of Financial Accounting Standards No. 142.


/s/ McGladrey & Pullen, LLP

Schaumburg, Illinois
April 15, 2003


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of CTI Industries Corporation

We have audited the accompanying consolidated balance sheet of CTI Industries
Corporation and Subsidiaries as of December 31, 2001, and the related
consolidated statement of operations, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CTI Industries
Corporation and Subsidiaries as of December 31, 2001, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

As indicated in Note 2 to these accompanying consolidated financial statements,
the Company has restated its consolidated financial statements for the year
ended December 31, 2001.


/s/ Grant Thornton, LLP


Chicago, Illinois
April 10, 2002, except as to Note 2,
which is as of April 15, 2003


                                      F - 1
<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                     December 31, 2002  December 31, 2001
                                                                        ------------       ------------
<S>                                                                     <C>                <C>
                                     ASSETS
Current assets:
  Cash                                                                  $    160,493       $    110,488
  Accounts receivable, less allowance for doubtful accounts
  2002 $223,220; 2001 $375,755                                             5,384,839          4,385,050
  Inventories                                                             10,033,593          8,458,421
  Deferred tax assets                                                        247,780            290,816
  Prepaid expenses and other current assets                                  310,995            898,130
                                                                        ------------       ------------

      Total current assets                                                16,137,700         14,142,905

Property and equipment:
  Machinery and equipment                                                 16,221,259         14,635,962
  Building                                                                 2,636,595          2,398,039
  Office furniture and equipment                                           1,746,480          1,731,848
  Land                                                                       250,000            250,000
  Leasehold improvements                                                     388,655            161,885
  Fixtures and equipment at customer locations                             2,306,807          2,206,096
  Projects under construction                                              2,331,981            316,230
                                                                        ------------       ------------
                                                                          25,881,777         21,700,060
    Less: accumulated depreciation                                       (14,166,764)       (13,000,561)
                                                                        ------------       ------------

      Total property and equipment, net                                   11,715,013          8,699,499

Other assets:
  Deferred financing costs, less accumulated amortization
  2002 $85,602; 2001 $58,324                                                  51,747             82,653
  Goodwill                                                                 1,113,108          1,113,108
  Deferred tax assets                                                        441,592            361,567
  Other assets                                                               812,698            264,493
                                                                        ------------       ------------

      Total other assets                                                   2,419,145          1,821,821
                                                                        ------------       ------------

TOTAL ASSETS                                                            $ 30,271,858       $ 24,664,225
                                                                        ============       ============
</TABLE>

See accompanying notes to consolidated statements


                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                     <C>                <C>
Current liabilities:
  Excess of outstanding checks over bank balance                        $    113,460       $         --
  Accounts payable                                                         9,580,823          5,492,488
  Line of credit                                                           5,642,649          5,697,717
  Notes payable - current portion                                          1,742,658          1,376,291
  Accrued liabilities                                                      1,965,561          1,854,710
                                                                        ------------       ------------

      Total current liabilities                                           19,045,151         14,421,206

Long-term liabilities:
  Other liabilities                                                          710,257          1,477,978
  Notes payable                                                            5,016,109          3,544,002
  Subordinated Debt                                                               --            715,000
                                                                        ------------       ------------

      Total long-term liabilities                                          5,726,366          5,736,980

Minority interest                                                             25,865            180,830

Stockholders' equity:
  Common stock  - no par value, 5,000,000 shares authorized,
  2,141,882 and 966,327 shares issued, 1,910,086 and 767,131 shares
  outstanding at December 31, 2002 and 2001, respectively                  3,748,270            188,434
  Class B Common stock  - no par value, 500,000 shares authorized,
  0 and 366,300 shares issued and outstanding at December 31, 2002
  and 2001, respectively                                                          --          1,000,000
  Paid-in-capital                                                          5,554,332          5,554,332
  Warrants issued in connection with senior and subordinated debt            135,462            487,440
  Accumulated deficit                                                     (2,962,816)        (1,983,770)
  Accumulated other comprehensive earnings                                    (6,002)          (118,007)
  Less:
      Treasury stock - 231,796 and 199,196 shares at December 31,
      2002 and 2001, respectively                                           (939,114)          (746,764)
      Notes receivable from stockholders                                     (56,456)           (56,456)
                                                                        ------------       ------------

      Total stockholders' equity                                           5,474,476          4,325,209
                                                                        ------------       ------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                $ 30,271,858       $ 24,664,225
                                                                        ============       ============
</TABLE>

See accompanying notes to consolidated statements


                                      F-3
<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                                 2002              2001
                                                             ------------      -------------
<S>                                                          <C>                <C>
Net Sales                                                    $ 41,236,476       $ 27,446,494

Cost of Sales                                                  32,344,115         19,835,066
                                                             ------------       ------------

      Gross profit                                              8,892,361          7,611,428

Operating expenses:
  General and Administrative                                    4,224,777          3,701,591
  Selling                                                       1,551,538          1,760,138
  Advertising                                                   1,671,106          1,132,977
                                                             ------------       ------------

      Total operating expenses                                  7,447,421          6,594,706
                                                             ------------       ------------

Income from operations                                          1,444,940          1,016,722

Other income (expense):
  Interest expense                                               (831,600)        (1,125,606)
  Interest income                                                   3,157              6,160
  Foreign currency (loss) gain                                   (281,186)            89,028
                                                             ------------       ------------

      Total other (expense)                                    (1,109,629)       (1,030,418)
                                                             ------------       ------------

Income (loss) before income taxes and minority interest           335,311            (13,696)

Income tax expense                                                 39,065            276,553
                                                             ------------       ------------

Income (loss) before minority interest                            296,246           (290,249)

Minority interest in (loss) of subsidiary                          (6,266)           (57,957)
                                                             ------------       ------------

      Net income (loss)                                      $    302,512       $   (232,292)
                                                             ============       ============

Basic income (loss) per common share                         $       0.18       $      (0.15)
                                                             ============       ============

Diluted income (loss) per common share                       $       0.16       $      (0.15)
                                                             ============       ============

Weighted average number of shares and equivalent shares
  of common stock outstanding:
    Basic                                                       1,688,384          1,511,958
                                                             ============       ============

    Diluted                                                     1,884,405          1,511,958
                                                             ============       ============
</TABLE>

See accompanying notes to consolidated statements


                                      F-4
<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                             Year Ended
                                                              December 31, 2002   December 31, 2001
                                                              -------------------------------------
<S>                                                                <C>               <C>
Cash flows from operating activities:
  Net income (loss)                                                $   302,512       $  (232,292)
  Adjustment to reconcile net income (loss) to cash
      provided by operating activities:
    Depreciation and amortization                                    1,588,187         1,665,758
    Deferred gain on sale/leaseback                                    (30,046)          (30,046)
    Amortization of Debt Discount                                       27,500           124,657
    Minority interest in loss of subsidiary                             (6,266)          (57,957)
    Provision for losses on accounts receivable & inventory            300,000           240,000
    Deferred income taxes                                              (25,700)          225,908
    Change in assets and liabilities:
      Accounts receivable                                           (1,075,314)       (1,859,791)
      Inventory                                                     (1,964,697)       (1,832,182)
      Other assets                                                    (122,112)          132,809
      Accounts payable and accrued expenses                          4,056,872         2,246,986
                                                                   -----------------------------

          Net cash provided by operating activities                  3,050,936           623,850

Cash flows from investing activities:
  Purchases of property and equipment                               (2,477,831)       (1,002,136)
                                                                   -----------------------------

          Net cash (used in) investing activities                   (2,477,831)       (1,002,136)

Cash flows from financing activities:
  Excess of outstanding checks written over bank balance               113,460                --
  Net change in revolving line of credit                               (55,068)        2,088,176
  Proceeds from issuance of long-term debt                                  --         4,299,000
  Repayment of long-term debt                                         (591,182)       (5,604,248)
  Repayment of short-term debt                                              --          (500,000)
  Repayment of subordinated debt                                            --           (10,000)
  Proceeds from exercise of warrants                                   19,750                --
  Purchase of treasury stock                                                --          (171,380)
                                                                   -----------------------------

          Net cash provided by (used in) financing activities         (513,040)          101,548

Effect of exchange rate changes on cash                                (10,060)           (5,308)
                                                                   -----------------------------

Net increase (decrease) in cash                                         50,005          (282,046)

Cash and Equivalents at Beginning of Period                            110,488           392,534
                                                                   -----------------------------

Cash and Equivalents at End of Period                              $   160,493       $   110,488
                                                                   =============================

Supplemental disclosure of cash flow information:
     Cash payments for interest                                    $   776,802       $   876,326
     Cash payments for taxes                                       $   140,072       $        --

Schedule of non-cash investing and financing activities:
   Issuance of stock for subordinated debt                         $   715,000       $        --
   Purchase of additional minority interest                        $   148,290       $        --
   Stock Dividend                                                  $ 1,280,758       $        --
   Notes payable incurred to purchase equipment                    $ 2,230,719       $        --
Common stock exchanged to exercise warrants                        $   192,350       $        --

</TABLE>

See accompanying notes to consolidated statements


                                      F-5
<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                                                                          Warrants
                                                                                                         issued in
                                           Common Stock         Class B Common Stock                  connection with
                                           ------------         --------------------       Paid-in       senior and     Accumulated
                                         Shares       Amount     Shares        Amount      Capital    subordinated debt   Deficit
                                     ----------------------------------------------------------------------------------------------
<S>                                   <C>         <C>          <C>          <C>           <C>              <C>          <C>
Balance, December 31, 2000              966,327   $   188,434   366,300      $1,000,000   $ 5,554,332      $ 351,978    $(1,751,478)
                                     ==============================================================================================

Expiration of stock
  redemption period

Warrants issued in connection
  with senior and subordinated debt                                                                        $ 135,462

Purchase of treasury stock

Net (loss)                                                                                                              $  (232,292)

Other comprehensive (loss)
  Foreign currency translation

Total comprehensive (loss)
                                     ----------------------------------------------------------------------------------------------

Balance, December 31, 2001              966,327   $   188,434   366,300      $1,000,000   $ 5,554,332      $ 487,440    $(1,983,770)
                                     ==============================================================================================

Options exercised                        11,000   $    19,750

Class B conversion                      366,300   $ 1,000,000  (366,300)    ($1,000,000)

Stock dividend                          304,218   $ 1,280,758                                                           $(1,280,758)

Subordinated debt contributed
  to exercise warrants                  423,579   $ 1,066,978                                              $(351,978)

Cashless exercise of warrants            70,458   $   192,350

Net income                                                                                                              $   302,512

Other comprehensive income
  Foreign currency translation

Total comprehensive loss

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

Balance, December 31, 2002           2,141,882   $ 3,748,270         --      $       --   $ 5,554,332      $ 135,462    $(2,962,016)
                                     ==============================================================================================

<CAPTION>
                                                                             Less
                                       Accumulated   -----------------------------------------------------
                                          Other           Treasury Stock
                                      Comprehensive       --------------           Stock     Notes Recvble
                                      Income (loss)    Shares       Amount      Sub Recvble   Shareholders     TOTAL
                                     ---------------------------------------------------------------------------------
<S>                                    <C>           <C>         <C>              <C>          <C>          <C>
Balance, December 31, 2000             $  (42,244)    124,683    $ (575,384)      $  4,700     $ (56,456)   $4,664,482
                                     =================================================================================

Expiration of stock
  redemption period                                                               $ (4,700)                 $    4,700

Warrants issued in connection
  with senior and subordinated
  debt                                                                                                      $  135,462

Purchase of treasury stock                             74,513    $ (171,380)                                $ (171,380)

Net (loss)                                                                                                  $ (232,292)

Other comprehensive (loss)
  Foreign currency translation         $  (75,763)                                                          $  (75,763)
                                                                                                            ----------

Total comprehensive (loss)                                                                                  $ (308,055)
                                     ---------------------------------------------------------------------------------

Balance, December 31, 2001             $ (118,007)    199,196    $ (746,764)      $     --     $ (56,456)   $4,325,209
                                     =================================================================================

Options exercised                                                                                               19,750

Class B conversion                                                                                                  --

Stock dividend                                                                                                      --

Subordinated debt contributed to
  exercise warrants                                                                                            715,000

Cashless exercise of warrants                          32,600    $ (192,350)                                        --

Net income                                                                                                     302,512

Other comprehensive income
  Foreign currency translation         $  112,005                                                              112,005
                                                                                                            ----------

Total comprehensive income                                                                                    414,517

                                     ---------------------------------------------------------------------------------
Balance, December 31, 2002             $   (6,002)    231,796    $ (939,114)      $     --     $ (56,456)   $5,474,476
                                     =================================================================================
</TABLE>


                                      F-6
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

      1. Nature of Operations

CTI Industries Corporation (the "Company"), its United Kingdom subsidiary (CTI
Balloons Limited), and Mexican subsidiaries (CTI Mexico Corporation, S.A. de
C.V. and CTF International S.A. de C.V.) (i) design, manufacture and distribute
metallized and latex balloon products throughout the world and (ii) operates
systems for the production, lamination, coating and printing of films used for
food packaging and other commercial uses and for conversion of films to flexible
packaging containers and other products.

      2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CTI Industries
Corporation, its wholly owned subsidiaries CTI Balloons Limited and CTF
International S.A. de C.V., and its majority owned subsidiary CTI Mexico
Corporation, S.A. de C.V. All significant intercompany accounts and transactions
have been eliminated upon consolidation.

Foreign Currency Translation

The financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities, the historical exchange rate for stockholders' equity, and a
weighted average exchange rate for each period for revenues and expenses.
Translation adjustments are recorded in accumulated other comprehensive income
(loss) as the local currencies of the subsidiaries are the functional
currencies.

Restatements

The Company's December 31, 2001 financial statements have been restated as
further discussed in Amendment No. 1 to the Company's 2001 Form 10KSB.

Accounting Estimates

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, demand deposits and short term
investments with original maturities of three months or less.

Trade Receivables

Trade receivables are carried at original invoice amount less an estimate for
doubtful receivables based on a review of all outstanding amounts on a monthly
basis. Management determines the allowance for doubtful accounts by identifying
troubled accounts, evaluating the individual customer receivables then
considering the customer's financial condition, credit history and current
economic conditions and by using historical experience applied to an aging of
accounts. A trade receivable is considered to be past due if any portion of the
receivable balance is outstanding for a period over the customers normal terms.
Trade receivables are written off when deemed uncollectible. Recoveries of trade
receivables previously written off are recorded when received.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using
standard costs which approximates costing determined on a first-in, first-out
basis.

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation is computed using
the straight-line and declining-balance methods over estimated useful lives of
the related assets. Leasehold improvements are amortized on a straight-line
method over the lesser of the estimated useful life or the lease term. The
estimated useful lives range as follows:


                                      F-7
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

2. Summary of significant accounting policies, continued

           Building                                          25 - 30 years
           Machinery and equipment                           3 - 15 years
           Office furniture and equipment                    5 - 8 years
           Leasehold improvements                            5 - 8 years
           Furniture & equipment at customer locations       2 - 3 years

Goodwill

Prior to January 1, 2002, goodwill was being amortized over 15 years using the
straight-line method. Subsequent to that date, the Company follows the
provisions of SFAS 142, Goodwill and Other Intangibles, under which goodwill is
not amortized but is tested at least annually for impairment. Goodwill on the
accompanying balance sheets relates to CTI Mexico. It is the Companies' policy
to perform impairment testing for CTI Mexico annually on December 31.

Valuation of long lived assets

The Company evaluates whether events or circumstances have occurred which
indicate that the carrying amounts of long-lived assets (principally property
and equipment) may be impaired or not recoverable. The significant factors that
are considered that could trigger an impairment review include: changes in
business strategy, market conditions, or the manner of use of an asset;
underperformance relative to historical or expected future operating results;
and negative industry or economic trends. In evaluating an asset for possible
impairment, management estimates that asset's future undiscounted cash flows to
measure whether the asset is recoverable, the Company measures the impairment
based on the projected discounted cash flows of the asset over its remaining
life. While the Company believes that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect these evaluations.

Deferred Financing Costs

Deferred financing costs relates to the refinancing of long-term debt in January
2001. These costs are being amortized on a straight-line basis over the term
of the loans.

Income Taxes

The Company accounts for income taxes using the liability method. As such,
deferred income taxes reflect the net tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be in effect when
the anticipated reversal of these differences is scheduled to occur. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of


                                      F-8
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

2. Summary of significant accounting policies, continued

management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.

Fair Value of Financial Instruments

The fair value of financial instruments are not materially different from their
carrying values.

Other Comprehensive Income

For years ended December 31, 2002 and 2001, other comprehensive income consisted
of foreign currency translation adjustments.

Revenue Recognition

The Company recognizes revenue when title transfers upon shipment. Revenue from
a transaction is not recognized until (i) a definitive arrangement exists, (ii)
delivery of the product has occurred or the services have been performed, (iii)
the price to the buyer has been fixed or is determinable and (iv) collectibility
is reasonably assured.

The Company generally recognizes revenues for the sale of product when the
products have been shipped and invoiced. In some cases, product is provided on
consignment to customers. For these cases, revenue is recognized when the
customer reports a sale of the product.

Stock-Based Compensation

At December 31, 2002, the Company has four stock-based compensation plans, which
are described more fully in Note 15. The Company accounts for those plans under
the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees and related interpretations. The Company recognizes
compensation cost for stock-based compensation awards equal to the difference
between the quoted market price of the stock at the date of grant or award and
the price to be paid by the employee upon exercise in accordance with the
provisions of APB No. 25. Based upon the terms of Company's current stock option
plans, the stock price on the date of grant and price paid upon exercise are the
same. Accordingly, no stock-based employee compensation cost has been
recognized, as all options granted under those plans had an exercise price equal
to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share had
compensation cost for all of the stock-based compensation plans been determined
based on the grant date fair values of awards (the method described in FASB
Statement No. 123, Accounting for Stock-Based Compensation):

                                                       Years Ended December 31,
                                                       ------------------------

                                                          2002          2001
                                                       ----------    ----------

Net Income (Loss):
  As reported                                             302,512      (232,292)

Deduct total stock-based employee
   compensation expense determined under
   fair value based method for all awards, net
   of related tax effects                                (117,375)     (152,901)
                                                       ----------    ----------

  Pro forma net income (loss)                             185,137      (385,193)
                                                       ==========    ==========

Net income (loss) per share:

   Basic - As reported                                       0.18         (0.15)

   Basic - Proforma                                          0.11         (0.25)

   Diluted - As reported                                     0.16         (0.15)

   Diluted - Proforma                                        0.10         (0.25)


                                      F-9
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

2. Summary of significant accounting policies, continued

The fair value of each option was estimated as of the date of the grant using
the Black-Scholes option pricing model based on the following assumptions:

                                                          2002       2001
                                                          ----       ----

      Expected life (years)                                5.0        7.5
      Volatility                                         123.3%       117%
      Risk-free interest rate                              2.9%       4.5%
      Dividend yield                                        --         --

Research and Development

The Company conducts product development and research activities which includes
(i) creative product development, (ii) creative marketing, and (iii)
engineering. During the year ended December 31, 2002, and the year ended
December 31, 2001, Research and development activities totaled $333,000 and
$325,000, respectively.

Reclassifications

Certain items in the 2001 financial statements have been reclassified to conform
to the 2002 presentation with no effect on operations for the year then ended.

New Accounting Pronouncements

Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations," was issued in 2001. SFAS No. 143 requires the
recognition of a liability and offsetting asset for any legal obligation
associated with the retirement of long-lived assets. The asset retirement cost
is depreciated over the life of the related asset. This statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
Management does not believe SFAS No. 143 will have a significant effect on our
company.

Effective January 1, 2002 the Company adopted Statement No. 144 ("Statement
144"),"Accounting for the Impairment or Disposal of Long-Lived Assets".
Statement 144 provides a consistent method to value long-lived assets to be
disposed of and broadens the presentation of discontinued operations to include
more disposal transactions. The adoption of Statement 144 did not have a
material effect on our financial position, cash flows or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires
that the liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 also establishes that
the liability should initially be measured and recorded at fair value.
Accordingly SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the


                                      F-10
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

2. Summary of significant accounting policies, continued

amount recognized. The provisions of SFAS 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company believes that
the adoption of SFAS No. 146 will not have a material impact on its reported
financial position or results of operations.

      3. Major Customers

For the year ended December 31, 2002, the Company had three customers that
accounted for approximately 29%, 17% and 12%, respectively, of consolidated net
sales. Corresponding percentages of consolidated net sales generated by these
customers for the year ended December 31, 2001, were approximately 23.0%, 14.0%
and 2.7% respectively. At December 31, 2002, the outstanding accounts receivable
balances due from these two customers were $1,149,856, $932,707 and 1,697,852
respectively. At December 31, 2001 the outstanding accounts receivable balances
due from these three customers were $568,931, $579,035 and 367,677.

      4. Inventory

Inventory is comprised of the following:

                                      December 31, 2002       December 31, 2001
      Raw materials                      $ 1,865,871             $   728,344
      Work in process                      2,135,503               2,302,440
      Finished goods                       6,386,719               5,730,737
      Allowance, Excess Quantities          (354,500)               (303,100)
                                         -----------             -----------
        Total inventory                  $10,033,593             $ 8,458,421
                                         ===========             ===========


                                      F-11
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

      5. Notes Payable

Long-term debt at December 31, 2002 consists of:

<TABLE>
<CAPTION>
                                                                    Dec 31,2002          Dec 31, 2001
<S>                                                                 <C>                  <C>
      Term Loan with bank, payable in monthly installments
      of $22,222 plus interest at prime(4.25% at December
      31, 2002) plus 0.75% due February 1, 2004, net of debt
      discount of $89,387 and $138,135 at December 31, 2002
      and 2001, respectively.                                       $ 1,355,057          $ 1,070,010

      Term Loan with bank, payable in monthly installments
      of $24,060 including interest at 9.75% due January 5,
      2006                                                            2,647,586          $ 2,671,546

      Term Loan with bank, payable in monthly installments
      of $5,582 including interest at 10.00% due January 5, 2004         68,657          $   120,889

      Term Loan with bank, payable in monthly installments
      of $26,139 including interest at 5.75% due January 5, 2006      1,627,720                   --

      Loan payable to a Mexican finance institution
      denominated in Mexican Pesos bearing interest at
      9.81%                                                              90,322               90,322

      Loan with bank, with interest payable monthly at prime
      (4.25% at December 31, 2002) due December 31, 2003                969,425              967,526
                                                                    --------------------------------

      Total                                                         $ 6,758,767          $ 4,920,293

      Less current portion                                           (1,742,658)          (1,376,291)
                                                                    --------------------------------

           Total long-term debt                                     $ 5,016,109          $ 3,544,002
                                                                    --------------------------------
</TABLE>

In January, 2001, the Company entered into a Loan and Security Agreement with an
institutional lender under which the lender has provided the Company with a
credit facility in the amount of $9,500,000, collateralized by equipment,
inventory, receivables and other assets of the Company. The credit facility
includes a term loan of $1,426,000, at an interest rate of prime plus 0.75% per
annum, which is based upon the appraised value of the equipment of the Company
and a revolving line of credit at an interest rate of prime plus 0.5% per annum,
the amount of which is based on advances of up to 85% of eligible receivables
and up to 40% of the value of the Company's inventory. In 2002, the lender
advanced additional funds on the original term loan in the amount of $490,880
and advanced a second term loan in the amount of $1,740,000 and increased the
credit facility to $11,500,000. The term loans and revolving line of credit are
secured by substantially all assets of the Company. The term of this credit
facility is for a period of three years expiring on January 31, 2004, which may
be extended by either party for an additional year.

A second term loan was established in July of 2002 in the initial amount of
$1,229,000, at an interest rate of prime(4.25% at December 31, 2002) plus 1%.
The credit facility is collateralized by substantially all assets of the
Company. The term of this credit facility is for a period of three years, which
may be extended by either party for an additional year.

As of December 31, 2002 and 2001, the balance outstanding on the credit facility
was $5,642,649 and $5,697,717, respectively.

Also in January 2001, another lender loaned to the Company the sum of $2,873,000
in a refinance of the Company's principal office building and property situated
in Barrington, Illinois. The loan is collateralized by this building and
property, with a net carrying value of $2,886,595, and has been made in the form
of two notes. The first note is in the principal amount of $2,700,000, bears


                                      F-12
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

5. Notes payable, continued

interest at the rate of 9.75%, and has a term of five years with an amortization
period of 25 years.

The second note is in the principal amount of $173,000 with an interest rate of
10%, and has a term of three years.

Future Minimum principal payments, exclusive of debt discount, for amounts
outstanding under these long-term debt agreements are as follows for the year
ended December 31, 2002:

                                            2002
                                            ----

                      2003               1,742,658
                      2004               2,528,824
                      2005                  39,225
                      2006               2,537,447
                                        ----------

                                        $6,848,154
                                        ==========

The agreements impose limitations on the Company with respect to dividends,
maintaining minimum net worth of no less than $5,000,000 and allowing for the
subjective acceleration of amounts due under the loan agreements in the event of
material adverse changes.

      6. Subordinated Debt

In November, 1999, the Company received $865,000 from certain shareholders in
exchange for (a) two year 10% subordinated notes, and (b) three year warrants to
purchase 423,579 common shares at $1.69 per share. The cash proceeds were
allocated to the note and warrants based upon the relative fair value of the
securities issued. The value of the warrants was $593,467 calculated using
Black-Scholes option pricing formula. The $865,000 proceeds were allocated to
subordinated notes in the amount of $513,022 and warrants issued in connection
with subordinated debt, within stockholders' equity, of $351,978 based upon the
relative fair values. The Company applied the debt discount of $351,978 against
the subordinated debt. The debt discount was amortized using the effective
interest method over the term of the debt which matured in December 2001. During
2002, the stockholders contributed the remaining subordinated debt totaling
$715,000 to equity.

In December, 2002 the warrants were exercised.


                                      F-13
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

      7. Income Taxes

The income tax provisions are comprised of the following:


                                                       Dec. 31          Dec. 31,
                                                         2002             2001

Current:
  Federal                                              $     --         $     --
  State                                                      --               --
  Foreign                                                    --           22,316
                                                       -------------------------
                                                             --           22,316

Deferred:
  Federal                                                25,859          199,340
  State                                                   3,665               --
  Foreign                                                 9,541           54,897
                                                       -------------------------

                                                         39,065          254,237
                                                       -------------------------

Total income tax provision (benefit)                   $ 39,065         $276,553
                                                       =========================

The components of the net deferred tax asset(liability)at December 31 are as
follows:

<TABLE>
<CAPTION>
                                                            2002            2001
<S>                                                     <C>             <C>
      Deferred tax assets:
        Allowance for doubtful accounts                 $   135,667     $   141,915
        Inventory valuation                                 203,032         196,092
        Accrued liabilities                                 126,804         192,870
        Sale Leaseback                                       79,701        (396,974)
        Net operating loss carryforwards                  1,840,916       1,760,106
        Alternative minimum tax credit carryforwards        338,612         338,600
        State Investment Tax Credit carryforward             26,225              --
        Foreign Asset Tax Credit carryforward               166,790              --
                                                        -----------     -----------

         Total deferred tax assets                        2,917,747       2,232,609

      Deferred tax liabilities:
        Book over tax basis of capital assets              (989,197)        841,626
        Cash basis of foreign inventory purchases          (500,578)             --
                                                        -----------     -----------

                                                          1,427,972       1,390,983

      Less: Valuation allowance                            (738,600)       (738,600)
                                                        -----------     -----------

          Net deferred tax asset                        $   689,372     $   652,383
                                                        ===========     ===========
</TABLE>

The Company maintains a valuation allowance with respect to deferred tax assets
as a result of the uncertainty of ultimate realization. At December 31, 2002 the
Company has net operating loss carryforwards of approximately $4,600,000
expiring in various years through 2022. In addition, the Company has
approximately $338,600 of alternative minimum tax credits as of


                                      F-14
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

7. Income Taxes, continued

December 31, 2002, which have no expiration date. Unremitted earnings of foreign
subsidiaries have been indefinitely reinvested.

Income tax provisions differed from the taxes calculated at the statutory
federal tax rate as follows:

                                                   December 31,     December 31,
                                                       2002              2001
Taxes at statutory rate                             $ 114,000         $ (4,600)
State income taxes                                     16,000                0
Nondeductible Expenses                                 41,000               --
Increase in deferred tax
   Valuation allowance                                     --           27,300
State credit created in current year                  (22,000)              --
Foreign taxes and other                              (109,935)         253,853
                                                    --------------------------

Income tax provision                                $  39,065         $276,553
                                                    ==========================

      8. Employee Benefit Plan

The Company has a defined contribution plan for substantially all employees. The
plan provides for the Company matching contributions on the first $300 of
employee contributions with an additional bonus match of 1% of compensation for
all participants who are employees on the last date of the plan year. Profit
sharing contributions may also be made at the discretion of the Board of
Directors. Employer contributions to the plan totaled $53,680 for the year ended
December 31, 2002, and $57,160 for the year ended December 31, 2001.

      9. Related Party Transactions

The Company obtains legal services from a law firm in which two shareholders of
the law firm are also shareholders of the Company, and in which one shareholder
of the law firm is both a director and a shareholder of the Company. Legal fees
incurred with this firm were $102,000 for the year ended December 31, 2002 and
$121,305 for the year ended December 31, 2001.

In 1998, the Company advanced funds totaling $81,352 to officers of the Company.
$56,456 of these funds were used to purchase common stock of the Company and is
reflected as a contra equity account at December 31, 2002 and 2001.

In November 1999, the Company sold one of its buildings to a related party. See
Note 12.

      10. Goodwill and Intangible Assets

On January 1, 2002, the Company implemented Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Under the provisions of
SFAS 142, goodwill is no longer subject to amortization over its estimated


                                      F-15
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

10. Goodwill and Intangible Assets, continued

useful life, but instead will be subject to at least annual assessments for
impairment by applying a fair-value based test. SFAS 142 also requires that an
acquired intangible asset should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the asset can be sold, licensed, rented or exchanged, regardless of the
acquirer's intent to do so. The Company has no acquired intangible assets other
than goodwill. The Company determined that no transitional impairment loss was
required at January 1, 2002.

The Company retained an independent consulting firm to conduct a study and make
a determination whether the goodwill reflected on the Company's financial
statements was impaired as of January 1, 2002 and December 31, 2002. On March
24, 2003, the Company received the report and opinion of the outside firm to the
effect there was no impairment of the goodwill reflected on the financial
statements of the Company as of December 31, 2002.

The gross carrying amount of goodwill as of December 31, 2002 and 2001 is
$1,113,108.

                                                      Year to Date December 31
                                                        2002            2001
                                                    -----------    -------------
Reported net income (loss)                          $   302,512     $  (232,292)
Add back: Goodwill amortization                     $        --     $    86,664
                                                    -----------     -----------
Adjusted net income (loss)                          $   302,512     $  (145,628)
                                                    ===========     ===========

Basic earnings per share

Reported net income (loss)                          $      0.18     $     (0.15)
Add back: Goodwill amortization                     $        --            0.07
                                                    -----------     -----------
Adjusted net income (loss)                          $      0.18     $     (0.08)
                                                    ===========     ===========

Fully diluted earnings per share:

Reported net income (loss)                          $      0.16     $     (0.15)
Add back: Goodwill amortization                     $        --            0.07
                                                    -----------     -----------
Adjusted net income (loss)                          $      0.16     $     (0.08)
                                                    ===========     ===========

      11. Commitments and Contingencies

Operating Leases

The Company entered into a 10-year lease agreement for office and warehouse
facilities in November 1999, requiring monthly payments of $17,404, to Pepper
Road, Inc., a company related through common ownership. Approximately 50% of the
facility was subleased through March 2002, and after that, The Company assumed
the remaining 50% of the facility. The Company's United Kingdom subsidiary also
maintains a lease for office and warehouse space which expires in 2019.

The Company leases office equipment under operating leases which expire on
various dates between May 2003 and December 2006.


                                      F-16
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

11. Commitments and Contingencies, continued

The net lease expense was $348,631 and 269,643 for the years ended December 31,
2002 and 2001, which includes $208,844 in 2002 and 2001 to Pepper Road, Inc.

The future aggregate minimum net lease payments under existing agreements as of
December 31, as follows:

                                                                   Total
                       Pepper Road, Inc.       Other          Lease Payments
                       -----------------       -----          --------------
      2003               $  208,844           305,679           $  514,523
      2004                  208,844           303,039              511,883
      2005                  208,844           299,130              507,974
      2006                  208,844           290,931              499,775
      2007                  208,844           290,931              499,775
      Thereafter            382,881           602,886              985,767
                         ----------         ---------           ----------
          Total           1,427,101         2,092,596           $3,519,697
                         ----------         ---------           ----------

      12. Commitments and contingencies

Licenses

The Company has certain merchandising license agreements which are of a one to
two year duration that require royalty payments based upon the Company's net
sales of the respective products. The agreements call for guaranteed minimum
commitments that are determined on a calendar year basis. Future guaranteed
commitments due, as computed on a pro rata basis, as of December 31, are as
follows:

                        2003                              $271,700
                        2004                              $126,700
                        2005                              $126,700

      13. Sale/Leaseback of Building

In November, 1999, the Company sold its building located next to its
headquarters in Barrington, Illinois for a gain of $300,467, and entered into an
agreement to lease back the facility. The building is owned by an entity in
which officers/shareholders of the Company have a controlling interest. The gain
realized on the sale was deferred and is being recognized into income over the
10 year lease term.

      14. Relationship with Pepper Road Company

In January, 2003, the Financial Accounting Standards Board issued interpretation
No. 46, Consolidation of Variable Interest Entities. This Interpretation
establishes standards for identifying a variable interest entity and for
determining under what circumstances a variable interest entity should be
consolidated with its primary beneficiary. The requirements of Interpretation 46
apply to the Company for its year ending December 31, 2004.

Until now, a company has generally included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
Interpretation 46 changes that by requiring a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk


                                      F-17
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

14. Relationship with Pepper Road Company, continued

of loss from the variable interest entity's activities or is entitled to receive
a majority of the entity's residual returns or both.

In is possible that the Company will consolidate Pepper Road Company ("Pepper
Road") when this interpretation becomes effective. Pepper Road purchased from
the Company certain real estate including a building and leases that property to
the Company under a 10 year lease. The unaudited financial statements of Pepper
Road for its fiscal year ended December 31, 2002 include:

- --------------------------------------------------------------------------------
Gross Lease Income                                                    $  208,844
- --------------------------------------------------------------------------------
Net Income                                                            $   19,215
- --------------------------------------------------------------------------------
Assets, primarily land and building                                   $1,756,800
- --------------------------------------------------------------------------------
Liabilities, primarily notes payable to bank                          $1,712,727
- --------------------------------------------------------------------------------
Equity                                                                $   44,073
- --------------------------------------------------------------------------------

The Company paid a total of $208,844 in lease payments to Pepper Road during
2002 and 2001, respectively. The lease commitments of the Company to Pepper Road
are included in Note 11. Each of the following persons owns a one-third equity
interest in Pepper Road: Howard Schwan, President, John Schwan, Chairman of the
Board and Stephen Merrick, Executive Vice President. Each of the foregoing
persons is a director and a significant shareholder of the Company.

When Interpretation 46 becomes effective, if a determination is made that the
Company will consolidate with Pepper Road, the net amount added to the Company's
balance sheet must be recognized as the cumulative effect of an accounting
change. Interpretation 46 may be applied by restating previously issued
financial statements with a cumulative-effect adjustment as of the beginning of
the first year restated. The Company is not required to restate its financial
statements and does not intend to do so. The impact that adoption of
Interpretation 46 is expected to have on the Company's financial statements is
not currently known.

      15. Stock Options and Warrants

Under the Company's 1997 Stock Option Plan (effective July 1, 1997), a total of
119,050 shares of Common Stock are reserved for issuance under the Stock Option
Plan. Options to purchase 98,416 shares of Common Stock have been granted as of
October 31, 1998, and remain outstanding at December 31, 2002. The options are
exercisable immediately upon grant and have a term of ten years. The Plan
provides for the award of options, which may either be incentive stock options
("ISOs") within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code") or non-qualified options ("NQOs") which are not
subject to special tax treatment under the Code. The Plan is administered by the
Board or a committee appointed by the Board (the "Administrator"). Officers,
directors, and employees of, and consultants to, the Company or any parent or
subsidiary corporation selected by the Administrator are eligible to receive
options under the Plan. Subject to certain restrictions, the Administrator is
authorized to designate the number of shares to be covered by each award, the
terms of the award, the date on which and the rates at which options or other
awards may be exercised, the method of payment and other terms.


                                      F-18
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

15. Stock Options and Warrants, continued

On March 19, 1999, the Board of Directors approved for adoption, effective May
6, 1999, the 1999 Stock Option Plan ("Plan"). The Plan authorizes the grant of
options to purchase up to an aggregate of 158,733 shares of the Company's Common
Stock. As of December 31, 2002, 147,027 options had been granted under the 1999
Stock Option Plan. The options are exercisable immediately upon grant, and have
a term of ten years.

On April 12, 2001 the Board of Directors approved for adoption, effective
December 27, 2001, the 2001 Stock Option Plan ("Plan"). The Plan authorizes the
grant of options to purchase up to an aggregate of 158,733 shares of the
Company's Common Stock. As of December 31, 2002, 106,550 options had been
granted under the 2001 Stock Option Plan. The options are exercisable
immediately upon grant and have a term of ten years.

On April 24, 2002 the Board of Directors approved for adoption, effective
October 12, 2002, the 2002 Stock Option Plan ("Plan"). The Plan authorizes the
grant of options to purchase up to an aggregate of 142,860 shares of the
Company's Common Stock. As of December 31, 2002, 58,930 options had been granted
under the 2002 Stock Option Plan. The options are exercisable immediately upon
grant and have a term of ten years.

The exercise price for ISOs cannot be less than the fair market value of the
stock subject to the option on the grant date (110% of such fair market value in
the case of ISOs granted to a stockholder who owns more than 10% of the
Company's Common Stock). The exercise price of a NQO shall be fixed by the
Administrator at whatever price the Administrator may determine in good faith.
Unless the Administrator determines otherwise, options generally have a 10-year
term (or five years in the case of ISOs granted to a participant owning more
than 10% of the total voting power of the Company's capital stock). Unless the
Administrator provides otherwise, options terminate upon the termination of a
participant's employment, except that the participant may exercise an option to
the extent it was exercisable on the date of termination for a period of time
after termination.

In December, 1996, certain members of company management were issued warrants to
purchase 76,923 shares of the Company's Common Stock at an exercise price of
$2.73 per share in consideration of their facilitating and guaranteeing a bank
loan to the Company in the amount of $6.3 million. The warrants had a term of
six years and were exercised in 2002.

In September, 1998 the Company issued an option to purchase 11,905 shares of the
Company's Common Stock at an exercise price of $2.10 per share to Thornhill
Capital LLC in consideration for services. The option has a term of 10 years. In
September, 1999, warrants to purchase 19,079 shares of the Company's Common
Stock at an exercise price of $9.36 per share were cancelled and reissued at an
exercise price of $1.42 per share. In April, 2002, the Company issued an option
to purchase 11,905 shares of the Company's Common Stock at an exercise price of
$2.10 per share to Thornhill Capital in consideration of services.


                                      F-19
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

15. Stock Options and Warrants, continued

In November 1999, warrants issued in 1997 to purchase up to 76,389 shares of the
Company's Common Stock for $9.36 were cancelled. New warrants to purchase up to
423,579 shares of the Company's Common Stock at $1.688 were issued. The new
warrants had a term of 3 years and were exercised in 2002.

In July, 2001, certain members of company management were issued warrants to
purchase 119,050 shares of the Company's Common Stock at an exercise price of
$1.50 per share in consideration of their facilitating and guaranteeing and
securing bank loans to the Company in the amount of $1.4 million and for
advancing additional monies to the company that were repaid in 2001. The
warrants have a term of five years.

The following is a summary of the activity in the Company's stock option plans
and other options and warrants issued, as restated for the stock dividend, for
the years ended December 31, 2002 and December 31, 2001.

<TABLE>
<CAPTION>
                                                               Dec. 31, 2002    Weighted Avg.   Dec. 31, 2001    Weighted Avg.
                                                                                  Exercise                         Exercise
                                                                                    Price                            Price
<S>                                                              <C>                <C>           <C>                <C>
Outstanding and exercisable,
  beginning of period                                            1,094,739          $2.04           884,814          $2.28
Granted                                                             79,764           2.22           240,482           2.01
Exercised                                                         (601,245)          1.54                --             --
Cancelled                                                             (396)          6.51           (30,557)          5.37
                                                               ---------------------------------------------------------------

Outstanding and exercisable at the end of period                   572,862          $2.58         1,094,739          $2.04
</TABLE>

At December 31, 2002, available options to grant were 84,000.

Significant option and warrant groups outstanding at December 31, 2002 and
related weighted average price and remaining life information are as follows:

                                                                     Remaining
  Grant Date       Outstanding     Exercisable    Exercise Price    Life (Years)

September 1997           5,953           5,953             $6.28         6
September 1998          92,463          92,463             $6.51         7
September 1998          11,905          11,905             $2.10         6
September 1999          19,079          19,079             $1.42         3
March 2000             147,027         147,027             $1.95         8
July 2001              119,050         119,050             $1.50         3
December 2001          106,550         106,550             $1.46         9
April 2002              11,905          11,905             $2.10         3
December 2002           58,930          58,930             $2.36         5

The weighted average fair value of options granted during the years ending
December 31, 2002 and December 31, 2001 was $1.92 and $1.48 per share,
respectively.

      16. Stock Dividend and Class B Common Stock Conversion

On December 27, 2002, the Company distributed 304,218 shares of common stock in
connection with a 19.05% dividend. As a result of the stock dividend, common
stock was increased by $1,280,758 and accumulated deficit was increased by
$1,280,758. All references in the accompanying financial statements to the
number of common shares and pre-share amounts for 2001 have been restated to
reflect the stock dividend.

In July, 1997, the Company effected a recapitalization (the "Recapitalization")
without a formal reorganization. As part of the Recapitalization, the Board of
Directors approved the creation of Class B Common Stock, approved a 1 for 2.6
reverse stock split on both the Common Stock and Preferred Stock, and negotiated
a conversion of all then outstanding shares of the Company's Convertible
Preferred Stock into an aggregate of 366,300 shares of Class B Common Stock. The
conversion was effective upon the closing of an initial public offering of
575,000 shares of the Company's Common Stock on November 5, 1997. The shares of
Class B Common Stock contained rights identical to shares of Common Stock,
except that shares of Class B Common Stock, voting separately as a class, had
the right to elect four of the Company's seven directors. Shares of Common Stock
and Class B Common Stock, voting together as a class, vote on all other matters,
including the election of the remaining directors. The recapitalization, initial
public offering and related transactions were approved by written consent of the
shareholders. On July 1, 2002, all outstanding shares of Class B Common Stock,
by their terms, were converted to common stock.

      17. Earnings Per Share

Basic earnings per share is computed by dividing the income available to common
shareholders, net earnings, less redeemable preferred stock dividends and
redeemable common stock accretion, by the weighted average number of shares of
common stock outstanding during each period.


                                      F-20
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

17. Earnings Per Share, continued

Diluted earnings per share is computed by dividing the net earnings by the
weighted average number of shares of common stock and common stock equivalents
(redeemable common stock, stock options and warrants), unless anti-dilutive,
during each period.

Earnings per share for the years ended December 31, 2002, and December 31, 2001
was computed as follows:

                                               Year Ended       Year ended
                                              December 31,     December 31,
                                                  2002             2001

           BASIC
Average shares outstanding:
  Weighted average shares
   Outstanding during period                   1,688,384         1,511,958
                                              ==========        ==========

Earnings:
Net income (loss)                             $  302,512        $ (232,292)
                                              ==========        ==========

Amount for per share
  Computation                                 $  302,512        $ (232,292)
                                              ==========        ==========

Net earnings applicable to
    Common shares                             $     0.18        $    (0.15)
                                              ==========        ==========

          DILUTED
Average shares outstanding:
  Weighted average shares
    Outstanding                                1,688,384         1,511,958
  Common stock equivalents
    (options/warrants)                           196,021                --
                                              ----------        ----------
Weighted average shares
   Outstanding during period                   1,884,405         1,511,958
                                              ==========        ==========

Earnings:
  Net income                                  $  302,512        $ (232,292)
                                              ==========        ==========

Amount for per share
  Computation                                 $  302,512        $ (232,292)
                                              ==========        ==========

Net earnings applicable to
    Common shares                             $     0.16        $    (0.15)
                                              ==========        ==========

      18. Geographic Segment Data

The Company's operations consist of a business segment which designs,
manufactures, and distributes balloon products. Transfers between geographic
areas were primarily at cost. The Company's subsidiaries have assets consisting
primarily of trade accounts receivable, inventory and machinery and equipment.
Sales and selected financial information by geographic area for the periods
ended December 31, 2001, and December 31, 2002 are as follows:


                                      F-21
<PAGE>

CTI Industries Corporation and Subsidiaries

Notes to the Consolidated Financial Statements

18. Geographic Segment Data, continued

<TABLE>
<CAPTION>
                          United States     United Kingdom        Mexico          Eliminations       Consolidated
<S>                       <C>                 <C>              <C>                <C>                <C>
Year ended 12/31/01
Revenues                  $ 24,706,305        $1,672,672       $ 5,940,039        $(4,872,522)       $ 27,446,494
Operating income             1,089,865            66,594           128,002           (267,739)          1,016,722
Net income (loss)             (104,384)           49,697            46,451           (224,056)           (232,292)
Total Assets              $ 20,354,875        $  620,228       $ 5,785,584        $(2,096,462)       $ 24,664,225

Year ended 12/31/02
Revenues                  $ 37,418,425        $1,965,736       $ 5,235,119        $(3,382,804)       $ 41,236,476
Operating income             1,259,905            68,535           212,174            (95,674)          1,444,940
Net income (loss)              451,582            40,065           (99,724)           (89,411)            302,512
Total Assets              $ 26,311,194        $  979,959       $ 4,982,751        $(2,002,046)       $ 30,271,858
</TABLE>

      19. Litigation

On September 5, 2002, Byrne Sales Associates, Inc. filed an action against the
Company in the Circuit Court of Jefferson County, Wisconsin for alleged breach
of contract, claiming damages in the amount of $151,000. In the action, the
plaintiff alleges that certain products manufactured by the Company and sold to
plaintiff were defective. The Company has filed an answer to the complaint
denying the substantive claims. Management of the Company believes the claims
are without merit in fact or law and intends vigorously to defend the action.

In addition, the Company is also party to certain lawsuits arising in the normal
course of business. The ultimate outcome of these matters is unknown, but in the
opinion of management, the settlement of these matters is not expected to have a
significant effect on the future financial position or results of operations of
the Company.

      20. Fourth Quarter Adjustments

During the fourth quarter, the Company determined that adjustments to inventory,
intercompany accounts and other accounts were necessary. The net effect of these
fourth quarter adjustments did not materially effect the operating results of
the first three quarters.

      21. Subsequent Events

On February 22, 2003, CTI Mexico S.A. de C.V., 97% owned subsidiary of the
Company, effected a spin-off under Mexican law under which a portion of the
assets, liabilities and capital of CTI Mexico were transferred to a newly
organized entity. This entity will operate under the name Flexo Universal S.A.
de C.V. The capital ownership of Flexo Universal is identical to that of CTI
Mexico. Flexo Universal commenced operations on March 1, 2003.

During February and March, 2003, two officers of the Company entered into
agreements with the Company pursuant to which such individuals loaned the
Company an aggregate of $1,630,000 in exchange for(i)two year notes bearing
interest at 9% per annum and (ii)five year warrants to purchase up to 163,000
shares of common stock of the Company at $4.87 per share (the market price of
the Company's common stock on the date of issuance of the Warrants). The funds
were provided to re-finance an existing loan to CTI Mexico and Flexo Universal
of $880,000 and to provide funds to Flexo Universal for capital investment and
working capital.

      During March and April, 2003, an officer of the Company loaned to the
Company an additional aggregate amount of $690,000. Such amount is due on demand
and bears interest at the rate of 8% per annum.


                                      F-22
<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>d55197_ex10-5.txt
<DESCRIPTION>NOVEMBER, 1999 LEASE AGREEMENT
<TEXT>

                                  EXHIBIT 10.5
                            INDUSTRIAL BUILDING LEASE

- ---------------------------
       TERM OF LEASE
 Beginning          Ending
- ---------------------------

 11/10/99        11/10/2009

- --------------------------------------------------------------------------------
MONTHLY RENT    DATE OF LEASE                   LOCATION OF PREMISES
- --------------------------------------------------------------------------------

                                               22222 North Pepper Road
                                             Barrington, Illinois 60010
$17,403.65        11/10/99              [See description of Leased Premises
                                            on Exhibit A attached hereto
                                               and made a part hereof]

- --------------------------------------------------------------------------------
                                    PURPOSE
- --------------------------------------------------------------------------------

      General office and warehouse use.

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

           LESSEE                                  LESSOR

NAME       CTI Industries Corporation   NAME       Pepper Road, Inc.

ADDRESS    22160 North Pepper Road      ADDRESS    401 S. LaSalle St., Ste. 1302

CITY       Barrington, Illinois 60010   CITY       Chicago, Illinois 60605

In consideration of the mutual covenants and agreements herein stated, Lessor
hereby leases to Lessee and Lessee hereby leases from Lessor solely for the
above purpose the premises designated above (the "Premises"), together with the
appurtenances thereto, for the above Term.

                         LEASE COVENANTS AND AGREEMENTS

1.    RENT. Lessee shall pay Lessor or Lessor's agent as rent for the Premises
      the sum stated above, monthly in advance, until termination of this Lease,
      at Lessor's address stated above or such other address as Lessor may
      designate in writing.

2.    UTILITY CHARGES. Lessee will pay, in addition to the specified rent above,
      all water, telephone, gas, electric light and power bills taxed, levied or
      charged on the Premises, for and during the term of this Lease. In case
      said bills for water, rent, gas, electric light and power shall not be
      paid by Lessee when due, Lessor shall have the right to pay the same, and
      any amounts so paid, together with any sums paid by Lessor to keep the
      Premises in a clean and healthy condition, are declared to be additional
      rent and shall be payable by Lessee with the next installment of rent due
      thereafter.

<PAGE>

3.    PAYMENT BY LESSEE. In addition to the rent to be paid by Lessee for the
      Premises, Lessee shall pay as additional rent for the Premises, all real
      estate taxes, special assessment taxes, sewer charges, water rates and all
      other impositions, ordinary and extraordinary, of every kind and nature
      whatsoever, which are billed to the Premises or for any improvements made
      or placed on the Premises by Lessee, which Lessor shall become obligated
      to pay during the term of this Lease ("Impositions").

4.    INTEREST ON LATE PAYMENTS. Each and every installment of rent, and each
      and every payment of other charges under this Lease which shall not be
      paid within ten (10) days of the date due, shall bear interest at the
      lower of either the highest rate permitted by law or twenty percent (20%)
      per annum from the date when the same is payable under the terms of this
      Lease until the same shall be paid.

5.    RULES AND REGULATIONS. Lessee shall observe and comply with all reasonable
      rules and regulations as may be required by Lessor for the necessary,
      proper and orderly care of the Premises.

6.    ASSIGNMENT; SUBLETTING. Lessee shall not assign this Lease or permit by
      any act or default the transfer of any of Lessee's interest under this
      Lease by operation of law, nor shall Lessee offer the Premises or any part
      thereof for lease or sublease, or permit the use thereof for any purpose
      other than as above mentioned, without in each case the written consent of
      Lessor. Lessor hereby acknowledges that Lessee is current leasing portions
      of the Premises and approves of the continuation of the following lease on
      its existing terms: Industrial Building Lease dated September 28, 1998,
      with Kroy, L.L.C. d/b/a Mac's Snow Removal, expiring on May 22, 2000.
      Lessor also acknowledges that Lessee is currently negotiating an office
      lease with Tri-County Physicians and Lessor confirms that it will approve
      of any lease or sublease entered into between Lessee and Tri-County
      regarding office space on the Premises.

7.    INSURANCE. Lessee shall procure and maintain policies of insurance at its
      own cost and expense throughout the term of this Lease insuring:

            7.1 Lessor and Lessee from all claims, demands or actions for injury
      to or death of any person, in an amount of not less than $1,000,000 for
      injury to or death of more than one person in any one occurrence in an
      amount of not less than $1,000,000 and for damage to property in an amount
      of not less than $2,400,000 made by, or on behalf of, any person or
      persons, firm or corporation arising from, related to or connected with
      the Premises or any act or omission of Lessee together with an umbrella
      policy of $15,000,000. Said insurance shall comprehend full coverage of
      the indemnity set forth in Paragraph 10 hereof;

            7.2 Lessor and Lessee with the same limits of coverage as provided
      in subsection 7.1 for loss or damage by boiler or internal explosion or
      breakdown of boilers, if applicable;


                                       2
<PAGE>

            7.3 Lessee from all worker's compensation claims;

            7.4 Lessor and Lessee against breakage of all plate glass utilized
      in the Building located on the Premises caused by Lessee; and

            7.5 Such other insurance, and in such amounts as may from time to
      time be reasonably required by Lessor and which is customary for buildings
      and operations that are similar to the Premises and Lessee's operations
      thereon.

8.    FORM OF INSURANCE. The insurance set forth in Section 7 above shall be
      placed with reputable companies and the form, substance and amount shall
      be (even to the extent inconsistent with the foregoing if requested by a
      mortgagee of Lessor) satisfactory to Lessor and any mortgagee of Lessor.
      Such insurance shall not be subject to cancellation or material change,
      except after at least thirty (30) days's prior written notice to Lessor
      and any mortgagee of Lessor. The original insurance policies (or
      certificates thereof satisfactory to Lessor) together with satisfactory
      evidence of payment of the premiums thereon shall be deposited with Lessor
      at the commencement date of this Lease and renewals thereof not less than
      thirty (30) days prior to the end of the term of each such coverage.

9.    WAIVER OF CERTAIN CLAIMS. Lessee waives all claims it may have against
      Lessor, its beneficiaries, agents and employees for damage or injury to
      persons or property sustained by Lessee or any persons claiming through
      Lessee or by any occupant of the Premises, or by any other person,
      resulting directly or indirectly from fire or other casualty, or any
      existing or future condition, defect, matter or thing in or about the
      Premises or any part thereof, or from any equipment or appurtenance
      therein or thereon, or from any accident in or about the Premises or from
      any occurrence, act, negligence or omission of any tenant, subtenant or
      other occupant of the Premises or any part thereof or of any other person,
      including Lessor, to the extent permitted by law. This Section 9 shall
      include, but not be limited to, damage caused by water, snow, frost,
      steam, excessive heat or cold, sewage, gas, odors, or noise, broken glass,
      sprinklers, flooding of basement or caused by bursting or leakage of pipes
      or plumbing fixtures, and shall apply equally whether any such damage
      results from the act or neglect of Lessee or of other tenants, or
      occupants of any part of the Premises or of any other person, including
      Lessor to the extent permitted by law, or whether such damage be caused by
      or result from any thing or circumstance above mentioned or referred to,
      or to any other thing or circumstance whether of a like nature or of a
      wholly different nature. All personal property belonging to Lessee or any
      occupant of the Premises that is in or on any part of the Premises shall
      be there at the risk of Lessee or of such other person only, and Lessor
      shall not be liable for any damage thereto or for the theft or
      misappropriation thereof.

10.   INDEMNITY FOR ACCIDENTS. Lessee covenants and agrees that it will protect
      and save and keep the Lessor forever harmless and indemnified against and
      from any penalty or damages or charges imposed for any violation of any
      laws or ordinances, whether occasioned


                                       3
<PAGE>

      by the neglect of Lessee or those holding under Lessee, and that Lessee
      will at all times protect, indemnify and save and keep harmless Lessor
      against and from any and all loss, cost, damage or expense, arising out of
      or from any accident or other occurrence whatsoever on or about the
      Premises, causing injury to any person or property whomsoever or
      whatsoever and will protect, indemnify and save and keep harmless the
      Lessor against and from any and all claims and against and from any and
      all loss, cost, damage or expense arising out of any failure of Lessee in
      any respect to comply with and perform all the requirements and provision
      hereof.

11.   HAZARDOUS MATERIALS. Lessor and Lessee agree as follows with respect to
      the existence or use of "Hazardous Material" on the Premises or otherwise
      in the Building located thereon:

            11.1 Lessee, at its sole cost and expense, shall comply with all
      laws, statutes, ordinances, rules and regulations of any governmental
      authority having jurisdiction concerning environmental, health and safety
      matters, including, but not limited to, any discharge into the air,
      surface water, sewers, soil or groundwater of any hazardous material [as
      defined in Section 11.3 below], whether within or outside the Building
      located on the Premises.

            11.2 It shall not be unreasonable for Lessor to withhold its consent
      to any proposed assignment or sublease pursuant to Paragraph 6 if (i) the
      proposed assignee's or sublessee's anticipated use of the Premises
      involves the generation, storage, use, treatment or disposal of Hazardous
      Material, or (ii) the proposed assignee or sublease is subject to an
      enforcement order issued by any governmental authority in connection with
      the use, disposal or storage of a Hazardous Material.

            11.3 As used in this Lease, the term "Hazardous Materials" means any
      hazardous or toxic substance, material or waste which is or becomes
      regulated by any local government authority, the State of Illinois or the
      United States Government. The term "Hazardous Material" includes, without
      limitation, any material or substance which is (i) designated as a
      "hazardous substance" pursuant to Section 1311 of the Federal Water
      Pollution Control Act (33 U.S.C. Section 1317), (ii) defined as a
      "hazardous waste" pursuant to Section 1004 of the Federal Resource
      Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (42 U.S.C.
      Section 6903), or (iii) defined as a "hazardous substance" pursuant to
      Section 101 of the Comprehensive Environmental Response, Compensation and
      Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601) and
      asbestos.

            11.4 Any increase in the premiums for necessary insurance on the
      Premises which arises from Lessee's use and/or storage of these materials
      shall be solely at Lessee's expense. Lessee shall procure and maintain at
      its sole expense such additional insurance as may be necessary to comply
      with any requirement of any Federal, State or local government agency with
      jurisdiction.


                                       4
<PAGE>

12.   SUBORDINATION OR SUPERIORITY. The rights and interest of Lessee under this
      Lease shall be subject and subordinate to any mortgage or first trust deed
      that has been or hereafter may be placed upon the Premises or the Building
      located thereon by Lessor and to any and all advances to be made
      thereunder, and to the interest thereon, and all renewals, replacements
      and extensions thereof. Lessee shall execute and deliver whatever
      instruments may be reasonably required for such purposes within five (5)
      days after demand in writing and in conjunction with any such request.

13.   RIGHTS RESERVED TO LESSOR. Without limiting any other rights reserved or
      available to Lessor under this Lease, at law or in equity, Lessor, on
      behalf of itself, its beneficiaries, its agents and assigns reserves the
      following rights to be exercised at Lessor's election:

            13.1 To change the street address of the Premises;

            13.2 To inspect the Premises during business hours after giving
      reasonable notice and to make repairs, additions or alterations to the
      Premises, at Lessor's or Lessee's expense as herein otherwise provided,
      specifically including, but without limiting the generality of the
      foregoing, to make repairs, additions or alterations within the Premises
      to mechanical, electrical, and other facilities;

            13.3 To show the Premises to prospective purchasers, mortgagees, or
      other persons having a legitimate interest in viewing the same, and to
      persons wishing to rent the Premises;

            13.4 To place and maintain the usual "For Rent" or "For Sale" signs
      in, on or about the Premises; and

            13.5 During the last ninety (90) days of the Lease term, if during
      or prior to that time Lessee vacates the Premises, to decorate, remodel,
      repair, alter or otherwise prepare the Premises for new occupancy.

      Lessor may enter upon the Premises during business hours for any and all
      of said purposes and may exercise any and all of the foregoing rights
      hereby reserved, without such entering being deemed an eviction or
      disturbance of Lessee's use or possession of the Premises, and without
      being liable in any manner to Lessee.

14.   SURRENDER AND REMOVAL OF TENANT'S PROPERTY. Upon the termination of this
      Lease, whether by forfeiture, lapse of time or otherwise, or upon the
      termination of Lessee's right to possession of the Premises, Lessee will
      at once surrender and deliver up the Premises, together with all
      improvements thereon, to Lessor in the same condition and repair as of the
      commencement date of this Lease, reasonable wear and tear excepted. All
      alterations, additions, hardware, non-trade fixtures and all improvements,
      temporary or permanent, in or upon the Premises placed there by Lessee
      shall become Lessor's property


                                       5
<PAGE>

      and shall remain upon the Premises upon such termination of this Lease by
      lapse of time or otherwise, without compensation or allowance or credit to
      Lessee. If Lessor requests removal of said additions, hardware, non-trade
      fixtures and improvements, Lessee, at Lessee's sole cost and expense,
      shall remove the same and repair any damage to the Premises caused by such
      removal, and, if Lessee does not make such removal at said termination of
      this Lease, or within ten (10) days after such request, whichever is
      later, Lessor may (i) remove and deliver the same to any other place of
      business of Lessee or warehouse, and Lessee shall pay the cost of such
      removal, repairs to the Premises, delivery and warehousing to Lessor on
      demand, or (ii) treat such trade fixtures as having been conveyed to
      Lessor with this Lease by a Bill of Sale, without further payment, whether
      by set-off, credit allowance or otherwise, by Lessor or Lessee.

15.   NO WASTE OR MISUSE. Lessee shall restore the Premises to Lessor, with
      glass of like kind and quality in the several doors and windows thereof,
      entire and unbroken, as is now therein, and will not allow any waste of
      water or misuse or neglect the water or light fixtures on the Premises,
      and will pay all damages to the Premises caused by such waste or misuse.

16.   TERMINATION; ABANDONMENT; RE-ENTRY; RELETTING. At the termination of this
      Lease, by lapse of time or otherwise, Lessee agrees to yield up immediate
      and peaceable possession to Lessor, and failing so to do, to pay as
      liquidated damages, for the whole time such possession is withheld, the
      sum of two and one-half times the per diem rent then or most recently due
      under this Lease per day, and it shall be lawful for Lessor or its legal
      representatives at any time thereafter, without notice, to re-enter the
      Premises or any part thereof, either with or (to the extent permitted by
      law) without process law, and to expel, remove and put out Lessee or any
      person or persons occupying the same, using such force as may be necessary
      so to do, and to repossess and enjoy the Premises again as before this
      Lease, without prejudice to any remedies which might otherwise be used for
      arrears of rent or preceding breach of covenants. In case the Premises
      shall be abandoned, deserted, or vacated, and remain unoccupied five days
      consecutively, Lessee hereby authorizes and requests the Lessor as
      Lessee's agent to re-enter the Premises and remove all articles found
      therein, place them in some regular warehouse or other suitable storage
      place, at the sole cost and expense of Lessee, and proceed to re-rent the
      Premises at the Lessor's option and discretion and apply all money so
      received after paying the expenses of such removal toward the rent
      accruing under this Lease. This request shall not in any way be construed
      as requiring any compliance therewith on the part of Lessor, except as
      required by Illinois statute. If Lessee shall fail to pay the rent at the
      times, place and in the manner above provided, and the same shall remain
      unpaid five days after the day whereon the same should be paid, Lessor by
      reason thereof shall be authorized to declare the Lease Term ended, and
      Lessee hereby expressly waives all right or rights to any notice or demand
      under any Illinois statute relative to forcible entry or detainer or
      landlord and tenant, and agrees that the Lessor, its agents or assigns may
      begin suit for possession or rent without notice or demand.


                                       6
<PAGE>

17.   REMOVED PROPERTY. In the event of re-entry and removal of the articles
      found on the Premises as hereinbefore provided, Lessee hereby authorizes
      and requests Lessor to sell the same at public or private sale with or
      without notice, and the proceeds thereof, after paying the expenses of
      removal, storage and sale to apply towards the rent reserved herein,
      sending the overplus, if any, to Lessee upon demand.

18.   CONFESSION OF JUDGMENT. If default be made in the payment of rent, or any
      installment thereof, as herein provided, Lessee hereby irrevocably
      constitutes any attorney of any Court of Record in this State, attorney
      for Lessee and in Lessee's name, from time to time, to enter the
      appearance of Lessee, to waive the issuance of process and service
      thereof, to waive trial by jury, and to confess judgment in favor of
      Lessor against Lessee for the amount of rent which may be then due
      hereunder, together with costs of suit and a reasonable sum for
      plaintiff's attorneys fees in or about the entry of such judgment, and to
      waive and release all errors and right of appeal from any such judgment,
      and to consent to an immediate execution thereon.

19.   OPTION TO TERMINATE. In the event that Lessor, its successors, attorneys
      or assigns shall desire to regain the possession of the Premises herein
      described and terminate this Lease for any reason, Lessor shall have the
      option of so doing upon giving Lessee thirty (30) days notice of Lessor's
      election to exercise such option.

20.   RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed or
      construed by the parties hereto, nor by any third party, as creating the
      relationship of principal and agent, partnership or joint venture by the
      parties hereto, it being understood and agreed that no provisions
      contained in this Lease nor any acts of the parties hereto shall be deemed
      to create any relationship other than the relationship of lessor and
      lessee.

21.   CORPORATE STANDING AND AUTHORITY. Lessee hereby represents and warrants to
      Lessor that Lessee is duly incorporated and is in good standing under the
      laws of said state or states as applicable, and is authorized to do
      business in the State of Illinois and has due authority to execute this
      Lease.

22.   TIME OF ESSENCE. Time is of the essence of this Lease, and all provisions
      herein relating thereto shall be strictly construed.

23.   GOVERNING LAW. This Lease shall be construed and enforced in accordance
      with the laws of the State of Illinois.

24.   NO RENT DEDUCTION OR SET OFF. Lessee's covenant to pay rent is and shall
      be independent of each and every other covenant of this Lease. Lessee
      agrees that any claim by Lessee against Lessor shall not be deducted from
      rent nor set off against any claim for rent in any action.


                                       7
<PAGE>

25.   RENT AFTER NOTICE OR SUIT. It is further agreed, by the Parties hereto,
      that after the service of notice or the commencement of a suit or after
      final judgment for possession of the Premises, Lessor may receive and
      collect all rents due, and the payment of said rent shall not waive or
      affect said notice, said suit, or said judgment.

26.   PAYMENT OF COSTS. Lessee will pay and discharge all reasonable costs,
      attorney's fees and expenses that shall be made and incurred by Lessor in
      enforcing the covenants and agreements of this Lease.

27.   RIGHTS CUMULATIVE/WAIVER. The rights and remedies of Lessor under this
      Lease are cumulative. No failure by Lessor to exercise any of its rights
      hereunder or to insist upon strict compliance with respect to any
      obligation hereunder, and no custom or practice of the Parties at variance
      with the terms hereof shall constitute a waiver by either Party to demand
      exact compliance with the terms of this Lease. Waiver by either Party of
      any particular default by the other Party shall not affect or impair such
      Party's rights in respect to any subsequent default of the same or of a
      different nature, nor shall any delay or omission of either Party to
      exercise any rights arising from any default by the other Party affect or
      impair such Party's rights as to such default or any subsequent default.

28.   ENTIRE AGREEMENT. All understandings and agreements, oral or written,
      heretofore made between the parties hereto are merged in this Lease, which
      alone fully and completely recites the agreement between Lessor, its
      agents and beneficiaries, and Lessee.

29.   SEVERABILITY. Wherever possible each provision of this Lease shall be
      interpreted in such manner as to be effective and valid under applicable
      law, but if any provision of this Lease shall be prohibited by or invalid
      under applicable law, such provision shall be ineffective to the extent of
      such prohibition or invalidity, without invalidating the remainder of such
      provision or the remaining provisions of this Lease.

30.   AMENDMENTS MUST BE IN WRITING. None of the covenants, terms or conditions
      of this Lease, to be kept and performed by either Party, shall in any
      manner be altered, waived, modified, changed or abandoned, except by a
      written instrument, duly signed, acknowledged and delivered by the party
      against which such modification is being asserted.

31.   PLURALS; SUCCESSORS. The words "Lessor" and "Lessee" wherever used in this
      Lease shall be construed to mean Lessors or Lessees in all cases where
      there is more than one Lessor or Lessee, and to apply to individuals, male
      or female, or to firms or corporations, as the same may be described as
      Lessor or Lessee herein, and the necessary grammatical changes shall be
      assumed in each case as though fully expressed. All covenants, promises,
      representations and agreements herein contained shall be binding upon,
      apply and inure to the benefit of Lessor and Lessee and their respective
      heirs, legal representatives, successors and assigns.


                                       8
<PAGE>

      This Lease has been executed by one or more corporations, and such
executions have been authorized by a duly adopted resolution of the Board of
Directors of such corporations.

      This Lease consists of 9 pages numbered 1 through 9.


                                       9
<PAGE>

WITNESS the hands and seals of the Parties hereto, on the Date of the Lease
stated above.

LESSEE: CTI INDUSTRIES CORPORATION      LESSOR: PEPPER ROAD, INC.


By:  /s/ Howard W. Schwan               By:  /s/ Howard W. Schwan
     ------------------------                -----------------------------------

Its: President                               Its: Vice-President

                              ASSIGNMENT BY LESSOR

      On this ___________________, 19______, for value received, Lessor hereby
transfers, assigns and sets over to _______________________, all right, title
and interest in and to the above Lease and the rent thereby reserved, except
rent due and payable prior to _____________________, 19______.

                                        __________________________________(SEAL)

                                        __________________________________(SEAL)


                                       10
<PAGE>

                                    EXHIBIT A

                         DESCRIPTION OF LEASED PREMISES

      All of the real property commonly known as 22222 North Pepper Road,
Barrington, Illinois, including all Buildings and parking facilities located
thereon, such property bearing the following legal description:

      THAT PART OF THE SOUTH 1/2 OF SECTION 21, TOWNSHIP 43 NORTH, RANGE 9, EAST
      OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: COMMENCING AT A
      POINT IN THE EAST LINE OF THE WEST 1/2 OF THE SOUTHEAST 1/4 OF SAID
      SECTION 21, 983.62 FEET NORTH OF THE SOUTHEAST CORNER THEREOF; THENCE WEST
      PARALLEL WITH THE SOUTH LINE OF SAID SOUTHEAST 1/4, 699.98 FEET; THENCE
      NORTHERLY 332.59 FEET TO A POINT 323.17 FEET NORTH AND 648.28 FEET WEST OF
      THE POINT OF BEGINNING; THENCE EASTERLY PARALLEL TO THE SOUTH LINE OF SAID
      SOUTHEAST 1/4, 648.28 FEET TO THE EAST LINE OF THE WEST 1/2 OF SAID
      SOUTHEAST 1/4; THENCE SOUTH 323.17 FEET TO THE POINT OF BEGINNING,
      (EXCEPTING THEREFROM THE EAST 33 FEET THEREOF) IN LAKE COUNTY, ILLINOIS.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>4
<FILENAME>d55197_ex10-6.txt
<DESCRIPTION>WARRANT TO PURCHASE 79,364 SHARES
<TEXT>

                                  EXHIBIT 10.6

                  The securities represented by this Warrant have not been
                  registered under the Securities Act of 1933, and thus may not
                  be transferred unless registered under that Act or unless an
                  exemption from registration is available.

                                        Warrant dated July 17, 2001, to purchase
                                        66,666 Shares of Common Stock on or
                                        before July 17, 2006.

                             STOCK PURCHASE WARRANT
                           TO PURCHASE COMMON STOCK OF
                           CTI INDUSTRIES CORPORATION

      This certifies that, for value received, John H. Schwan, or his assigns,
is entitled to subscribe for and purchase from CTI INDUSTRIES CORPORATION, a
Delaware corporation (hereinafter called the "Company"), at a price of $1.78 per
share (subject to adjustment as set forth in paragraph 3 below) and at any time
after the date hereof to and including July 17, 2006, 66,666 (subject to
adjustment as set forth in paragraph 3 below) fully paid and non-assessable
shares of the Company's common stock, par value $.195 per share (hereinafter
referred to as the "Common Stock").

      This Warrant is subject to the following provisions, terms and conditions:

      1. Exercise; Issuance of Certificates; Payment for Shares. The rights
represented by this Warrant may be exercised by the holder hereof at any time
within the period specified above, in whole or in part (but not as to a
fractional share of Common Stock), by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company (or such other
office of the Company as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company) (a)
specifying the number of shares of Common Stock being purchased and (b)
accompanied by a check payable to the Company for the purchase price for such
shares. The Company agrees that the shares so purchased shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Certificates for the shares so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten days, after the rights represented by this Warrant shall have been
so exercised, and, unless this Warrant has expired, a new Warrant of like tenor,
representing the right to purchase the number of shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be delivered
to the holder hereof within such time.

<PAGE>

      2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees:

            (a) that all shares of Common Stock which may be issued upon
      exercise of the rights represented by this Warrant will, upon issuance, be
      fully paid and nonassessable and free from all taxes, liens and charges
      with respect to the issue thereof;

            (b) without limiting the generality of the foregoing, that the
      Company will from time to time take all such action as may be required to
      assure that the par value, if any, per share of Common Stock is at all
      times equal to or less than the then effective Warrant Purchase Price (as
      hereinafter defined) per share of Common Stock issuable pursuant to this
      Warrant;

            (c) that, during the period within which the rights represented by
      this Warrant may be exercised, the Company will at all times have
      authorized, and reserved for the purpose of issue or transfer upon
      exercise of the rights evidenced by this Warrant, a sufficient number of
      shares of Common Stock to provide for the full exercise of the rights
      represented by this Warrant;

            (d) that the Company will take all such action as may be necessary
      to assure that the Common Stock issuable upon the exercise hereof may be
      so issued without violation of any applicable law or regulation; and

            (e) that the Company will not take any action which would result in
      any adjustment of the Warrant Purchase Price if (i) the total number of
      shares of Common Stock issuable after such action upon exercise of this
      Warrant, together with all shares of Common Stock then outstanding and all
      shares of Common Stock then issuable upon exercise of all Options (as
      hereinafter defined) and upon conversion of all Convertible Securities (as
      hereinafter defined) then outstanding, would exceed (ii) the total number
      of shares of Common Stock then authorized by the Company's Articles of
      Incorporation (all such issued and issuable Common Stock being called the
      "Potentially Outstanding Common Stock").

In the event any stock or securities of the Company other than Common Stock are
issuable upon the exercise hereof, the Company will take or refrain from taking
any action referred to in clauses (a) through (e) of this paragraph 2 as though
such clauses apply, equally, to such other stock or securities then issuable
upon the exercise hereof.

      3. Warrant Purchase Price. The provisions set forth in paragraphs 1 and 2
above are, however, subject to the following:

            3.1 Adjustment of Warrant Purchase Price; Resulting Adjustment of
      Number of Purchasable Shares. The initial Warrant Purchase Price of $1.78
      per share of Common


                                       2
<PAGE>

      Stock shall be subject to adjustment from time to time as hereinafter
      provided (such price or such price as last adjusted pursuant to the terms
      hereof, as the case may be, is herein called the "Warrant Purchase
      Price"). Upon each adjustment of the Warrant Purchase Price, the holder of
      this Warrant shall thereafter be entitled to purchase, at the Warrant
      Purchase Price resulting from such adjustment, the number of shares of
      Common Stock obtained by multiplying the Warrant Purchase Price in effect
      immediately prior to such adjustment by the number of shares of Common
      Stock purchasable pursuant hereto immediately prior to such adjustment and
      dividing the product thereof by the Warrant Purchase Price resulting from
      such adjustment.

            3.2 Adjustment of Warrant Purchase Price Upon Issuance of Stock. If
      and whenever after the date hereof the Company shall issue or sell any
      shares of its Common Stock for a consideration per share less than the
      Warrant Purchase Price in effect immediately prior to the time of such
      issue or sale (except if such issue or sale shall be made pursuant to the
      exercise of Options or Convertible Securities, as defined below,
      outstanding on the date hereof), then, forthwith upon such issue or sale,
      the Warrant Purchase Price shall be reduced to the price, calculated to
      the nearest cent, determined by dividing (a) the sum of (i) the number of
      shares of Common Stock outstanding immediately prior to such issue or sale
      multiplied by the then existing Warrant Purchase Price and (ii) the
      consideration, if any, received by the Company upon such issue or sale, by
      (b) the total number of shares of Common Stock outstanding immediately
      after such issue or sale. No adjustment of the Warrant Purchase Price,
      however, shall be made in an amount less than $0.01 per share, but any
      such lesser adjustment shall be carried forward and shall be made at the
      time and together with the next subsequent adjustment which together with
      all adjustments so carried forward shall amount to $0.01 per share or
      more.

            For purposes of this paragraph 3.2, the following paragraphs 3.3 to
      3.15, inclusive, subject to the exception set forth above, shall also be
      applicable:

            3.3 Issuance of Rights or Options. In case at any time the Company
      shall in any manner grant (whether directly or by assumption in a merger
      or otherwise) any rights to subscribe for or to purchase, or any options
      for the purchase of, Common Stock or any stock or securities convertible
      into or exchangeable for Common Stock (such rights or options being herein
      called "Options" and such convertible or exchangeable stock or securities
      being herein called "Convertible Securities"), whether or not such Options
      or the right to convert or exchange any such Convertible Securities are
      immediately exercisable, and the price per share for which Common Stock is
      issuable upon the exercise of such Options or upon conversion or exchange
      of such Convertible Securities (determined as provided in the following
      sentence) shall be less than the Warrant Purchase Price in effect
      immediately prior to the time of granting of such Options, then the
      maximum number of shares of Common Stock issuable upon the exercise of all
      such Option or upon conversion or exchange of the total maximum amount of
      such Convertible Securities shall be deemed to have been issued for such
      price per share as of the date of the granting of such Options


                                       3
<PAGE>

      and thereafter shall be deemed to be outstanding. The price per share for
      which Common Stock is issuable, as referred to in the preceding sentence,
      shall be determined by dividing (a) the sum of (i) the total amount, if
      any, received or receivable by the Company as consideration for the
      granting of such Options, plus (ii) the minimum aggregate amount of
      additional consideration payable to the Company upon the exercise of all
      such Options, plus (iii) in the case of all such Options that relate to
      Convertible Securities, the minimum aggregate amount of additional
      consideration, if any, payable upon the issue or sale of all such
      Convertible Securities (to the extent not counted under the immediately
      preceding clause (ii) and upon the conversion or exchange of all such
      Convertible Securities into Common Stock, by (b) the total maximum number
      of shares of Common Stock issuable upon the exercise of such Options or
      upon the conversion or exchange of all such Convertible Securities. The
      consideration received or receivable by the Company shall in each case be
      determined in accordance with paragraph 3.7 below. Except a otherwise
      provided in paragraph 3.5 below, no adjustment of the Warrant Purchase
      Price shall be made upon the actual issue of such Common Stock or of such
      Convertible Securities upon exercise of such Options or upon the actual
      issue of such Common Stock upon conversion or exchange of such Convertible
      Securities.

            3.4 Issuance of Convertible Securities. In case the Company shall in
      any manner issue (whether directly or by assumption in a merger or
      otherwise) or sell any Convertible Securities, whether or not the rights
      to exchange or convert thereunder are immediately exercisable, and the
      price per share for which Common Stock is issuable upon such conversion or
      exchange (determined as provided in the following sentence) shall be less
      than the Warrant Purchase Price in effect immediately prior to the time of
      such issue or sale, then the total maximum number of shares of Common
      Stock issuable upon conversion or exchange of all such Convertible
      Securities shall be deemed to have been issued for such price per share as
      of the date of the issue or sale of such Convertible Securities and
      thereafter shall be deemed to be outstanding, provided that (a) except as
      otherwise provided in paragraph 3.5 below, no adjustment of the Warrant
      Purchase Price shall be made upon the actual issue of such Common Stock
      upon conversion or exchange of such Convertible Securities, and (b) if any
      such issue or sale of such Convertible Securities is made upon exercise of
      any Options for which adjustments of the Warrant Purchase Price have been
      or are to be made pursuant to other provisions of this paragraph 3, no
      further adjustment of the Warrant Purchase Price shall be made by reason
      of such issue or sale. The price per share for which Common Stock is
      issuable, as referred to in the preceding sentence, shall be determined by
      dividing (i) the sum of (A) the total amount received or receivable by the
      Company as consideration for the issue or sale of such Convertible
      Securities, plus (B) the minimum aggregate amount of additional
      consideration, if any, payable upon the conversion or exchange of such
      Convertible Securities into Common Stock, by (ii) the total maximum number
      of shares of Common Stock issuable upon the conversion or exchange of such
      Convertible Securities. The consideration received or receivable by the
      Company shall in each case be determined in accordance with paragraph 3.7
      below.


                                       4
<PAGE>

            3.5 Change in Option Price or Conversion Rate. Upon the happening of
      any of the following events, namely, if the purchase price provided for in
      any Option referred to in paragraph 3.3 above and still outstanding, the
      additional consideration, if any, payable upon the conversion or exchange
      of any Convertible Securities referred to in paragraph 3.3 or 3.4 above
      and still outstanding, or the rate at which any such Convertible
      Securities are convertible into or exchangeable for Common Stock shall
      change at any time (other than under or by reason of provisions designed
      to protect against dilution), the Warrant Purchase Price in effect at the
      time of such event shall forthwith be readjusted to the Warrant Purchase
      Price which would have been in effect at such time had such Options or
      Convertible Securities provided for such changed purchase price,
      additional consideration, or conversion rate, as the case may be, at the
      time initially granted, issued, or sold. On the expiration of any Option
      referred to in paragraph 3.3 above prior to the exercise thereof or the
      termination of any right to convert or exchange any Convertible Securities
      referred to in paragraph 3.3 or 3.4 above prior to the exercise of such
      right, the Warrant Purchase Price then in effect hereunder shall forthwith
      be increased to the Warrant Purchase Price which would have been in effect
      at the time of such expiration or termination had such Option or
      Convertible Securities, to the extent outstanding immediately prior to
      such expiration or termination, never been issued, and the Common Stock
      issuable thereunder shall no longer be deemed to be outstanding for the
      purposes of any calculation under paragraph 3.3 or 3.4 above.

            3.6 Determination of Consideration Upon Dividend or Other
      Distribution. In case the Company shall declare a dividend or make any
      other distribution upon any stock of the Company payable in Common Stock,
      Options or Convertible Securities, any Common Stock, Options or
      Convertible Securities, as the case may be, issuable in payment of such
      dividend or distribution shall be deemed to have been issued or sold
      without consideration.

            3.7 Consideration for Stock. In case any shares of Common Stock,
      Options or Convertible Securities shall be issued or sold for cash, the
      consideration received therefor shall be deemed to be the amount received
      by the Company therefor, without deduction therefrom of any expenses
      incurred or any reasonable underwriting commissions or concessions paid or
      allowed by the Company (or deducted from amounts received by the Company)
      in connection therewith. In case any shares of Common Stock, Options or
      Convertible Securities shall be issued or sold for a consideration other
      than cash, the amount of the consideration other than cash received by the
      Company shall be deemed to be the fair value of such consideration as
      determined reasonably and in good faith by the Board of Directors of the
      Company, without deduction of any expenses incurred or any reasonable
      underwriting commissions or concessions paid or allowed by the Company (or
      deducted from amounts received by the Company) in connection therewith.
      The amount of consideration deemed to be received by the Company pursuant
      to issuance and/or sale, pursuant to an established compensation plan of
      the Company, to directors, officers or employees of the Company or any
      subsidiary of the Company in connection with their


                                       5
<PAGE>

      employment of shares of Common stock, Options or Convertible Securities,
      shall be increased by the amount of any tax benefit realized by the
      Company as a result of such issuance and/or sale, the amount of such tax
      benefit being the amount by which the federal and/or state income or other
      tax liability of the Company shall be reduced by reason of any deduction
      or credit in respect of such issuance and/or sale. In case any Common
      Stock, Options or Convertible Securities shall be issued in connection
      with any merger or consolidation in which the Company is the surviving
      corporation (other than any consolidation or merger in which the
      previously outstanding shares of Common Stock of the Company shall be
      changed into or exchanged for the stock or other securities of another
      corporation), the amount of consideration received therefor shall be
      deemed to be the fair value as determined reasonably and in good faith by
      the Board of Directors of the Company of such portion of the assets and
      business of the non-surviving corporation as such Board may determined to
      be attributable to such shares of Common Stock, Options or Convertible
      Securities, as the case may be. In the event of any consolidation or
      merger of the Company in which the Company is not the surviving
      corporation or in which the previously outstanding shares of Common Stock
      of the Company shall be changed into or exchanged for the stock or other
      securities of another corporation, or in the event of any sale of all or
      substantially all of the assets of the Company for stock or other
      securities of any corporation, the Company shall be deemed to have issued
      a number of shares of its Common Stock computed on the basis of the actual
      exchange ratio on which the transaction was predicated and for a
      consideration equal to the fair market value on the date of such
      transaction of all such stock or securities of the other corporation, and
      if such calculation results in adjustment of the Warrant Purchase Price,
      the determination of the number of shares of Common Stock issuable upon
      exercise of the Warrants immediately prior to such merger, consolidation
      or sale, for purposes of paragraph 3.13 below, shall be made after giving
      effect to such adjustment of the Warrant Purchase Price. In case any
      shares of Common Stock shall be issued (or issuable) pursuant to any
      Options for the purchase of the same, the consideration deemed to be
      received (or receivable) therefor shall be deemed to be the total amount,
      if any, received (or total minimum amount receivable) by the Company as
      consideration for the granting of such Options, plus the aggregate amount
      of additional consideration paid (or minimum amount payable) to the
      Company upon the exercise of such Options. In case any shares of Common
      Stock shall be issued (or issuable) upon the conversion or exchange of any
      Convertible Securities, the consideration deemed to be received (or
      receivable) therefor shall be deemed to be the total amount received (or
      total minimum amount receivable) by the Company as consideration for the
      granting of any Options to subscribe to or purchase such Convertible
      Securities, plus the total amount of additional consideration paid (or
      minimum amount payable) to the Company as consideration for the issue or
      sale of such Convertible Securities, plus the total amount of additional
      consideration, if any, paid (or minimum amount payable) to the Company
      upon the conversion or exchange thereof.

            3.8 Record Date. In case the Company shall take a record of the
      holders of its Common Stock for the purpose of entitling them to receive a
      dividend or other


                                       6
<PAGE>

      distribution payable in Common Stock, Options or Convertible Securities,
      then such record date shall be deemed to be the date of the issue or sale
      of the shares of Common stock deemed to have been issued or sold upon the
      declaration of such dividend or the making of such other distribution.

            3.9 Treasury Shares. The number of shares of Common Stock
      outstanding at any given time shall not include shares owned or held by or
      for the account of the Company, and the disposition of any such shares
      shall be considered an issue or sale of Common stock for the purposes of
      this paragraph 3.

            3.10 Liquidating Dividends. The Company will not declare a dividend
      upon Common Stock payable otherwise than out of consolidated earnings or
      consolidated earned surplus, determined in accordance with generally
      accepted accounting principles, including the making of appropriate
      deductions for minority interests, if any, in subsidiaries, and otherwise
      than in Common Stock, unless the holder of this Warrant shall have
      consented to such dividend in writing.

            3.11 Subdivision or Combination of Stock. In case at any time the
      Company shall in any manner subdivide its outstanding shares of Common
      stock into a greater number of shares or combine such shares of Common
      Stock into a smaller number of shares, then the Warrant Purchase Price in
      effect immediately subsequent to such subdivision or combination shall be
      equal tot he product of (a) the Warrant Purchase Price in effect
      immediately prior to such subdivision or combination multiplied by (b) a
      fraction the numerator of which is the number of shares of Common Stock
      outstanding immediately prior to such subdivision or combination and the
      denominator of which is the number of shares of Common Stock outstanding
      immediately thereafter.

            3.12 Reorganization, Reclassification, Consolidation, Merger or
      Sale. If any reorganization or reclassification of the capital stock of
      the Company, or any consolidation or merger of the Company with another
      corporation, or the sale of all or substantially all of the Company's
      assets to another corporation shall be effected in such a way that holders
      of Common Stock shall be entitled to receive stock, securities or assets
      with respect to or in exchange for Common Stock, then, as a condition of
      such reorganization, reclassification, consolidation, merger or sale,
      lawful and adequate provisions shall be made whereby the holder hereof
      shall thereafter have the right to purchase and receive, upon the basis
      and upon the terms and conditions specified in this Warrant and in lieu of
      the shares of Common Stock of the Company immediately theretofore
      purchasable and receivable upon the exercise of the rights represented
      hereby, such shares of stock, securities, or assets as may be issued or
      payable with respect to or in exchange for a number of outstanding shares
      of such stock equal to the number of shares of such stock immediately
      theretofore purchasable and receivable upon the exercise of the rights
      represented hereby had such reorganization, reclassification,
      consolidation, merger or sale not taken place, and in any such case
      appropriate provision shall be made with respect to


                                       7
<PAGE>

      the rights and interests of the holder of this Warrant to the end that the
      provisions hereof (including, without limitation, provisions for
      adjustment of the Warrant Purchase Price and of the number of shares
      purchasable and receivable upon the exercise of this Warrant) shall
      thereafter be applicable, as nearly as may be, in relation to any shares
      of stock, securities or assets thereafter deliverable upon the exercise of
      the rights represented hereby (including an immediate adjustment, by
      reason of such consolidation or merger, of the Warrant Purchase Price to
      the value for the Common Stock reflected by the terms of such
      consolidation or merger if the value so reflected is less than the Warrant
      Purchase Price in effect immediately prior to such consolidation or
      merger). In the event of a merger or consolidation of the Company with or
      into another corporation as a result of which the number of shares of
      common stock of the surviving corporation greater or lesser than the
      number of shares of Common Stock of the Company outstanding immediately
      prior to such merger or consolidation are issuable to holders of Common
      Stock of the Company, then the Warrant Purchase Price in effect
      immediately prior to such merger or consolidation shall be adjusted in the
      same manner as though there were a subdivision or combination of the
      outstanding shares of Common Stock of the Company. The Company shall not
      effect any such consolidation, merger, or sale, unless prior to the
      consummation thereof the successor corporation (if other than the Company)
      resulting from such consolidation or merger of the corporation into or for
      the securities of which the previously outstanding stock of the Company
      shall be exchanged in connection with such consolidation or merger, or the
      corporation purchasing such assets, as the case may be, shall assume, by
      written instrument executed and mailed or delivered to the holder hereof
      at the last address of such holder appearing on the books of the Company,
      the obligation to deliver to such holder such shares of stock, securities,
      or assets as, in accordance with the foregoing provisions, such holder may
      be entitled to purchase. If a purchase, tender, or exchange offer is made
      to and accepted by the holders of more than 50% of the outstanding shares
      of Common Stock of the Company, the Company shall not effect any
      consolidation, merger, or sale with the Person having made such offer or
      with any Affiliate of such Person unless, prior to the consummation of
      such consolidation, merger, or sale, the holder of this Warrant shall have
      been given a reasonable opportunity to then elect to receive either the
      stock, securities, or assets then issuable upon the exercise of this
      Warrant. As used herein, the term "Person" shall mean and include an
      individual, a partnership, a corporation, a trust, a joint venture, an
      unincorporated organization, and a government or any department or agency
      thereof, and an "Affiliate" of any controlling, controlled by, or under
      direct or indirect common control with, such other Person. A Person shall
      be deemed to control a corporation if such Person possesses, directly or
      indirectly, the power to direct or cause the direction of the management
      and policies of such corporation, whether through the ownership of voting
      securities, by contract, or otherwise. The provisions of this paragraph
      3.12 governing the substitution of another corporation for the Company
      shall similarly apply to successive instances in which the corporation
      then deemed to be the Company hereunder shall either sell all or
      substantially all of its properties and assets to any other corporation,
      shall consolidate with or merge into any other corporation, or shall be
      the surviving corporation of the merger


                                       8
<PAGE>

      into it of any other corporation as a result of which the holders of any
      of its stock or other securities shall be deemed to have become the
      holders of, or shall become entitled to, the stock or other securities of
      any corporation other than the corporation at the time deemed to be the
      Company hereunder.

            3.13 Duty to Make Fair Adjustments in Certain Cases. If any event
      occurs as to which, in the opinion of the Board of Directors of the
      Company, the other provisions of this paragraph 3 are not strictly
      applicable or, if strictly applicable, would not fairly protect the
      purchase rights of this Warrant in accordance with the essential intent
      and principles hereof, the Board of Directors shall make such adjustments
      in the Warrant Purchase Price as it deems necessary to protect such
      purchase rights as aforesaid, but in no event shall any such adjustment
      have the effect of increasing the Warrant Purchase Price as otherwise
      determined pursuant to this paragraph 3.

            3.14 Notice of Adjustment. The Company shall give to the holder of
      this Warrant prompt written notice of every adjustment of the Warrant
      Purchase Price, by first class mail, postage prepaid, addressed to the
      address of such holder as shown on the books of the Company, which notice
      shall state the Warrant Purchase Price resulting from such adjustment and
      the increase or decrease, if any, in the number of shares purchasable at
      such price upon the exercise of this Warrant, and shall set forth in
      reasonable detail the method of calculation and the facts upon which such
      calculation was based.

            3.15 Other Notices. In case at any time:

                  (a) the Company shall declare any cash dividend upon its
            Common Stock payable at a rate in excess of the rate of the last
            cash dividend theretofore paid;

                  (b) the Company shall declare any dividend upon its Common
            Stock payable in stock or make any special dividend or other
            distribution (other than regular cash dividends) to the holders of
            its Common Stock;

                  (c) the Company shall offer for subscription to the holders of
            any of its Common Stock any additional shares of stock of any class
            or other rights;

                  (d) there shall be any capital reorganization of the Company
            or any reclassification of its capital stock or any consolidation or
            merger of the Company with, or sale of all or substantially all of
            its assets to, another corporation; or

                  (e) there shall be a voluntary or involuntary dissolution,
            liquidation or winding up of the Company;


                                       9
<PAGE>

      then, in any one or more of such cases, the Company shall give, by first
      class mail, postage prepaid, addressed to the holder of this Warrant at
      the address of such holder as shown on the books of the Company, (i) at
      least 20 days' prior written notice of the date on which the books of the
      Company shall close or a record shall be taken for such dividend,
      distribution or subscription rights or for determining rights to vote in
      respect of any such reorganization, reclassification, consolidation,
      merger, sale, dissolution, liquidation or winding up, and (ii) in the case
      of any such reorganization, reclassification, consolidation, merger, sale,
      dissolution, liquidation or winding up, at least 20 days prior written
      notice of the date when the same shall take place. Any notice required by
      clause (i) shall also specify, in the case of any such dividend,
      distribution or subscription rights, the date on which the holders of
      Common Stock shall be entitled thereto, and any notice required by clause
      (ii) shall also specify the date on which the holders of Common Stock
      shall be entitled to exchange their Common Stock for securities or other
      property deliverable upon such reorganization, reclassification,
      consolidation, merger, sale, dissolution, liquidation or winding up, as
      the case may be.

      4. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant for any issuance tax in respect thereof.

      5. Closing of Books. The Company will at no time close its transfer books
against the transfer of this Warrant or of any shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.

      6. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.

      7. Warrants Transferable. Subject to the restrictions referred to in the
legend set forth on the face of this Warrant, this Warrant and all rights
hereunder are transferable to any person, in whole or in part, without charge to
the holder hereof, at the office of the Company referred to in paragraph 1
above, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding. Until such transfer on such books, however, the
Company may treat the registered holder hereof as the owner for all purposes.


                                       10
<PAGE>

      8. Transfer to Comply With the Securities Act of 1933.

            (a) All securities issued or issuable upon exercise of this Warrant,
      may not be offered, sold or transferred, in whole or in part, except in
      compliance with the Securities Act of 1933, as amended (the "Act"), and
      except in compliance with all applicable state securities statutes.

            (b) The Company may cause the following legend, or its equivalent,
      to be set forth on each certificate representing any security issued or
      issuable upon exercise of this Warrant to the extent such Common Stock has
      not been registered for sale by the Company.

            "The shares represented by this Certificate have not been registered
            under the Securities Act of 1933 ("the Act") and are 'restricted
            securities' as that term is defined in Rule 144 under the Act. The
            shares may not be offered for sale, sold or otherwise transferred
            except pursuant to an effective registration statement under the Act
            or pursuant to an exemption from registration under the Act, the
            availability of which is to be established to the satisfaction of
            the Company."

      9. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon its surrender by the holder hereof at the office of the
Company referred to in paragraph 1 above, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of Shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.

      10. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience of reference
only and do not constitute a part of this Warrant. This Warrant is being
delivered and is intended to be performed in the State of Illinois and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of such State.

      11. Certain Covenants of the Company. So long as this Warrant remains
outstanding, in whole or in part, the Company will, unless the holder of this
Warrant otherwise consents in writing:

            (a) within 60 days after the end of each of the first three
      quarterly fiscal periods in each fiscal year of the Company, deliver to
      the holder of this Warrant (i) a consolidated balance sheet of the Company
      and its subsidiaries, if any, as at the end of such period, and (ii)
      consolidated statements of income and of surplus of the Company and its
      subsidiaries, if any, for such period and (in the case of the second and
      third such quarterly periods) for the period from the beginning of the
      current fiscal year to the end of


                                       11
<PAGE>

      such quarterly period, setting forth in each case in comparative form the
      consolidated figures for the corresponding periods of the previous fiscal
      year, all in reasonable detail and certified as prepared in accordance
      with generally accepted accounting principles consistently applied,
      subject to exchanges resulting from year-end audit adjustments, by the
      principal financial officer of the Company; and

            (b) within 90 days after the end of each fiscal year of the Company,
      deliver to the holder of this Warrant (i) a consolidated balance sheet of
      the Company and its subsidiaries, if any, as at the end of such year, and
      (ii) consolidated statements of income and of surplus of the Company and
      its subsidiaries, if any, for such year, setting forth in each case in
      comparative form the consolidated figures for the previous fiscal year,
      all in reasonable detail and accompanied by an opinion thereon of
      independent public accountants, which opinion shall state that such
      financial statements have been prepared in accordance with generally
      accepted accounting principles consistently applied and that the audit by
      such accountants in connection with such financial statements has been
      made in accordance with generally accepted auditing standards; and

            (c) as soon as practicable, notify the holder of this Warrant in
      writing of any potentially material adverse development concerning the
      Company; and permit such holder of his representative to examine the books
      and records of the company at any time during regular business hours and
      make copies of any portions thereof desired to be copied by such holder or
      his representative.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers under its corporate seal and this Warrant to be
dated this 17th day of July, 2001

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Howard W. Schwan
                                            ------------------------------------
                                                  President

(CORPORATE SEAL)

Attest:


/s/ Stephen M. Merrick
- -----------------------------
Secretary


                                       12
<PAGE>

                             SUBSCRIPTION AGREEMENT

                                        Dated: ______________, 200_

To:   CTI Industries Corporation
      22160 N. Pepper Road
      Barrington, Illinois

      The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase shares of the Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant.


                                        Signature_______________________________

                                        Address_________________________________

                                        ________________________________________


                                       13
<PAGE>

                                   ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common stock set forth below, unto:

Name of Assignee                Address                 Number of Shares
- ----------------                -------                 ----------------


Dated: __________________, 200_


                                        Signature_______________________________

                                        Witness_________________________________


                                       14


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>5
<FILENAME>d55197_ex10-7.txt
<DESCRIPTION>WARRANT TO PURCHASE 39,683 SHARES
<TEXT>

                                  EXHIBIT 10.7

                  The securities represented by this Warrant have not been
                  registered under the Securities Act of 1933, and thus may not
                  be transferred unless registered under that Act or unless an
                  exemption from registration is available.

                                        Warrant dated July 17, 2001, to purchase
                                        33,334 Shares of Common Stock on or
                                        before July 17, 2006.

                             STOCK PURCHASE WARRANT
                           TO PURCHASE COMMON STOCK OF
                           CTI INDUSTRIES CORPORATION

      This certifies that, for value received, Stephen M. Merrick, or his
assigns, is entitled to subscribe for and purchase from CTI INDUSTRIES
CORPORATION, a Delaware corporation (hereinafter called the "Company"), at a
price of $1.78 per share (subject to adjustment as set forth in paragraph 3
below) and at any time after the date hereof to and including July 17, 2006,
33,334 (subject to adjustment as set forth in paragraph 3 below) fully paid and
non-assessable shares of the Company's common stock, par value $.195 per share
(hereinafter referred to as the "Common Stock").

      This Warrant is subject to the following provisions, terms and conditions:

      1. Exercise; Issuance of Certificates; Payment for Shares. The rights
represented by this Warrant may be exercised by the holder hereof at any time
within the period specified above, in whole or in part (but not as to a
fractional share of Common Stock), by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company (or such other
office of the Company as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company) (a)
specifying the number of shares of Common Stock being purchased and (b)
accompanied by a check payable to the Company for the purchase price for such
shares. The Company agrees that the shares so purchased shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Certificates for the shares so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten days, after the rights represented by this Warrant shall have been
so exercised, and, unless this Warrant has expired, a new Warrant of like tenor,
representing the right to purchase the number of shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be delivered
to the holder hereof within such time.

<PAGE>

      2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees:

            (a) that all shares of Common Stock which may be issued upon
      exercise of the rights represented by this Warrant will, upon issuance, be
      fully paid and nonassessable and free from all taxes, liens and charges
      with respect to the issue thereof;

            (b) without limiting the generality of the foregoing, that the
      Company will from time to time take all such action as may be required to
      assure that the par value, if any, per share of Common Stock is at all
      times equal to or less than the then effective Warrant Purchase Price (as
      hereinafter defined) per share of Common Stock issuable pursuant to this
      Warrant;

            (c) that, during the period within which the rights represented by
      this Warrant may be exercised, the Company will at all times have
      authorized, and reserved for the purpose of issue or transfer upon
      exercise of the rights evidenced by this Warrant, a sufficient number of
      shares of Common Stock to provide for the full exercise of the rights
      represented by this Warrant;

            (d) that the Company will take all such action as may be necessary
      to assure that the Common Stock issuable upon the exercise hereof may be
      so issued without violation of any applicable law or regulation; and

            (e) that the Company will not take any action which would result in
      any adjustment of the Warrant Purchase Price if (i) the total number of
      shares of Common Stock issuable after such action upon exercise of this
      Warrant, together with all shares of Common Stock then outstanding and all
      shares of Common Stock then issuable upon exercise of all Options (as
      hereinafter defined) and upon conversion of all Convertible Securities (as
      hereinafter defined) then outstanding, would exceed (ii) the total number
      of shares of Common Stock then authorized by the Company's Articles of
      Incorporation (all such issued and issuable Common Stock being called the
      "Potentially Outstanding Common Stock").

In the event any stock or securities of the Company other than Common Stock are
issuable upon the exercise hereof, the Company will take or refrain from taking
any action referred to in clauses (a) through (e) of this paragraph 2 as though
such clauses apply, equally, to such other stock or securities then issuable
upon the exercise hereof.

      3. Warrant Purchase Price. The provisions set forth in paragraphs 1 and 2
above are, however, subject to the following:

            3.1 Adjustment of Warrant Purchase Price; Resulting Adjustment of
      Number of Purchasable Shares. The initial Warrant Purchase Price of $1.78
      per share of Common


                                       2
<PAGE>

      Stock shall be subject to adjustment from time to time as hereinafter
      provided (such price or such price as last adjusted pursuant to the terms
      hereof, as the case may be, is herein called the "Warrant Purchase
      Price"). Upon each adjustment of the Warrant Purchase Price, the holder of
      this Warrant shall thereafter be entitled to purchase, at the Warrant
      Purchase Price resulting from such adjustment, the number of shares of
      Common Stock obtained by multiplying the Warrant Purchase Price in effect
      immediately prior to such adjustment by the number of shares of Common
      Stock purchasable pursuant hereto immediately prior to such adjustment and
      dividing the product thereof by the Warrant Purchase Price resulting from
      such adjustment.

            3.2 Adjustment of Warrant Purchase Price Upon Issuance of Stock. If
      and whenever after the date hereof the Company shall issue or sell any
      shares of its Common Stock for a consideration per share less than the
      Warrant Purchase Price in effect immediately prior to the time of such
      issue or sale (except if such issue or sale shall be made pursuant to the
      exercise of Options or Convertible Securities, as defined below,
      outstanding on the date hereof), then, forthwith upon such issue or sale,
      the Warrant Purchase Price shall be reduced to the price, calculated to
      the nearest cent, determined by dividing (a) the sum of (i) the number of
      shares of Common Stock outstanding immediately prior to such issue or sale
      multiplied by the then existing Warrant Purchase Price and (ii) the
      consideration, if any, received by the Company upon such issue or sale, by
      (b) the total number of shares of Common Stock outstanding immediately
      after such issue or sale. No adjustment of the Warrant Purchase Price,
      however, shall be made in an amount less than $0.01 per share, but any
      such lesser adjustment shall be carried forward and shall be made at the
      time and together with the next subsequent adjustment which together with
      all adjustments so carried forward shall amount to $0.01 per share or
      more.

            For purposes of this paragraph 3.2, the following paragraphs 3.3 to
      3.15, inclusive, subject to the exception set forth above, shall also be
      applicable:

            3.3 Issuance of Rights or Options. In case at any time the Company
      shall in any manner grant (whether directly or by assumption in a merger
      or otherwise) any rights to subscribe for or to purchase, or any options
      for the purchase of, Common Stock or any stock or securities convertible
      into or exchangeable for Common Stock (such rights or options being herein
      called "Options" and such convertible or exchangeable stock or securities
      being herein called "Convertible Securities"), whether or not such Options
      or the right to convert or exchange any such Convertible Securities are
      immediately exercisable, and the price per share for which Common Stock is
      issuable upon the exercise of such Options or upon conversion or exchange
      of such Convertible Securities (determined as provided in the following
      sentence) shall be less than the Warrant Purchase Price in effect
      immediately prior to the time of granting of such Options, then the
      maximum number of shares of Common Stock issuable upon the exercise of all
      such Option or upon conversion or exchange of the total maximum amount of
      such Convertible Securities shall be deemed to have been issued for such
      price per share as of the date of the granting of such Options


                                       3
<PAGE>

      and thereafter shall be deemed to be outstanding. The price per share for
      which Common Stock is issuable, as referred to in the preceding sentence,
      shall be determined by dividing (a) the sum of (i) the total amount, if
      any, received or receivable by the Company as consideration for the
      granting of such Options, plus (ii) the minimum aggregate amount of
      additional consideration payable to the Company upon the exercise of all
      such Options, plus (iii) in the case of all such Options that relate to
      Convertible Securities, the minimum aggregate amount of additional
      consideration, if any, payable upon the issue or sale of all such
      Convertible Securities (to the extent not counted under the immediately
      preceding clause (ii) and upon the conversion or exchange of all such
      Convertible Securities into Common Stock, by (b) the total maximum number
      of shares of Common Stock issuable upon the exercise of such Options or
      upon the conversion or exchange of all such Convertible Securities. The
      consideration received or receivable by the Company shall in each case be
      determined in accordance with paragraph 3.7 below. Except a otherwise
      provided in paragraph 3.5 below, no adjustment of the Warrant Purchase
      Price shall be made upon the actual issue of such Common Stock or of such
      Convertible Securities upon exercise of such Options or upon the actual
      issue of such Common Stock upon conversion or exchange of such Convertible
      Securities.

            3.4 Issuance of Convertible Securities. In case the Company shall in
      any manner issue (whether directly or by assumption in a merger or
      otherwise) or sell any Convertible Securities, whether or not the rights
      to exchange or convert thereunder are immediately exercisable, and the
      price per share for which Common Stock is issuable upon such conversion or
      exchange (determined as provided in the following sentence) shall be less
      than the Warrant Purchase Price in effect immediately prior to the time of
      such issue or sale, then the total maximum number of shares of Common
      Stock issuable upon conversion or exchange of all such Convertible
      Securities shall be deemed to have been issued for such price per share as
      of the date of the issue or sale of such Convertible Securities and
      thereafter shall be deemed to be outstanding, provided that (a) except as
      otherwise provided in paragraph 3.5 below, no adjustment of the Warrant
      Purchase Price shall be made upon the actual issue of such Common Stock
      upon conversion or exchange of such Convertible Securities, and (b) if any
      such issue or sale of such Convertible Securities is made upon exercise of
      any Options for which adjustments of the Warrant Purchase Price have been
      or are to be made pursuant to other provisions of this paragraph 3, no
      further adjustment of the Warrant Purchase Price shall be made by reason
      of such issue or sale. The price per share for which Common Stock is
      issuable, as referred to in the preceding sentence, shall be determined by
      dividing (i) the sum of (A) the total amount received or receivable by the
      Company as consideration for the issue or sale of such Convertible
      Securities, plus (B) the minimum aggregate amount of additional
      consideration, if any, payable upon the conversion or exchange of such
      Convertible Securities into Common Stock, by (ii) the total maximum number
      of shares of Common Stock issuable upon the conversion or exchange of such
      Convertible Securities. The consideration received or receivable by the
      Company shall in each case be determined in accordance with paragraph 3.7
      below.


                                       4
<PAGE>

            3.5 Change in Option Price or Conversion Rate. Upon the happening of
      any of the following events, namely, if the purchase price provided for in
      any Option referred to in paragraph 3.3 above and still outstanding, the
      additional consideration, if any, payable upon the conversion or exchange
      of any Convertible Securities referred to in paragraph 3.3 or 3.4 above
      and still outstanding, or the rate at which any such Convertible
      Securities are convertible into or exchangeable for Common Stock shall
      change at any time (other than under or by reason of provisions designed
      to protect against dilution), the Warrant Purchase Price in effect at the
      time of such event shall forthwith be readjusted to the Warrant Purchase
      Price which would have been in effect at such time had such Options or
      Convertible Securities provided for such changed purchase price,
      additional consideration, or conversion rate, as the case may be, at the
      time initially granted, issued, or sold. On the expiration of any Option
      referred to in paragraph 3.3 above prior to the exercise thereof or the
      termination of any right to convert or exchange any Convertible Securities
      referred to in paragraph 3.3 or 3.4 above prior to the exercise of such
      right, the Warrant Purchase Price then in effect hereunder shall forthwith
      be increased to the Warrant Purchase Price which would have been in effect
      at the time of such expiration or termination had such Option or
      Convertible Securities, to the extent outstanding immediately prior to
      such expiration or termination, never been issued, and the Common Stock
      issuable thereunder shall no longer be deemed to be outstanding for the
      purposes of any calculation under paragraph 3.3 or 3.4 above.

            3.6 Determination of Consideration Upon Dividend or Other
      Distribution. In case the Company shall declare a dividend or make any
      other distribution upon any stock of the Company payable in Common Stock,
      Options or Convertible Securities, any Common Stock, Options or
      Convertible Securities, as the case may be, issuable in payment of such
      dividend or distribution shall be deemed to have been issued or sold
      without consideration.

            3.7 Consideration for Stock. In case any shares of Common Stock,
      Options or Convertible Securities shall be issued or sold for cash, the
      consideration received therefor shall be deemed to be the amount received
      by the Company therefor, without deduction therefrom of any expenses
      incurred or any reasonable underwriting commissions or concessions paid or
      allowed by the Company (or deducted from amounts received by the Company)
      in connection therewith. In case any shares of Common Stock, Options or
      Convertible Securities shall be issued or sold for a consideration other
      than cash, the amount of the consideration other than cash received by the
      Company shall be deemed to be the fair value of such consideration as
      determined reasonably and in good faith by the Board of Directors of the
      Company, without deduction of any expenses incurred or any reasonable
      underwriting commissions or concessions paid or allowed by the Company (or
      deducted from amounts received by the Company) in connection therewith.
      The amount of consideration deemed to be received by the Company pursuant
      to issuance and/or sale, pursuant to an established compensation plan of
      the Company, to directors, officers or employees of the Company or any
      subsidiary of the Company in connection with their


                                       5
<PAGE>

      employment of shares of Common stock, Options or Convertible Securities,
      shall be increased by the amount of any tax benefit realized by the
      Company as a result of such issuance and/or sale, the amount of such tax
      benefit being the amount by which the federal and/or state income or other
      tax liability of the Company shall be reduced by reason of any deduction
      or credit in respect of such issuance and/or sale. In case any Common
      Stock, Options or Convertible Securities shall be issued in connection
      with any merger or consolidation in which the Company is the surviving
      corporation (other than any consolidation or merger in which the
      previously outstanding shares of Common Stock of the Company shall be
      changed into or exchanged for the stock or other securities of another
      corporation), the amount of consideration received therefor shall be
      deemed to be the fair value as determined reasonably and in good faith by
      the Board of Directors of the Company of such portion of the assets and
      business of the non-surviving corporation as such Board may determined to
      be attributable to such shares of Common Stock, Options or Convertible
      Securities, as the case may be. In the event of any consolidation or
      merger of the Company in which the Company is not the surviving
      corporation or in which the previously outstanding shares of Common Stock
      of the Company shall be changed into or exchanged for the stock or other
      securities of another corporation, or in the event of any sale of all or
      substantially all of the assets of the Company for stock or other
      securities of any corporation, the Company shall be deemed to have issued
      a number of shares of its Common Stock computed on the basis of the actual
      exchange ratio on which the transaction was predicated and for a
      consideration equal to the fair market value on the date of such
      transaction of all such stock or securities of the other corporation, and
      if such calculation results in adjustment of the Warrant Purchase Price,
      the determination of the number of shares of Common Stock issuable upon
      exercise of the Warrants immediately prior to such merger, consolidation
      or sale, for purposes of paragraph 3.13 below, shall be made after giving
      effect to such adjustment of the Warrant Purchase Price. In case any
      shares of Common Stock shall be issued (or issuable) pursuant to any
      Options for the purchase of the same, the consideration deemed to be
      received (or receivable) therefor shall be deemed to be the total amount,
      if any, received (or total minimum amount receivable) by the Company as
      consideration for the granting of such Options, plus the aggregate amount
      of additional consideration paid (or minimum amount payable) to the
      Company upon the exercise of such Options. In case any shares of Common
      Stock shall be issued (or issuable) upon the conversion or exchange of any
      Convertible Securities, the consideration deemed to be received (or
      receivable) therefor shall be deemed to be the total amount received (or
      total minimum amount receivable) by the Company as consideration for the
      granting of any Options to subscribe to or purchase such Convertible
      Securities, plus the total amount of additional consideration paid (or
      minimum amount payable) to the Company as consideration for the issue or
      sale of such Convertible Securities, plus the total amount of additional
      consideration, if any, paid (or minimum amount payable) to the Company
      upon the conversion or exchange thereof.

            3.8 Record Date. In case the Company shall take a record of the
      holders of its Common Stock for the purpose of entitling them to receive a
      dividend or other


                                       6
<PAGE>

      distribution payable in Common Stock, Options or Convertible Securities,
      then such record date shall be deemed to be the date of the issue or sale
      of the shares of Common stock deemed to have been issued or sold upon the
      declaration of such dividend or the making of such other distribution.

            3.9 Treasury Shares. The number of shares of Common Stock
      outstanding at any given time shall not include shares owned or held by or
      for the account of the Company, and the disposition of any such shares
      shall be considered an issue or sale of Common stock for the purposes of
      this paragraph 3.

            3.10 Liquidating Dividends. The Company will not declare a dividend
      upon Common Stock payable otherwise than out of consolidated earnings or
      consolidated earned surplus, determined in accordance with generally
      accepted accounting principles, including the making of appropriate
      deductions for minority interests, if any, in subsidiaries, and otherwise
      than in Common Stock, unless the holder of this Warrant shall have
      consented to such dividend in writing.

            3.11 Subdivision or Combination of Stock. In case at any time the
      Company shall in any manner subdivide its outstanding shares of Common
      stock into a greater number of shares or combine such shares of Common
      Stock into a smaller number of shares, then the Warrant Purchase Price in
      effect immediately subsequent to such subdivision or combination shall be
      equal tot he product of (a) the Warrant Purchase Price in effect
      immediately prior to such subdivision or combination multiplied by (b) a
      fraction the numerator of which is the number of shares of Common Stock
      outstanding immediately prior to such subdivision or combination and the
      denominator of which is the number of shares of Common Stock outstanding
      immediately thereafter.

            3.12 Reorganization, Reclassification, Consolidation, Merger or
      Sale. If any reorganization or reclassification of the capital stock of
      the Company, or any consolidation or merger of the Company with another
      corporation, or the sale of all or substantially all of the Company's
      assets to another corporation shall be effected in such a way that holders
      of Common Stock shall be entitled to receive stock, securities or assets
      with respect to or in exchange for Common Stock, then, as a condition of
      such reorganization, reclassification, consolidation, merger or sale,
      lawful and adequate provisions shall be made whereby the holder hereof
      shall thereafter have the right to purchase and receive, upon the basis
      and upon the terms and conditions specified in this Warrant and in lieu of
      the shares of Common Stock of the Company immediately theretofore
      purchasable and receivable upon the exercise of the rights represented
      hereby, such shares of stock, securities, or assets as may be issued or
      payable with respect to or in exchange for a number of outstanding shares
      of such stock equal to the number of shares of such stock immediately
      theretofore purchasable and receivable upon the exercise of the rights
      represented hereby had such reorganization, reclassification,
      consolidation, merger or sale not taken place, and in any such case
      appropriate provision shall be made with respect to


                                       7
<PAGE>

      the rights and interests of the holder of this Warrant to the end that the
      provisions hereof (including, without limitation, provisions for
      adjustment of the Warrant Purchase Price and of the number of shares
      purchasable and receivable upon the exercise of this Warrant) shall
      thereafter be applicable, as nearly as may be, in relation to any shares
      of stock, securities or assets thereafter deliverable upon the exercise of
      the rights represented hereby (including an immediate adjustment, by
      reason of such consolidation or merger, of the Warrant Purchase Price to
      the value for the Common Stock reflected by the terms of such
      consolidation or merger if the value so reflected is less than the Warrant
      Purchase Price in effect immediately prior to such consolidation or
      merger). In the event of a merger or consolidation of the Company with or
      into another corporation as a result of which the number of shares of
      common stock of the surviving corporation greater or lesser than the
      number of shares of Common Stock of the Company outstanding immediately
      prior to such merger or consolidation are issuable to holders of Common
      Stock of the Company, then the Warrant Purchase Price in effect
      immediately prior to such merger or consolidation shall be adjusted in the
      same manner as though there were a subdivision or combination of the
      outstanding shares of Common Stock of the Company. The Company shall not
      effect any such consolidation, merger, or sale, unless prior to the
      consummation thereof the successor corporation (if other than the Company)
      resulting from such consolidation or merger of the corporation into or for
      the securities of which the previously outstanding stock of the Company
      shall be exchanged in connection with such consolidation or merger, or the
      corporation purchasing such assets, as the case may be, shall assume, by
      written instrument executed and mailed or delivered to the holder hereof
      at the last address of such holder appearing on the books of the Company,
      the obligation to deliver to such holder such shares of stock, securities,
      or assets as, in accordance with the foregoing provisions, such holder may
      be entitled to purchase. If a purchase, tender, or exchange offer is made
      to and accepted by the holders of more than 50% of the outstanding shares
      of Common Stock of the Company, the Company shall not effect any
      consolidation, merger, or sale with the Person having made such offer or
      with any Affiliate of such Person unless, prior to the consummation of
      such consolidation, merger, or sale, the holder of this Warrant shall have
      been given a reasonable opportunity to then elect to receive either the
      stock, securities, or assets then issuable upon the exercise of this
      Warrant. As used herein, the term "Person" shall mean and include an
      individual, a partnership, a corporation, a trust, a joint venture, an
      unincorporated organization, and a government or any department or agency
      thereof, and an "Affiliate" of any controlling, controlled by, or under
      direct or indirect common control with, such other Person. A Person shall
      be deemed to control a corporation if such Person possesses, directly or
      indirectly, the power to direct or cause the direction of the management
      and policies of such corporation, whether through the ownership of voting
      securities, by contract, or otherwise. The provisions of this paragraph
      3.12 governing the substitution of another corporation for the Company
      shall similarly apply to successive instances in which the corporation
      then deemed to be the Company hereunder shall either sell all or
      substantially all of its properties and assets to any other corporation,
      shall consolidate with or merge into any other corporation, or shall be
      the surviving corporation of the merger


                                       8
<PAGE>

into it of any other corporation as a result of which the holders of any of its
stock or other securities shall be deemed to have become the holders of, or
shall become entitled to, the stock or other securities of any corporation other
than the corporation at the time deemed to be the Company hereunder.

            3.13 Duty to Make Fair Adjustments in Certain Cases. If any event
      occurs as to which, in the opinion of the Board of Directors of the
      Company, the other provisions of this paragraph 3 are not strictly
      applicable or, if strictly applicable, would not fairly protect the
      purchase rights of this Warrant in accordance with the essential intent
      and principles hereof, the Board of Directors shall make such adjustments
      in the Warrant Purchase Price as it deems necessary to protect such
      purchase rights as aforesaid, but in no event shall any such adjustment
      have the effect of increasing the Warrant Purchase Price as otherwise
      determined pursuant to this paragraph 3.

            3.14 Notice of Adjustment. The Company shall give to the holder of
      this Warrant prompt written notice of every adjustment of the Warrant
      Purchase Price, by first class mail, postage prepaid, addressed to the
      address of such holder as shown on the books of the Company, which notice
      shall state the Warrant Purchase Price resulting from such adjustment and
      the increase or decrease, if any, in the number of shares purchasable at
      such price upon the exercise of this Warrant, and shall set forth in
      reasonable detail the method of calculation and the facts upon which such
      calculation was based.

            3.15 Other Notices. In case at any time:

                  (a) the Company shall declare any cash dividend upon its
            Common Stock payable at a rate in excess of the rate of the last
            cash dividend theretofore paid;

                  (b) the Company shall declare any dividend upon its Common
            Stock payable in stock or make any special dividend or other
            distribution (other than regular cash dividends) to the holders of
            its Common Stock;

                  (c) the Company shall offer for subscription to the holders of
            any of its Common Stock any additional shares of stock of any class
            or other rights;

                  (d) there shall be any capital reorganization of the Company
            or any reclassification of its capital stock or any consolidation or
            merger of the Company with, or sale of all or substantially all of
            its assets to, another corporation; or

                  (e) there shall be a voluntary or involuntary dissolution,
            liquidation or winding up of the Company;


                                       9
<PAGE>

      then, in any one or more of such cases, the Company shall give, by first
      class mail, postage prepaid, addressed to the holder of this Warrant at
      the address of such holder as shown on the books of the Company, (i) at
      least 20 days' prior written notice of the date on which the books of the
      Company shall close or a record shall be taken for such dividend,
      distribution or subscription rights or for determining rights to vote in
      respect of any such reorganization, reclassification, consolidation,
      merger, sale, dissolution, liquidation or winding up, and (ii) in the case
      of any such reorganization, reclassification, consolidation, merger, sale,
      dissolution, liquidation or winding up, at least 20 days prior written
      notice of the date when the same shall take place. Any notice required by
      clause (i) shall also specify, in the case of any such dividend,
      distribution or subscription rights, the date on which the holders of
      Common Stock shall be entitled thereto, and any notice required by clause
      (ii) shall also specify the date on which the holders of Common Stock
      shall be entitled to exchange their Common Stock for securities or other
      property deliverable upon such reorganization, reclassification,
      consolidation, merger, sale, dissolution, liquidation or winding up, as
      the case may be.

      4. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant for any issuance tax in respect thereof.

      5. Closing of Books. The Company will at no time close its transfer books
against the transfer of this Warrant or of any shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.

      6. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.

      7. Warrants Transferable. Subject to the restrictions referred to in the
legend set forth on the face of this Warrant, this Warrant and all rights
hereunder are transferable to any person, in whole or in part, without charge to
the holder hereof, at the office of the Company referred to in paragraph 1
above, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding. Until such transfer on such books, however, the
Company may treat the registered holder hereof as the owner for all purposes.


                                       10
<PAGE>

      8. Transfer to Comply With the Securities Act of 1933.

            (a) All securities issued or issuable upon exercise of this Warrant,
      may not be offered, sold or transferred, in whole or in part, except in
      compliance with the Securities Act of 1933, as amended (the "Act"), and
      except in compliance with all applicable state securities statutes.

            (b) The Company may cause the following legend, or its equivalent,
      to be set forth on each certificate representing any security issued or
      issuable upon exercise of this Warrant to the extent such Common Stock has
      not been registered for sale by the Company.

            "The shares represented by this Certificate have not been registered
            under the Securities Act of 1933 ("the Act") and are 'restricted
            securities' as that term is defined in Rule 144 under the Act. The
            shares may not be offered for sale, sold or otherwise transferred
            except pursuant to an effective registration statement under the Act
            or pursuant to an exemption from registration under the Act, the
            availability of which is to be established to the satisfaction of
            the Company."

      9. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon its surrender by the holder hereof at the office of the
Company referred to in paragraph 1 above, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of Shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.

      10. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience of reference
only and do not constitute a part of this Warrant. This Warrant is being
delivered and is intended to be performed in the State of Illinois and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of such State.

      11. Certain Covenants of the Company. So long as this Warrant remains
outstanding, in whole or in part, the Company will, unless the holder of this
Warrant otherwise consents in writing:

            (a) within 60 days after the end of each of the first three
      quarterly fiscal periods in each fiscal year of the Company, deliver to
      the holder of this Warrant (i) a consolidated balance sheet of the Company
      and its subsidiaries, if any, as at the end of such period, and (ii)
      consolidated statements of income and of surplus of the Company and its
      subsidiaries, if any, for such period and (in the case of the second and
      third such quarterly periods) for the period from the beginning of the
      current fiscal year to the end of


                                       11
<PAGE>

      such quarterly period, setting forth in each case in comparative form the
      consolidated figures for the corresponding periods of the previous fiscal
      year, all in reasonable detail and certified as prepared in accordance
      with generally accepted accounting principles consistently applied,
      subject to exchanges resulting from year-end audit adjustments, by the
      principal financial officer of the Company; and

            (b) within 90 days after the end of each fiscal year of the Company,
      deliver to the holder of this Warrant (i) a consolidated balance sheet of
      the Company and its subsidiaries, if any, as at the end of such year, and
      (ii) consolidated statements of income and of surplus of the Company and
      its subsidiaries, if any, for such year, setting forth in each case in
      comparative form the consolidated figures for the previous fiscal year,
      all in reasonable detail and accompanied by an opinion thereon of
      independent public accountants, which opinion shall state that such
      financial statements have been prepared in accordance with generally
      accepted accounting principles consistently applied and that the audit by
      such accountants in connection with such financial statements has been
      made in accordance with generally accepted auditing standards; and

            (c) as soon as practicable, notify the holder of this Warrant in
      writing of any potentially material adverse development concerning the
      Company; and permit such holder of his representative to examine the books
      and records of the company at any time during regular business hours and
      make copies of any portions thereof desired to be copied by such holder or
      his representative.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers under its corporate seal and this Warrant to be
dated this 17th day of July, 2001

                                        CTI INDUSTRIES CORPORATION


                                        By: /s/ Howard W. Schwan
                                            ------------------------------------
                                                 President

(CORPORATE SEAL)

Attest:


/s/ Stephen M. Merrick
- -----------------------------
Secretary


                                       12
<PAGE>

                             SUBSCRIPTION AGREEMENT

                                        Dated: ______________, 200_

To:   CTI Industries Corporation
      22160 N. Pepper Road
      Barrington, Illinois

      The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase shares of the Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant.


                                        Signature_______________________________

                                        Address_________________________________

                                        ________________________________________


                                       13
<PAGE>

                                   ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common stock set forth below, unto:

Name of Assignee                Address                 Number of Shares
- ----------------                -------                 ----------------

Dated: __________________, 200_


                                        Signature_______________________________

                                        Witness_________________________________


                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>6
<FILENAME>d55197_ex10-8.txt
<DESCRIPTION>CTI TO S. MERRICK NOTE DATED 1/28/03
<TEXT>
                                  EXHIBIT 10.8

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                           CTI INDUSTRIES CORPORATION
                          9% UNSECURED PROMISSORY NOTE

$500,000                                                        January 28, 2003
                                                            Barrington, Illinois

      FOR VALUE RECEIVED, the undersigned, CTI Industries Corporation, an
Illinois corporation (the "Payor"), having its executive offices and principal
place of business at 22160 N. Pepper Road, Barrington, Illinois 60010, hereby
promises to pay to Stephen M. Merrick (the "Payee"), having an address at 422
West Rosiland Road, Palatine, Illinois 6074, at the Payee's address set forth
hereinabove or, at such other place as the Payee shall hereafter specify in
writing, the principal sum of Five Hundred Thousand Dollars ($500,000) in legal
tender of the United States of America, in the amount and on the dates
hereinafter set forth.

      1. Interest and Payment

            1.1 Unpaid principal and interest due under this Promissory Note
      shall be payable in full by Payor or any successor holder of this
      Promissory Note on January 28, 2005 (the "Maturity Date").

            1.2 The unpaid principal amount hereof outstanding from time to time
      shall bear simple interest from the date hereof at the rate of 9% per
      annum until the first to occur of the Maturity Date or the date on which
      the entire principal balance hereof shall have been paid.

            1.3 Interest shall accrue and be payable on a calendar quarterly
      basis during such time as any portion of the principal amount of this
      Promissory Note shall be outstanding. Payments of interest shall be due
      and payable one calendar quarter in arrears, on or before the fifth day of
      each calendar month immediately following the expiration of any calendar
      quarter during which any portion of the principal amount of this
      Promissory Note shall be outstanding.

<PAGE>

            1.4 If payment of the principal amount hereof and interest accrued
      thereon is not made on or before the Maturity Date, interest shall
      thereafter accrue and be payable at an interest rate equal to the lesser
      of (i) 15% or (ii) the maximum rate permitted under applicable law.

            1.5 Payor shall be entitled to prepay all or any portion of the
      principal of this Promissory Note at any time and from time to time,
      without penalty, provided, however, that any such payment on this
      Promissory Note shall be first credited against any accrued and unpaid
      interest hereunder.

      2. Replacement of Promissory Note.

            2.1. In case this Promissory Note is mutilated, destroyed, lost or
      stolen, Payor shall, at its sole expense, execute, register and deliver, a
      new Promissory Note in exchange and substitution for this Promissory Note,
      if mutilated, or in lieu of and substitution for this Promissory Note, if
      destroyed, lost or stolen. In the case of destruction, loss or theft,
      Payee shall furnish to Payor indemnity reasonably satisfactory to Payor,
      and in any such case, and in the case of mutilation, Payee shall also
      furnish to Payor evidence to its reasonable satisfaction of the
      mutilation, destruction, loss or theft of this Promissory Note and of the
      ownership thereof. Any replacement Promissory Note so issued shall be in
      the same outstanding principal amount as this Promissory Note and dated
      the date to which interest shall have been paid on this Promissory Note,
      or if no interest shall have yet been paid, dated the date of this
      Promissory Note.

            2.2. Every Note issued pursuant to the provisions of Section 2.1
      hereof in substitution for this Promissory Note shall constitute an
      additional contractual obligation of Payor, whether or not Promissory Note
      shall be found at any time, or be enforceable by anyone.

      3. Events of Default. If any of the following conditions, events or acts
shall occur, this Promissory Note shall become immediately due and payable:

            3.1. The dissolution of Payor or any vote in favor thereof by the
      Board of Directors and stockholders of Payor; or

            3.2. Payor's insolvency, assignment for the benefit of creditors,
      application for or appointment of a receiver, filing of a voluntary or
      involuntary petition under any provision of the Federal Bankruptcy Code or
      amendments thereto or any other federal or state statute affording relief
      to debtors; or there shall be commenced against Payor any such proceeding
      or filed against Payor any such application or petition which proceeding,
      application or petition is not dismissed or withdrawn within sixty (60)
      days of commencement or filing as the case may be; or

            3.3. The failure by Payor to make any payment of any amount of
      principal on, or accrued interest under, this Promissory Note as and when
      the same shall become due and payable; or


                                        2

<PAGE>

            3.4. The sale by Payor of all or substantially all of its assets
      (other than the sale of inventory in the ordinary course of business), or
      the merger or consolidation by Payor with or into another corporation,
      except for mergers or consolidations where Payor is the surviving entity
      or where the surviving entity expressly accepts and assumes all of the
      obligations of Payor under this Promissory Note; or

            3.5. The commencement of a proceeding to foreclose the security
      interest or lien in any property or assets to satisfy the security
      interest or lien therein of any secured creditor of Payor whose debt is in
      excess of $100,000; or

            3.6. The entry of a final judgment for the payment of money in
      excess of $100,000 by a court of competent jurisdiction against Payor,
      which judgment Payor shall not discharge (or provide for such discharge)
      in accordance with its terms within sixty (60) days of the date of entry
      thereof, or procure a stay of execution thereof within sixty (60) days
      from the date of entry thereof and, within such sixty (60) day period, or
      such longer period during which execution of such judgment shall have been
      stayed, appeal therefrom and cause the execution thereof to be stayed
      during such appeal; or

            3.7. Any attachment or levy, or the issuance of any note of eviction
      against the assets or properties of Payor involving an amount in excess of
      $100,000 which attachment, levy or issuance is not dismissed, bonded, or
      otherwise terminated within sixty (60) days of the effectiveness of such
      attachment, levy or issuance; or

            3.8 The default in the due observance or performance of any material
      covenant, condition or agreement on the part of Payor to be observed or
      performed pursuant to the terms of this Promissory Note and such default
      shall continue uncured for ten (10) days after written notice thereof,
      specifying such default, shall have been given to the Payor by the holder
      of said Promissory Note; then, in any such event and at any time
      thereafter (and, in the case of an event described in Subsection 3.5 or a
      default in payment of accrued interest and/or principal as described in
      Subsection 3.3, upon ten (10) days written notice), while such event is
      continuing, Payee shall have the right to declare an event of default
      hereunder ("Event of Default"), provided that upon the occurrence of an
      event described in Subsections 3.1 or 3.2 such event shall be deemed to be
      an Event of Default hereunder whether or not the Payee makes such a
      declaration (an "Automatic Default"), and the indebtedness evidenced by
      this Promissory Note shall immediately upon such declaration or Automatic
      Default become due and payable, both as to principal and interest, without
      presentment, demand, protest or other notice of any kind, all of which are
      hereby expressly waived, notwithstanding anything contained herein to the
      contrary.

      4. If any one or more defaults shall occur and be continuing, Payee may
proceed to protect and enforce such Payee's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Promissory Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Promissory Note or in any agreement or document referred to herein, or
proceed to enforce the payment of this Promissory Note or to enforce any other
legal or equitable right of Payee of this Promissory Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Promissory Note is intended to be exclusive of any other right or remedy, and


                                        3

<PAGE>

each and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.

      5. Unconditional Obligation; Fees; Waivers; Other.

            5.1. The obligations to make the payments provided for in this
      Promissory Note are absolute and unconditional and not subject to any
      defense, set-off, counterclaim, rescission, recoupment or adjustment
      whatsoever.

            5.2. No forbearance, indulgence, delay or failure to exercise any
      right or remedy with respect to this Promissory Note shall operate as a
      waiver, nor as an acquiescence in any default, nor shall any single or
      partial exercise of any right or remedy preclude any other or further
      exercise thereof or the exercise of any other right or remedy.

            5.3. This Promissory Note may not be modified except by a writing
      duly executed by Payor and Payee.

            5.4. Payor hereby expressly waives demand and presentment for
      payment, notice of payment, notice of dishonor, protest, notice of
      protest, bringing of suit, and diligence in taking any action to collect
      amounts called for hereunder, and shall be directly and primarily liable
      for the payment of all sums owing and to owing herein, regardless of and
      without notice, diligence, act or omission with respect to the collection
      of any amount called for hereunder.

            5.5. Payor shall bear all of its expenses, including attorneys' fees
      incurred in connection with the preparation of this Promissory Note.

      6. Restrictions on Transfer. By its acceptance of this Promissory Note,
Payee acknowledges that this Promissory Note has not been registered under the
securities laws of the United States of America or any state thereof and Payee
represents that this Promissory Note has been acquired for investment and no
interest in this Promissory Note may be offered for sale, sold, delivered after
sale, transferred, pledged, or hypothecated in the absence of registration and
qualification of this Promissory Note under applicable federal and state
securities laws or an opinion of counsel reasonably satisfactory to Payor that
such registration and qualification are not required. In addition, this
Promissory Note may only be transferred to a person deemed to be an "accredited
investor" as such term is defined under Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.

      7. Miscellaneous.

            7.1. The headings of the various paragraphs of this Promissory Note
      are for convenience of reference only and shall in no way modify any of
      the terms or provisions of this Promissory Note.

            7.2. All notices required or permitted to be given hereunder shall
      be in writing and shall be deemed to have been duly given when personally
      delivered, delivered by Federal


                                       4

<PAGE>

      Express or other national overnight courier, three days after mailing if
      sent by registered or certified mail, return receipt requested, postage
      prepaid, or on the date of delivery if delivered by telecopy, receipt
      confirmed, provided that a confirmation copy is sent on the next business
      day by registered or certified mail, return receipt requested and postage
      prepaid, to the address of the intended recipient set forth in the
      preamble to this Promissory Note or at such other address as the intended
      recipient shall have hereafter given to the other party hereto pursuant to
      the provisions hereof.

            7.3. This Promissory Note and the obligations of Payor and the
      rights of Payee shall be governed by and construed in accordance with the
      laws of the State of Illinois, without regard to its conflicts of laws
      rules or principles, with respect to contracts made and to be fully
      performed therein.

            7.4. Any legal suit, action or proceeding arising out of or relating
      to this Promissory Note will be instituted exclusively in the Circuit
      Court of Cook County, Illinois, or in the United States District Court for
      the Northern District of Illinois, each and any of which shall apply
      Illinois law without reference to its conflicts of laws principles or
      rules. Payor and Payee (by accepting this Promissory Note) each waives any
      objection which Payor or Payee may have now or hereafter to the venue of
      any such suit, action or proceeding, and irrevocably consents to the
      jurisdiction of the Illinois Circuit Courts, County of Cook and the United
      States District Court for the Northern District of Illinois in any such
      suit, action or proceeding. Payor and Payee (by accepting this Promissory
      Note) each further agree to accept and acknowledge service of any and all
      process which may be served in any such suit, action or proceeding in the
      Illinois Circuit Courts, County of Cook or in the United States District
      Court for the Northern District of Illinois.

            7.5. This Promissory Note shall bind Payor and its successors and
      assigns.

                                       CTI INDUSTRIES CORPORATION


                                    By: /s/ Howard W. Schwan
                                       ----------------------------------------
                                       Howard W. Schwan, President

ATTEST:

     /s/ Stephen M. Merrick
- ----------------------------------
Stephen M. Merrick, Secretary


                                        5


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>7
<FILENAME>d55197_ex10-9.txt
<DESCRIPTION>CTI TO S. MERRICK NOTE DATED 2/28/03
<TEXT>
                                  EXHIBIT 10.9

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                           CTI INDUSTRIES CORPORATION
                          9% UNSECURED PROMISSORY NOTE

$200,000                                                       February 15, 2003
                                                            Barrington, Illinois

      FOR VALUE RECEIVED, the undersigned, CTI Industries Corporation, an
Illinois corporation (the "Payor"), having its executive offices and principal
place of business at 22160 N. Pepper Road, Barrington, Illinois 60010, hereby
promises to pay to Stephen M. Merrick (the "Payee"), having an address at 422
West Rosiland Road, Palatine, Illinois 6074, at the Payee's address set forth
hereinabove or, at such other place as the Payee shall hereafter specify in
writing, the principal sum of Two Hundred Thousand Dollars ($200,000) in legal
tender of the United States of America, in the amount and on the dates
hereinafter set forth.

      1. Interest and Payment

            1.1 Unpaid principal and interest due under this Promissory Note
      shall be payable in full by Payor or any successor holder of this
      Promissory Note on February 15, 2005 (the "Maturity Date").

            1.2 The unpaid principal amount hereof outstanding from time to time
      shall bear simple interest from the date hereof at the rate of 9% per
      annum until the first to occur of the Maturity Date or the date on which
      the entire principal balance hereof shall have been paid.

            1.3 Interest shall accrue and be payable on a calendar quarterly
      basis during such time as any portion of the principal amount of this
      Promissory Note shall be outstanding. Payments of interest shall be due
      and payable one calendar quarter in arrears, on or before the fifth day of
      each calendar month immediately following the expiration of any calendar
      quarter during which any portion of the principal amount of this
      Promissory Note shall be outstanding.

<PAGE>

            1.4 In addition to payments of accrued interest hereunder, payments
      of principal in the amount of Five Thousand Dollars ($5,000) shall be due
      and payable on a monthly basis, payable one month in arrears, on or before
      the fifth day of each calendar month following any month during with any
      portion of the principal amount of this Promissory Note shall be
      outstanding.

            1.5 If payment of the principal amount hereof and interest accrued
      thereon is not made on or before the Maturity Date, interest shall
      thereafter accrue and be payable at an interest rate equal to the lesser
      of (i) 15% or (ii) the maximum rate permitted under applicable law.

            1.6 Payor shall be entitled to prepay all or any portion of the
      principal of this Promissory Note at any time and from time to time,
      without penalty, provided, however, that any such payment on this
      Promissory Note shall be first credited against any accrued and unpaid
      interest hereunder.

      2. Replacement of Promissory Note.

            2.1. In case this Promissory Note is mutilated, destroyed, lost or
      stolen, Payor shall, at its sole expense, execute, register and deliver, a
      new Promissory Note in exchange and substitution for this Promissory Note,
      if mutilated, or in lieu of and substitution for this Promissory Note, if
      destroyed, lost or stolen. In the case of destruction, loss or theft,
      Payee shall furnish to Payor indemnity reasonably satisfactory to Payor,
      and in any such case, and in the case of mutilation, Payee shall also
      furnish to Payor evidence to its reasonable satisfaction of the
      mutilation, destruction, loss or theft of this Promissory Note and of the
      ownership thereof. Any replacement Promissory Note so issued shall be in
      the same outstanding principal amount as this Promissory Note and dated
      the date to which interest shall have been paid on this Promissory Note,
      or if no interest shall have yet been paid, dated the date of this
      Promissory Note.

            2.2. Every Note issued pursuant to the provisions of Section 2.1
      hereof in substitution for this Promissory Note shall constitute an
      additional contractual obligation of Payor, whether or not Promissory Note
      shall be found at any time, or be enforceable by anyone.

      3. Events of Default. If any of the following conditions, events or acts
shall occur, this Promissory Note shall become immediately due and payable:

            3.1. The dissolution of Payor or any vote in favor thereof by the
      Board of Directors and stockholders of Payor; or

            3.2. Payor's insolvency, assignment for the benefit of creditors,
      application for or appointment of a receiver, filing of a voluntary or
      involuntary petition under any provision of the Federal Bankruptcy Code or
      amendments thereto or any other federal or state statute affording relief
      to debtors; or there shall be commenced against Payor any such proceeding
      or filed against Payor any such application or petition which proceeding,
      application or


                                        2

<PAGE>

      petition is not dismissed or withdrawn within sixty (60) days of
      commencement or filing as the case may be; or

            3.3. The failure by Payor to make any payment of any amount of
      principal on, or accrued interest under, this Promissory Note as and when
      the same shall become due and payable; or

            3.4. The sale by Payor of all or substantially all of its assets
      (other than the sale of inventory in the ordinary course of business), or
      the merger or consolidation by Payor with or into another corporation,
      except for mergers or consolidations where Payor is the surviving entity
      or where the surviving entity expressly accepts and assumes all of the
      obligations of Payor under this Promissory Note; or

            3.5. The commencement of a proceeding to foreclose the security
      interest or lien in any property or assets to satisfy the security
      interest or lien therein of any secured creditor of Payor whose debt is in
      excess of $100,000; or

            3.6. The entry of a final judgment for the payment of money in
      excess of $100,000 by a court of competent jurisdiction against Payor,
      which judgment Payor shall not discharge (or provide for such discharge)
      in accordance with its terms within sixty (60) days of the date of entry
      thereof, or procure a stay of execution thereof within sixty (60) days
      from the date of entry thereof and, within such sixty (60) day period, or
      such longer period during which execution of such judgment shall have been
      stayed, appeal therefrom and cause the execution thereof to be stayed
      during such appeal; or

            3.7. Any attachment or levy, or the issuance of any note of eviction
      against the assets or properties of Payor involving an amount in excess of
      $100,000 which attachment, levy or issuance is not dismissed, bonded, or
      otherwise terminated within sixty (60) days of the effectiveness of such
      attachment, levy or issuance; or

            3.8 The default in the due observance or performance of any material
      covenant, condition or agreement on the part of Payor to be observed or
      performed pursuant to the terms of this Promissory Note and such default
      shall continue uncured for ten (10) days after written notice thereof,
      specifying such default, shall have been given to the Payor by the holder
      of said Promissory Note; then, in any such event and at any time
      thereafter (and, in the case of an event described in Subsection 3.5 or a
      default in payment of accrued interest and/or principal as described in
      Subsection 3.3, upon ten (10) days written notice), while such event is
      continuing, Payee shall have the right to declare an event of default
      hereunder ("Event of Default"), provided that upon the occurrence of an
      event described in Subsections 3.1 or 3.2 such event shall be deemed to be
      an Event of Default hereunder whether or not the Payee makes such a
      declaration (an "Automatic Default"), and the indebtedness evidenced by
      this Promissory Note shall immediately upon such declaration or Automatic
      Default become due and payable, both as to principal and interest, without
      presentment, demand, protest or other notice of any kind, all of which are
      hereby expressly waived, notwithstanding anything contained herein to the
      contrary.


                                        3

<PAGE>

      4. If any one or more defaults shall occur and be continuing, Payee may
proceed to protect and enforce such Payee's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Promissory Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Promissory Note or in any agreement or document referred to herein, or
proceed to enforce the payment of this Promissory Note or to enforce any other
legal or equitable right of Payee of this Promissory Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Promissory Note is intended to be exclusive of any other right or remedy, and
each and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.

      5. Unconditional Obligation; Fees; Waivers; Other.

            5.1. The obligations to make the payments provided for in this
      Promissory Note are absolute and unconditional and not subject to any
      defense, set-off, counterclaim, rescission, recoupment or adjustment
      whatsoever.

            5.2. No forbearance, indulgence, delay or failure to exercise any
      right or remedy with respect to this Promissory Note shall operate as a
      waiver, nor as an acquiescence in any default, nor shall any single or
      partial exercise of any right or remedy preclude any other or further
      exercise thereof or the exercise of any other right or remedy.

            5.3. This Promissory Note may not be modified except by a writing
      duly executed by Payor and Payee.

            5.4. Payor hereby expressly waives demand and presentment for
      payment, notice of payment, notice of dishonor, protest, notice of
      protest, bringing of suit, and diligence in taking any action to collect
      amounts called for hereunder, and shall be directly and primarily liable
      for the payment of all sums owing and to owing herein, regardless of and
      without notice, diligence, act or omission with respect to the collection
      of any amount called for hereunder.

            5.5. Payor shall bear all of its expenses, including attorneys' fees
      incurred in connection with the preparation of this Promissory Note.

      6. Restrictions on Transfer. By its acceptance of this Promissory Note,
Payee acknowledges that this Promissory Note has not been registered under the
securities laws of the United States of America or any state thereof and Payee
represents that this Promissory Note has been acquired for investment and no
interest in this Promissory Note may be offered for sale, sold, delivered after
sale, transferred, pledged, or hypothecated in the absence of registration and
qualification of this Promissory Note under applicable federal and state
securities laws or an opinion of counsel reasonably satisfactory to Payor that
such registration and qualification are not required. In addition, this
Promissory Note may only be transferred to a person deemed to be an "accredited
investor" as such term is defined under Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.


                                        4

<PAGE>

      7. Miscellaneous.

            7.1. The headings of the various paragraphs of this Promissory Note
      are for convenience of reference only and shall in no way modify any of
      the terms or provisions of this Promissory Note.

            7.2. All notices required or permitted to be given hereunder shall
      be in writing and shall be deemed to have been duly given when personally
      delivered, delivered by Federal Express or other national overnight
      courier, three days after mailing if sent by registered or certified mail,
      return receipt requested, postage prepaid, or on the date of delivery if
      delivered by telecopy, receipt confirmed, provided that a confirmation
      copy is sent on the next business day by registered or certified mail,
      return receipt requested and postage prepaid, to the address of the
      intended recipient set forth in the preamble to this Promissory Note or at
      such other address as the intended recipient shall have hereafter given to
      the other party hereto pursuant to the provisions hereof.

            7.3. This Promissory Note and the obligations of Payor and the
      rights of Payee shall be governed by and construed in accordance with the
      laws of the State of Illinois, without regard to its conflicts of laws
      rules or principles, with respect to contracts made and to be fully
      performed therein.

            7.4. Any legal suit, action or proceeding arising out of or relating
      to this Promissory Note will be instituted exclusively in the Circuit
      Court of Cook County, Illinois, or in the United States District Court for
      the Northern District of Illinois, each and any of which shall apply
      Illinois law without reference to its conflicts of laws principles or
      rules. Payor and Payee (by accepting this Promissory Note) each waives any
      objection which Payor or Payee may have now or hereafter to the venue of
      any such suit, action or proceeding, and irrevocably consents to the
      jurisdiction of the Illinois Circuit Courts, County of Cook and the United
      States District Court for the Northern District of Illinois in any such
      suit, action or proceeding. Payor and Payee (by accepting this Promissory
      Note) each further agree to accept and acknowledge service of any and all
      process which may be served in any such suit, action or proceeding in the
      Illinois Circuit Courts, County of Cook or in the United States District
      Court for the Northern District of Illinois.

            7.5. This Promissory Note shall bind Payor and its successors and
      assigns.

                                        CTI INDUSTRIES CORPORATION


                                    By:  /s/ Howard W. Schwan
                                        ---------------------------------------
                                        Howard W. Schwan, President

ATTEST:


   /s/ Stephen M. Merrick
- ------------------------------------
Stephen M. Merrick, Secretary


                                        5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>8
<FILENAME>d55197_ex10-10.txt
<DESCRIPTION>CTI TO J. SCHWAN NOTE DATED 2/10/03
<TEXT>
                                  EXHIBIT 10.10

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                           CTI INDUSTRIES CORPORATION
                          9% UNSECURED PROMISSORY NOTE

$150,000                                                       February 10, 2003
                                                            Barrington, Illinois

      FOR VALUE RECEIVED, the undersigned, CTI Industries Corporation, an
Illinois corporation (the "Payor"), having its executive offices and principal
place of business at 22160 N. Pepper Road, Barrington, Illinois 60010, hereby
promises to pay to John H. Schwan (the "Payee"), having an address at 27
Watergate, South Barrington, Illinois 60010, at the Payee's address set forth
hereinabove or, at such other place as the Payee shall hereafter specify in
writing, the principal sum of One Hundred Fifty Thousand Dollars ($150,000) in
legal tender of the United States of America, in the amount and on the dates
hereinafter set forth.

      1. Interest and Payment

            1.1 Unpaid principal and interest due under this Promissory Note
      shall be payable in full by Payor or any successor holder of this
      Promissory Note on February 15, 2005 (the "Maturity Date").

            1.2 The unpaid principal amount hereof outstanding from time to time
      shall bear simple interest from the date hereof at the rate of 9% per
      annum until the first to occur of the Maturity Date or the date on which
      the entire principal balance hereof shall have been paid.

            1.3 Interest shall accrue and be payable on a calendar quarterly
      basis during such time as any portion of the principal amount of this
      Promissory Note shall be outstanding. Payments of interest shall be due
      and payable one calendar quarter in arrears, on or before the fifth day of
      each calendar month immediately following the expiration of any calendar
      quarter during which any portion of the principal amount of this
      Promissory Note shall be outstanding.

<PAGE>

            1.4 If payment of the principal amount hereof and interest accrued
      thereon is not made on or before the Maturity Date, interest shall
      thereafter accrue and be payable at an interest rate equal to the lesser
      of (i) 15% or (ii) the maximum rate permitted under applicable law.

            1.5 Payor shall be entitled to prepay all or any portion of the
      principal of this Promissory Note at any time and from time to time,
      without penalty, provided, however, that any such payment on this
      Promissory Note shall be first credited against any accrued and unpaid
      interest hereunder.

      2. Replacement of Promissory Note.

            2.1. In case this Promissory Note is mutilated, destroyed, lost or
      stolen, Payor shall, at its sole expense, execute, register and deliver, a
      new Promissory Note in exchange and substitution for this Promissory Note,
      if mutilated, or in lieu of and substitution for this Promissory Note, if
      destroyed, lost or stolen. In the case of destruction, loss or theft,
      Payee shall furnish to Payor indemnity reasonably satisfactory to Payor,
      and in any such case, and in the case of mutilation, Payee shall also
      furnish to Payor evidence to its reasonable satisfaction of the
      mutilation, destruction, loss or theft of this Promissory Note and of the
      ownership thereof. Any replacement Promissory Note so issued shall be in
      the same outstanding principal amount as this Promissory Note and dated
      the date to which interest shall have been paid on this Promissory Note,
      or if no interest shall have yet been paid, dated the date of this
      Promissory Note.

            2.2. Every Note issued pursuant to the provisions of Section 2.1
      hereof in substitution for this Promissory Note shall constitute an
      additional contractual obligation of Payor, whether or not Promissory Note
      shall be found at any time, or be enforceable by anyone.

      3. Events of Default. If any of the following conditions, events or acts
shall occur, this Promissory Note shall become immediately due and payable:

            3.1. The dissolution of Payor or any vote in favor thereof by the
      Board of Directors and stockholders of Payor; or

            3.2. Payor's insolvency, assignment for the benefit of creditors,
      application for or appointment of a receiver, filing of a voluntary or
      involuntary petition under any provision of the Federal Bankruptcy Code or
      amendments thereto or any other federal or state statute affording relief
      to debtors; or there shall be commenced against Payor any such proceeding
      or filed against Payor any such application or petition which proceeding,
      application or petition is not dismissed or withdrawn within sixty (60)
      days of commencement or filing as the case may be; or

            3.3. The failure by Payor to make any payment of any amount of
      principal on, or accrued interest under, this Promissory Note as and when
      the same shall become due and payable; or


                                        2

<PAGE>

            3.4. The sale by Payor of all or substantially all of its assets
      (other than the sale of inventory in the ordinary course of business), or
      the merger or consolidation by Payor with or into another corporation,
      except for mergers or consolidations where Payor is the surviving entity
      or where the surviving entity expressly accepts and assumes all of the
      obligations of Payor under this Promissory Note; or

            3.5. The commencement of a proceeding to foreclose the security
      interest or lien in any property or assets to satisfy the security
      interest or lien therein of any secured creditor of Payor whose debt is in
      excess of $100,000; or

            3.6. The entry of a final judgment for the payment of money in
      excess of $100,000 by a court of competent jurisdiction against Payor,
      which judgment Payor shall not discharge (or provide for such discharge)
      in accordance with its terms within sixty (60) days of the date of entry
      thereof, or procure a stay of execution thereof within sixty (60) days
      from the date of entry thereof and, within such sixty (60) day period, or
      such longer period during which execution of such judgment shall have been
      stayed, appeal therefrom and cause the execution thereof to be stayed
      during such appeal; or

            3.7. Any attachment or levy, or the issuance of any note of eviction
      against the assets or properties of Payor involving an amount in excess of
      $100,000 which attachment, levy or issuance is not dismissed, bonded, or
      otherwise terminated within sixty (60) days of the effectiveness of such
      attachment, levy or issuance; or

            3.8 The default in the due observance or performance of any material
      covenant, condition or agreement on the part of Payor to be observed or
      performed pursuant to the terms of this Promissory Note and such default
      shall continue uncured for ten (10) days after written notice thereof,
      specifying such default, shall have been given to the Payor by the holder
      of said Promissory Note; then, in any such event and at any time
      thereafter (and, in the case of an event described in Subsection 3.5 or a
      default in payment of accrued interest and/or principal as described in
      Subsection 3.3, upon ten (10) days written notice), while such event is
      continuing, Payee shall have the right to declare an event of default
      hereunder ("Event of Default"), provided that upon the occurrence of an
      event described in Subsections 3.1 or 3.2 such event shall be deemed to be
      an Event of Default hereunder whether or not the Payee makes such a
      declaration (an "Automatic Default"), and the indebtedness evidenced by
      this Promissory Note shall immediately upon such declaration or Automatic
      Default become due and payable, both as to principal and interest, without
      presentment, demand, protest or other notice of any kind, all of which are
      hereby expressly waived, notwithstanding anything contained herein to the
      contrary.

      4. If any one or more defaults shall occur and be continuing, Payee may
proceed to protect and enforce such Payee's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Promissory Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Promissory Note or in any agreement or document referred to herein, or
proceed to enforce the payment of this Promissory Note or to enforce any other
legal or equitable right of Payee of this Promissory Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Promissory Note is intended to be exclusive of any other right or remedy, and


                                        3

<PAGE>

each and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.

      5. Unconditional Obligation; Fees; Waivers; Other.

            5.1. The obligations to make the payments provided for in this
      Promissory Note are absolute and unconditional and not subject to any
      defense, set-off, counterclaim, rescission, recoupment or adjustment
      whatsoever.

            5.2. No forbearance, indulgence, delay or failure to exercise any
      right or remedy with respect to this Promissory Note shall operate as a
      waiver, nor as an acquiescence in any default, nor shall any single or
      partial exercise of any right or remedy preclude any other or further
      exercise thereof or the exercise of any other right or remedy.

            5.3. This Promissory Note may not be modified except by a writing
      duly executed by Payor and Payee.

            5.4. Payor hereby expressly waives demand and presentment for
      payment, notice of payment, notice of dishonor, protest, notice of
      protest, bringing of suit, and diligence in taking any action to collect
      amounts called for hereunder, and shall be directly and primarily liable
      for the payment of all sums owing and to owing herein, regardless of and
      without notice, diligence, act or omission with respect to the collection
      of any amount called for hereunder.

            5.5. Payor shall bear all of its expenses, including attorneys' fees
      incurred in connection with the preparation of this Promissory Note.

      6. Restrictions on Transfer. By its acceptance of this Promissory Note,
Payee acknowledges that this Promissory Note has not been registered under the
securities laws of the United States of America or any state thereof and Payee
represents that this Promissory Note has been acquired for investment and no
interest in this Promissory Note may be offered for sale, sold, delivered after
sale, transferred, pledged, or hypothecated in the absence of registration and
qualification of this Promissory Note under applicable federal and state
securities laws or an opinion of counsel reasonably satisfactory to Payor that
such registration and qualification are not required. In addition, this
Promissory Note may only be transferred to a person deemed to be an "accredited
investor" as such term is defined under Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.

       7. Miscellaneous.

            7.1. The headings of the various paragraphs of this Promissory Note
      are for convenience of reference only and shall in no way modify any of
      the terms or provisions of this Promissory Note.

            7.2. All notices required or permitted to be given hereunder shall
      be in writing and shall be deemed to have been duly given when personally
      delivered, delivered by Federal


                                        4

<PAGE>

      Express or other national overnight courier, three days after mailing if
      sent by registered or certified mail, return receipt requested, postage
      prepaid, or on the date of delivery if delivered by telecopy, receipt
      confirmed, provided that a confirmation copy is sent on the next business
      day by registered or certified mail, return receipt requested and postage
      prepaid, to the address of the intended recipient set forth in the
      preamble to this Promissory Note or at such other address as the intended
      recipient shall have hereafter given to the other party hereto pursuant to
      the provisions hereof.

            7.3. This Promissory Note and the obligations of Payor and the
      rights of Payee shall be governed by and construed in accordance with the
      laws of the State of Illinois, without regard to its conflicts of laws
      rules or principles, with respect to contracts made and to be fully
      performed therein.

            7.4. Any legal suit, action or proceeding arising out of or relating
      to this Promissory Note will be instituted exclusively in the Circuit
      Court of Cook County, Illinois, or in the United States District Court for
      the Northern District of Illinois, each and any of which shall apply
      Illinois law without reference to its conflicts of laws principles or
      rules. Payor and Payee (by accepting this Promissory Note) each waives any
      objection which Payor or Payee may have now or hereafter to the venue of
      any such suit, action or proceeding, and irrevocably consents to the
      jurisdiction of the Illinois Circuit Courts, County of Cook and the United
      States District Court for the Northern District of Illinois in any such
      suit, action or proceeding. Payor and Payee (by accepting this Promissory
      Note) each further agree to accept and acknowledge service of any and all
      process which may be served in any such suit, action or proceeding in the
      Illinois Circuit Courts, County of Cook or in the United States District
      Court for the Northern District of Illinois.

            7.5. This Promissory Note shall bind Payor and its successors and
      assigns.

                                        CTI INDUSTRIES CORPORATION


                                    By:    /s/ Howard W. Schwan
                                        ---------------------------------------
                                        Howard W. Schwan, President

ATTEST:


     /s/ Stephen M. Merrick
- ------------------------------------
 Stephen M. Merrick, Secretary


                                              5


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>9
<FILENAME>d55197_ex10-11.txt
<DESCRIPTION>CTI TO J. SCHWAN NOTE DATED 2/15/03
<TEXT>
                                  EXHIBIT 10.11

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                           CTI INDUSTRIES CORPORATION
                          9% UNSECURED PROMISSORY NOTE

$680,000                                                       February 15, 2003
                                                            Barrington, Illinois

      FOR VALUE RECEIVED, the undersigned, CTI Industries Corporation, an
Illinois corporation (the "Payor"), having its executive offices and principal
place of business at 22160 N. Pepper Road, Barrington, Illinois 60010, hereby
promises to pay to John H. Schwan (the "Payee"), having an address at 27
Watergate, South Barrington, Illinois 60010, at the Payee's address set forth
hereinabove or, at such other place as the Payee shall hereafter specify in
writing, the principal sum of Six Hundred Eighty Thousand Dollars ($680,000) in
legal tender of the United States of America, in the amount and on the dates
hereinafter set forth.

      1. Interest and Payment

            1.1 Unpaid principal and interest due under this Promissory Note
      shall be payable in full by Payor or any successor holder of this
      Promissory Note on February 15, 2005 (the "Maturity Date").

            1.2 The unpaid principal amount hereof outstanding from time to time
      shall bear simple interest from the date hereof at the rate of 9% per
      annum until the first to occur of the Maturity Date or the date on which
      the entire principal balance hereof shall have been paid.

            1.3 Interest shall accrue and be payable on a calendar quarterly
      basis during such time as any portion of the principal amount of this
      Promissory Note shall be outstanding. Payments of interest shall be due
      and payable one calendar quarter in arrears, on or before the fifth day of
      each calendar month immediately following the expiration of any calendar
      quarter during which any portion of the principal amount of this
      Promissory Note shall be outstanding.

<PAGE>

            1.4 If payment of the principal amount hereof and interest accrued
      thereon is not made on or before the Maturity Date, interest shall
      thereafter accrue and be payable at an interest rate equal to the lesser
      of (i) 15% or (ii) the maximum rate permitted under applicable law.

            1.5 Payor shall be entitled to prepay all or any portion of the
      principal of this Promissory Note at any time and from time to time,
      without penalty, provided, however, that any such payment on this
      Promissory Note shall be first credited against any accrued and unpaid
      interest hereunder.

      2. Replacement of Promissory Note.

            2.1. In case this Promissory Note is mutilated, destroyed, lost or
      stolen, Payor shall, at its sole expense, execute, register and deliver, a
      new Promissory Note in exchange and substitution for this Promissory Note,
      if mutilated, or in lieu of and substitution for this Promissory Note, if
      destroyed, lost or stolen. In the case of destruction, loss or theft,
      Payee shall furnish to Payor indemnity reasonably satisfactory to Payor,
      and in any such case, and in the case of mutilation, Payee shall also
      furnish to Payor evidence to its reasonable satisfaction of the
      mutilation, destruction, loss or theft of this Promissory Note and of the
      ownership thereof. Any replacement Promissory Note so issued shall be in
      the same outstanding principal amount as this Promissory Note and dated
      the date to which interest shall have been paid on this Promissory Note,
      or if no interest shall have yet been paid, dated the date of this
      Promissory Note.

            2.2. Every Note issued pursuant to the provisions of Section 2.1
      hereof in substitution for this Promissory Note shall constitute an
      additional contractual obligation of Payor, whether or not Promissory Note
      shall be found at any time, or be enforceable by anyone.

      3. Events of Default. If any of the following conditions, events or acts
shall occur, this Promissory Note shall become immediately due and payable:

            3.1. The dissolution of Payor or any vote in favor thereof by the
      Board of Directors and stockholders of Payor; or

            3.2. Payor's insolvency, assignment for the benefit of creditors,
      application for or appointment of a receiver, filing of a voluntary or
      involuntary petition under any provision of the Federal Bankruptcy Code or
      amendments thereto or any other federal or state statute affording relief
      to debtors; or there shall be commenced against Payor any such proceeding
      or filed against Payor any such application or petition which proceeding,
      application or petition is not dismissed or withdrawn within sixty (60)
      days of commencement or filing as the case may be; or

            3.3. The failure by Payor to make any payment of any amount of
      principal on, or accrued interest under, this Promissory Note as and when
      the same shall become due and payable; or


                                        2

<PAGE>

            3.4. The sale by Payor of all or substantially all of its assets
      (other than the sale of inventory in the ordinary course of business), or
      the merger or consolidation by Payor with or into another corporation,
      except for mergers or consolidations where Payor is the surviving entity
      or where the surviving entity expressly accepts and assumes all of the
      obligations of Payor under this Promissory Note; or

            3.5. The commencement of a proceeding to foreclose the security
      interest or lien in any property or assets to satisfy the security
      interest or lien therein of any secured creditor of Payor whose debt is in
      excess of $100,000; or

            3.6. The entry of a final judgment for the payment of money in
      excess of $100,000 by a court of competent jurisdiction against Payor,
      which judgment Payor shall not discharge (or provide for such discharge)
      in accordance with its terms within sixty (60) days of the date of entry
      thereof, or procure a stay of execution thereof within sixty (60) days
      from the date of entry thereof and, within such sixty (60) day period, or
      such longer period during which execution of such judgment shall have been
      stayed, appeal therefrom and cause the execution thereof to be stayed
      during such appeal; or

            3.7. Any attachment or levy, or the issuance of any note of eviction
      against the assets or properties of Payor involving an amount in excess of
      $100,000 which attachment, levy or issuance is not dismissed, bonded, or
      otherwise terminated within sixty (60) days of the effectiveness of such
      attachment, levy or issuance; or

            3.8 The default in the due observance or performance of any material
      covenant, condition or agreement on the part of Payor to be observed or
      performed pursuant to the terms of this Promissory Note and such default
      shall continue uncured for ten (10) days after written notice thereof,
      specifying such default, shall have been given to the Payor by the holder
      of said Promissory Note; then, in any such event and at any time
      thereafter (and, in the case of an event described in Subsection 3.5 or a
      default in payment of accrued interest and/or principal as described in
      Subsection 3.3, upon ten (10) days written notice), while such event is
      continuing, Payee shall have the right to declare an event of default
      hereunder ("Event of Default"), provided that upon the occurrence of an
      event described in Subsections 3.1 or 3.2 such event shall be deemed to be
      an Event of Default hereunder whether or not the Payee makes such a
      declaration (an "Automatic Default"), and the indebtedness evidenced by
      this Promissory Note shall immediately upon such declaration or Automatic
      Default become due and payable, both as to principal and interest, without
      presentment, demand, protest or other notice of any kind, all of which are
      hereby expressly waived, notwithstanding anything contained herein to the
      contrary.

      4. If any one or more defaults shall occur and be continuing, Payee may
proceed to protect and enforce such Payee's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Promissory Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Promissory Note or in any agreement or document referred to herein, or
proceed to enforce the payment of this Promissory Note or to enforce any other
legal or equitable right of Payee of this Promissory Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Promissory Note is intended to be exclusive of any other right or remedy, and


                                        3

<PAGE>

each and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.

      5. Unconditional Obligation; Fees; Waivers; Other.

            5.1. The obligations to make the payments provided for in this
      Promissory Note are absolute and unconditional and not subject to any
      defense, set-off, counterclaim, rescission, recoupment or adjustment
      whatsoever.

            5.2. No forbearance, indulgence, delay or failure to exercise any
      right or remedy with respect to this Promissory Note shall operate as a
      waiver, nor as an acquiescence in any default, nor shall any single or
      partial exercise of any right or remedy preclude any other or further
      exercise thereof or the exercise of any other right or remedy.

            5.3. This Promissory Note may not be modified except by a writing
      duly executed by Payor and Payee.

            5.4. Payor hereby expressly waives demand and presentment for
      payment, notice of payment, notice of dishonor, protest, notice of
      protest, bringing of suit, and diligence in taking any action to collect
      amounts called for hereunder, and shall be directly and primarily liable
      for the payment of all sums owing and to owing herein, regardless of and
      without notice, diligence, act or omission with respect to the collection
      of any amount called for hereunder.

            5.5. Payor shall bear all of its expenses, including attorneys' fees
      incurred in connection with the preparation of this Promissory Note.

      6. Restrictions on Transfer. By its acceptance of this Promissory Note,
Payee acknowledges that this Promissory Note has not been registered under the
securities laws of the United States of America or any state thereof and Payee
represents that this Promissory Note has been acquired for investment and no
interest in this Promissory Note may be offered for sale, sold, delivered after
sale, transferred, pledged, or hypothecated in the absence of registration and
qualification of this Promissory Note under applicable federal and state
securities laws or an opinion of counsel reasonably satisfactory to Payor that
such registration and qualification are not required. In addition, this
Promissory Note may only be transferred to a person deemed to be an "accredited
investor" as such term is defined under Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.

      7. Miscellaneous.

            7.1. The headings of the various paragraphs of this Promissory Note
      are for convenience of reference only and shall in no way modify any of
      the terms or provisions of this Promissory Note.

            7.2. All notices required or permitted to be given hereunder shall
      be in writing and shall be deemed to have been duly given when personally
      delivered, delivered by Federal


                                        4

<PAGE>

      Express or other national overnight courier, three days after mailing if
      sent by registered or certified mail, return receipt requested, postage
      prepaid, or on the date of delivery if delivered by telecopy, receipt
      confirmed, provided that a confirmation copy is sent on the next business
      day by registered or certified mail, return receipt requested and postage
      prepaid, to the address of the intended recipient set forth in the
      preamble to this Promissory Note or at such other address as the intended
      recipient shall have hereafter given to the other party hereto pursuant to
      the provisions hereof.

            7.3. This Promissory Note and the obligations of Payor and the
      rights of Payee shall be governed by and construed in accordance with the
      laws of the State of Illinois, without regard to its conflicts of laws
      rules or principles, with respect to contracts made and to be fully
      performed therein.

            7.4. Any legal suit, action or proceeding arising out of or relating
      to this Promissory Note will be instituted exclusively in the Circuit
      Court of Cook County, Illinois, or in the United States District Court for
      the Northern District of Illinois, each and any of which shall apply
      Illinois law without reference to its conflicts of laws principles or
      rules. Payor and Payee (by accepting this Promissory Note) each waives any
      objection which Payor or Payee may have now or hereafter to the venue of
      any such suit, action or proceeding, and irrevocably consents to the
      jurisdiction of the Illinois Circuit Courts, County of Cook and the United
      States District Court for the Northern District of Illinois in any such
      suit, action or proceeding. Payor and Payee (by accepting this Promissory
      Note) each further agree to accept and acknowledge service of any and all
      process which may be served in any such suit, action or proceeding in the
      Illinois Circuit Courts, County of Cook or in the United States District
      Court for the Northern District of Illinois.

            7.5. This Promissory Note shall bind Payor and its successors and
      assigns.

                                        CTI INDUSTRIES CORPORATION


                                    By:     /s/ Howard W. Schwan
                                        ---------------------------------------
                                        Howard W. Schwan, President

ATTEST:


    /s/ Stephen M. Merrick
- -------------------------------------
Stephen M. Merrick, Secretary


                                        5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>10
<FILENAME>d55197_ex10-12.txt
<DESCRIPTION>CTI TO J. SCHWAN NOTE DATED 3/3/03
<TEXT>
                                  EXHIBIT 10.12

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
NO INTEREST IN THIS NOTE MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR (ii) AN EXEMPTION FROM REGISTRATION UNDER SAID ACT AND WHERE THE HOLDER HAS
FURNISHED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER SAID ACT IS AVAILABLE.

                           CTI INDUSTRIES CORPORATION
                          9% UNSECURED PROMISSORY NOTE

$100,000                                                           March 3, 2003
                                                            Barrington, Illinois

      FOR VALUE RECEIVED, the undersigned, CTI Industries Corporation, an
Illinois corporation (the "Payor"), having its executive offices and principal
place of business at 22160 N. Pepper Road, Barrington, Illinois 60010, hereby
promises to pay to John H. Schwan (the "Payee"), having an address at 27
Watergate, South Barrington, Illinois 60010, at the Payee's address set forth
hereinabove or, at such other place as the Payee shall hereafter specify in
writing, the principal sum of One Hundred Thousand Dollars ($100,000) in legal
tender of the United States of America, in the amount and on the dates
hereinafter set forth.

      1. Interest and Payment

            1.1 Unpaid principal and interest due under this Promissory Note
      shall be payable in full by Payor or any successor holder of this
      Promissory Note on March 3, 2005 (the "Maturity Date").

            1.2 The unpaid principal amount hereof outstanding from time to time
      shall bear simple interest from the date hereof at the rate of 9% per
      annum until the first to occur of the Maturity Date or the date on which
      the entire principal balance hereof shall have been paid.

            1.3 Interest shall accrue and be payable on a calendar quarterly
      basis during such time as any portion of the principal amount of this
      Promissory Note shall be outstanding. Payments of interest shall be due
      and payable one calendar quarter in arrears, on or before the fifth day of
      each calendar month immediately following the expiration of any calendar
      quarter during which any portion of the principal amount of this
      Promissory Note shall be outstanding.

<PAGE>

            1.4 If payment of the principal amount hereof and interest accrued
      thereon is not made on or before the Maturity Date, interest shall
      thereafter accrue and be payable at an interest rate equal to the lesser
      of (i) 15% or (ii) the maximum rate permitted under applicable law.

            1.5 Payor shall be entitled to prepay all or any portion of the
      principal of this Promissory Note at any time and from time to time,
      without penalty, provided, however, that any such payment on this
      Promissory Note shall be first credited against any accrued and unpaid
      interest hereunder.

      2. Replacement of Promissory Note.

            2.1. In case this Promissory Note is mutilated, destroyed, lost or
      stolen, Payor shall, at its sole expense, execute, register and deliver, a
      new Promissory Note in exchange and substitution for this Promissory Note,
      if mutilated, or in lieu of and substitution for this Promissory Note, if
      destroyed, lost or stolen. In the case of destruction, loss or theft,
      Payee shall furnish to Payor indemnity reasonably satisfactory to Payor,
      and in any such case, and in the case of mutilation, Payee shall also
      furnish to Payor evidence to its reasonable satisfaction of the
      mutilation, destruction, loss or theft of this Promissory Note and of the
      ownership thereof. Any replacement Promissory Note so issued shall be in
      the same outstanding principal amount as this Promissory Note and dated
      the date to which interest shall have been paid on this Promissory Note,
      or if no interest shall have yet been paid, dated the date of this
      Promissory Note.

            2.2. Every Note issued pursuant to the provisions of Section 2.1
      hereof in substitution for this Promissory Note shall constitute an
      additional contractual obligation of Payor, whether or not Promissory Note
      shall be found at any time, or be enforceable by anyone.

      3. Events of Default. If any of the following conditions, events or acts
shall occur, this Promissory Note shall become immediately due and payable:

            3.1. The dissolution of Payor or any vote in favor thereof by the
      Board of Directors and stockholders of Payor; or

            3.2. Payor's insolvency, assignment for the benefit of creditors,
      application for or appointment of a receiver, filing of a voluntary or
      involuntary petition under any provision of the Federal Bankruptcy Code or
      amendments thereto or any other federal or state statute affording relief
      to debtors; or there shall be commenced against Payor any such proceeding
      or filed against Payor any such application or petition which proceeding,
      application or petition is not dismissed or withdrawn within sixty (60)
      days of commencement or filing as the case may be; or

            3.3. The failure by Payor to make any payment of any amount of
      principal on, or accrued interest under, this Promissory Note as and when
      the same shall become due and payable; or


                                        2

<PAGE>

            3.4. The sale by Payor of all or substantially all of its assets
      (other than the sale of inventory in the ordinary course of business), or
      the merger or consolidation by Payor with or into another corporation,
      except for mergers or consolidations where Payor is the surviving entity
      or where the surviving entity expressly accepts and assumes all of the
      obligations of Payor under this Promissory Note; or

            3.5. The commencement of a proceeding to foreclose the security
      interest or lien in any property or assets to satisfy the security
      interest or lien therein of any secured creditor of Payor whose debt is in
      excess of $100,000; or

            3.6. The entry of a final judgment for the payment of money in
      excess of $100,000 by a court of competent jurisdiction against Payor,
      which judgment Payor shall not discharge (or provide for such discharge)
      in accordance with its terms within sixty (60) days of the date of entry
      thereof, or procure a stay of execution thereof within sixty (60) days
      from the date of entry thereof and, within such sixty (60) day period, or
      such longer period during which execution of such judgment shall have been
      stayed, appeal therefrom and cause the execution thereof to be stayed
      during such appeal; or

            3.7. Any attachment or levy, or the issuance of any note of eviction
      against the assets or properties of Payor involving an amount in excess of
      $100,000 which attachment, levy or issuance is not dismissed, bonded, or
      otherwise terminated within sixty (60) days of the effectiveness of such
      attachment, levy or issuance; or

            3.8 The default in the due observance or performance of any material
      covenant, condition or agreement on the part of Payor to be observed or
      performed pursuant to the terms of this Promissory Note and such default
      shall continue uncured for ten (10) days after written notice thereof,
      specifying such default, shall have been given to the Payor by the holder
      of said Promissory Note; then, in any such event and at any time
      thereafter (and, in the case of an event described in Subsection 3.5 or a
      default in payment of accrued interest and/or principal as described in
      Subsection 3.3, upon ten (10) days written notice), while such event is
      continuing, Payee shall have the right to declare an event of default
      hereunder ("Event of Default"), provided that upon the occurrence of an
      event described in Subsections 3.1 or 3.2 such event shall be deemed to be
      an Event of Default hereunder whether or not the Payee makes such a
      declaration (an "Automatic Default"), and the indebtedness evidenced by
      this Promissory Note shall immediately upon such declaration or Automatic
      Default become due and payable, both as to principal and interest, without
      presentment, demand, protest or other notice of any kind, all of which are
      hereby expressly waived, notwithstanding anything contained herein to the
      contrary.

      4. If any one or more defaults shall occur and be continuing, Payee may
proceed to protect and enforce such Payee's rights either by suit in equity or
by action at law, or both, whether for the specific performance of any covenant,
condition or agreement contained in this Promissory Note or in any agreement or
document referred to herein or in aid of the exercise of any power granted in
this Promissory Note or in any agreement or document referred to herein, or
proceed to enforce the payment of this Promissory Note or to enforce any other
legal or equitable right of Payee of this Promissory Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of this
Promissory Note is intended to be exclusive of any other right or remedy, and


                                        3

<PAGE>

each and every such right or remedy shall be cumulative and shall be in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.

      5. Unconditional Obligation; Fees; Waivers; Other.

            5.1. The obligations to make the payments provided for in this
      Promissory Note are absolute and unconditional and not subject to any
      defense, set-off, counterclaim, rescission, recoupment or adjustment
      whatsoever.

            5.2. No forbearance, indulgence, delay or failure to exercise any
      right or remedy with respect to this Promissory Note shall operate as a
      waiver, nor as an acquiescence in any default, nor shall any single or
      partial exercise of any right or remedy preclude any other or further
      exercise thereof or the exercise of any other right or remedy.

            5.3. This Promissory Note may not be modified except by a writing
      duly executed by Payor and Payee.

            5.4. Payor hereby expressly waives demand and presentment for
      payment, notice of payment, notice of dishonor, protest, notice of
      protest, bringing of suit, and diligence in taking any action to collect
      amounts called for hereunder, and shall be directly and primarily liable
      for the payment of all sums owing and to owing herein, regardless of and
      without notice, diligence, act or omission with respect to the collection
      of any amount called for hereunder.

            5.5. Payor shall bear all of its expenses, including attorneys' fees
      incurred in connection with the preparation of this Promissory Note.

      6. Restrictions on Transfer. By its acceptance of this Promissory Note,
Payee acknowledges that this Promissory Note has not been registered under the
securities laws of the United States of America or any state thereof and Payee
represents that this Promissory Note has been acquired for investment and no
interest in this Promissory Note may be offered for sale, sold, delivered after
sale, transferred, pledged, or hypothecated in the absence of registration and
qualification of this Promissory Note under applicable federal and state
securities laws or an opinion of counsel reasonably satisfactory to Payor that
such registration and qualification are not required. In addition, this
Promissory Note may only be transferred to a person deemed to be an "accredited
investor" as such term is defined under Rule 501(a) of Regulation D promulgated
under the Securities Act of 1933, as amended.

      7. Miscellaneous.

            7.1. The headings of the various paragraphs of this Promissory Note
      are for convenience of reference only and shall in no way modify any of
      the terms or provisions of this Promissory Note.

            7.2. All notices required or permitted to be given hereunder shall
      be in writing and shall be deemed to have been duly given when personally
      delivered, delivered by Federal


                                        4

<PAGE>

      Express or other national overnight courier, three days after mailing if
      sent by registered or certified mail, return receipt requested, postage
      prepaid, or on the date of delivery if delivered by telecopy, receipt
      confirmed, provided that a confirmation copy is sent on the next business
      day by registered or certified mail, return receipt requested and postage
      prepaid, to the address of the intended recipient set forth in the
      preamble to this Promissory Note or at such other address as the intended
      recipient shall have hereafter given to the other party hereto pursuant to
      the provisions hereof.

            7.3. This Promissory Note and the obligations of Payor and the
      rights of Payee shall be governed by and construed in accordance with the
      laws of the State of Illinois, without regard to its conflicts of laws
      rules or principles, with respect to contracts made and to be fully
      performed therein.

            7.4. Any legal suit, action or proceeding arising out of or relating
      to this Promissory Note will be instituted exclusively in the Circuit
      Court of Cook County, Illinois, or in the United States District Court for
      the Northern District of Illinois, each and any of which shall apply
      Illinois law without reference to its conflicts of laws principles or
      rules. Payor and Payee (by accepting this Promissory Note) each waives any
      objection which Payor or Payee may have now or hereafter to the venue of
      any such suit, action or proceeding, and irrevocably consents to the
      jurisdiction of the Illinois Circuit Courts, County of Cook and the United
      States District Court for the Northern District of Illinois in any such
      suit, action or proceeding. Payor and Payee (by accepting this Promissory
      Note) each further agree to accept and acknowledge service of any and all
      process which may be served in any such suit, action or proceeding in the
      Illinois Circuit Courts, County of Cook or in the United States District
      Court for the Northern District of Illinois.

            7.5. This Promissory Note shall bind Payor and its successors and
      assigns.

                                       CTI INDUSTRIES CORPORATION


                                    By:    /s/ Howard W. Schwan
                                       ---------------------------------------
                                       Howard W. Schwan, President

ATTEST:


 /s/ Stephen M. Merrick
- ----------------------------------------
Stephen M. Merrick, Secretary


                                        5

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>11
<FILENAME>d55197_ex10-13.txt
<DESCRIPTION>S. MERRICK WARRANT DATED 3/20/03
<TEXT>
                                  EXHIBIT 10.13

          The securities represented by this Warrant have not been
          registered under the Securities Act of 1933, and thus
          may not be transferred unless registered under that Act
          or unless an exemption from registration is available.

                                                   Warrant dated March 20, 2003,
                                                   to purchase 70,000 Shares of
                                                   Common Stock on or before
                                                   March 20, 2008.

                             STOCK PURCHASE WARRANT
                           TO PURCHASE COMMON STOCK OF
                           CTI INDUSTRIES CORPORATION

      This certifies that, for value received, Stephen M. Merrick, or his
assigns, is entitled to subscribe for and purchase from CTI INDUSTRIES
CORPORATION, an Illinois corporation (hereinafter called the "Company"), at a
price of $4.87 per share (subject to adjustment as set forth in paragraph 3
below) and at any time after the date hereof to and including March 20, 2008,
70,000 (subject to adjustment as set forth in paragraph 3 below) fully paid and
non- assessable shares of the Company's no par value common stock (hereinafter
referred to as the "Common Stock").

      This Warrant is subject to the following provisions, terms and conditions:

      1. Exercise; Issuance of Certificates; Payment for Shares. The rights
represented by this Warrant may be exercised by the holder hereof at any time
within the period specified above, in whole or in part (but not as to a
fractional share of Common Stock), by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company (or such other
office of the Company as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company) (a)
specifying the number of shares of Common Stock being purchased and (b)
accompanied by a check payable to the Company for the purchase price for such
shares. The Company agrees that the shares so purchased shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Certificates for the shares so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten days, after the rights represented by this Warrant shall have been
so exercised, and, unless this Warrant has expired, a new Warrant of like tenor,
representing the right to purchase the number of shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be delivered
to the holder hereof within such time.

<PAGE>

      2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees:

            (a) that all shares of Common Stock which may be issued upon
      exercise of the rights represented by this Warrant will, upon issuance, be
      fully paid and nonassessable and free from all taxes, liens and charges
      with respect to the issue thereof;

            (b) without limiting the generality of the foregoing, that the
      Company will from time to time take all such action as may be required to
      assure that the par value, if any, per share of Common Stock is at all
      times equal to or less than the then effective Warrant Purchase Price (as
      hereinafter defined) per share of Common Stock issuable pursuant to this
      Warrant;

            (c) that, during the period within which the rights represented by
      this Warrant may be exercised, the Company will at all times have
      authorized, and reserved for the purpose of issue or transfer upon
      exercise of the rights evidenced by this Warrant, a sufficient number of
      shares of Common Stock to provide for the full exercise of the rights
      represented by this Warrant;

            (d) that the Company will take all such action as may be necessary
      to assure that the Common Stock issuable upon the exercise hereof may be
      so issued without violation of any applicable law or regulation; and

            (e) that the Company will not take any action which would result in
      any adjustment of the Warrant Purchase Price if (i) the total number of
      shares of Common Stock issuable after such action upon exercise of this
      Warrant, together with all shares of Common Stock then outstanding and all
      shares of Common Stock then issuable upon exercise of all Options (as
      hereinafter defined) and upon conversion of all Convertible Securities (as
      hereinafter defined) then outstanding, would exceed (ii) the total number
      of shares of Common Stock then authorized by the Company's Articles of
      Incorporation (all such issued and issuable Common Stock being called the
      "Potentially Outstanding Common Stock").

In the event any stock or securities of the Company other than Common Stock are
issuable upon the exercise hereof, the Company will take or refrain from taking
any action referred to in clauses (a) through (e) of this paragraph 2 as though
such clauses apply, equally, to such other stock or securities then issuable
upon the exercise hereof.

      3. Adjustments: Stock Dividends, Reclassification, Reorganization and
Merger Provisions.

      (a) If the Company increases or decreases the number of its issued and
outstanding shares of Common Stock, or changes in any way the rights and
privileges of such shares, by


                                        2

<PAGE>

means of (i) the payment of a stock dividend or the making of any other
distribution on such shares payable in its Common Stock, (ii) a forward or
reverse stock split or other subdivision of shares, (iii) a consolidation or
combination involving its Common Stock, or (iv) a reclassification or
recapitalization involving its Common Stock, then the Exercise Price in effect
at the time of such action and the number of Warrant Securities purchasable
pursuant to this Warrant at that time shall be proportionately adjusted so that
the numbers, rights, and privileges relating to the Warrant Securities then
purchasable pursuant to this Warrant shall be increased, decreased or changed in
like manner, for the same aggregate purchase price as set forth in this Warrant,
as if the Warrant Securities purchasable pursuant to this Warrant immediately
prior to the event at issue had been issued, outstanding, fully paid and
nonassessable at the time of that event. As an example, if the Company were to
declare a two-for-one forward stock split or a 100 percent stock dividend, then
the unpurchased number of Warrant Securities subject to this Warrant would be
doubled and the Exercise Price for all unpurchased Warrant Securities would be
reduced by 50 percent. These adjustments would result in the Holder's rights
under this Warrant not being diluted by the stock split or stock dividend and
the Holder paying the same aggregate exercise price.

      If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of Common Stock from the proceeds of such dividend or for
an amount substantially equal to the dividend, all shares of Common Stock so
issued shall, for purposes of this Warrant, be deemed to have been issued as a
stock dividend.

      (b) If the Company pays or makes any dividend or other distribution upon
its Common Stock payable in securities or other property, excluding money or
shares of the Company's Common Stock but including (without limitation) shares
of any other class of the Company's stock or stock or other securities
convertible into or exchangeable for shares of Common Stock or any other class
of the Company's stock or other interests in the Company or its assets
("Convertible Securities"), a proportionate part of those securities or that
other property shall be set aside by the Company and delivered to the Holder in
the event that the Holder exercises this Warrant. The securities and other
property then deliverable to the Holder upon the exercise of this Warrant shall
be in the same ratio to the total securities and property set aside for the
Holder as the number of Warrant Securities with respect to which the Warrant is
then exercised is to the total Warrant Securities purchasable pursuant to this
Warrant at the time the securities or property were set aside for the Holder.

      If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of a class of stock (other than Common Stock),
Convertible Securities, property or other interests from the proceeds of such
dividend or for an amount substantially equal to the dividend, all shares of
stock, Convertible Securities, property or other interests so issued or
transferred shall, for purposes of this Warrant, be deemed to have been issued
as a dividend or other distribution subject to this subsection (b).


                                        3

<PAGE>

      If the Company shall declare a dividend payable in money or shares of the
Company's Common Stock, and Holder has not fully exercised this Warrant, then,
subject to the provisions of Section 4 hereof, Holder shall only be permitted to
receive or participate in said dividends to the extent of his ownership of
Warrant Securities actually purchased hereunder.

      (c) If at any time the Company grants to its shareholders rights to
subscribe pro rata for additional securities of the Company, whether Common
Stock, Convertible Securities, or other classifications, or for any other
securities, property or interests that the Holder would have been entitled to
subscribe for if, immediately prior to such grant, the Holder had exercised this
Warrant, then the Company shall cause the Company also to grant to the Holder
the same subscription rights that the Holder would be entitled to if the Holder
had exercised this Warrant in full immediately prior to such grant.

      (d) The Company shall cause the Company to make effective provision so
that the Holder shall have the right thereafter, by the exercise of this
Warrant, to purchase for the aggregate Exercise Price described in this Warrant
the kind and amount of shares of stock and other securities, and property and
interests, as would be issued or payable with respect to or in exchange for the
number of Warrant Securities of the Company that are then purchasable pursuant
to this Warrant as if such Warrant Securities had been issued to the Holder
immediately before the occurrence of any of the following events: (i) the
reclassification, capital reorganization, or other similar change of outstanding
shares of Common Stock of the Company, other than as described and provided for
in subsection (a) above; (ii) the merger or consolidation of the Company with
one or more other corporations or other entities, other than a merger with a
subsidiary or affiliate pursuant to which the Company is the continuing entity
and the outstanding shares of Common Stock, including the Warrant Securities
purchasable pursuant to this Warrant, are not affected; or (iii) the spin-off of
assets to a subsidiary or an affiliated entity, or the sale, lease, or exchange
of a significant portion of the Company's assets, in a transaction pursuant to
which the Company's shareholders of record are to receive securities or other
interests in another entity. Any such provision made by the Company for
adjustments with respect to this Warrant shall be as nearly equivalent to the
adjustments otherwise provided for in this Warrant as is reasonably practicable.
The foregoing provisions of this subsection (d) shall similarly apply to
successive reclassifications, capital reorganizations and similar changes of
shares of Common Stock and to successive consolidations, mergers, spin-offs,
sales, leases or exchanges.

      (e) If any sale, lease or exchange of all, or substantially all, of the
Company's assets or business or any dissolution, liquidation or winding up of
the Company (a "Termination of Business") shall be proposed, the Company shall
cause effective provision to be made that the Company shall deliver written
notice to the Holder or Holders of this Warrant in accordance with Section 4
below as a condition precedent to the consummation of that Termination of
Business. If the result of the Termination of Business is that shareholders of
the Company are to receive securities or other interests of another entity, the
provisions of subsection (d) above shall apply. However, if the result of the
Termination of Business is that shareholders of the Company are to receive money
or property other than securities or other interests in another entity, the
Holder or


                                        4

<PAGE>

Holders of this Warrant shall be entitled to exercise this Warrant prior to the
consummation of the event at issue and, with respect to any Warrant Securities
so purchased, shall be entitled to all of the rights of the other shareholders
of Common Stock with respect to any distribution by the Company in connection
with the Termination of Business. In the event no other entity is involved and
subsection (d) does not apply, all purchase rights under this Warrant shall
terminate at the close of business on the date as of which shareholders of
record of the Common Stock shall be entitled to participate in a distribution of
the assets of the Company in connection with the Termination of Business;
provided, that in no event shall that date be less than 30 days after delivery
to the Holder or Holders of this Warrant of the written notice described above
and in Section 4. If the termination of purchase rights under this Warrant is to
occur as a result of the event at issue, a statement to that effect shall be
included in that written notice.

      (f) Except as otherwise provided in this Section 3, upon any adjustment of
the Exercise Price, the Holder shall be entitled to purchase, at the new
Exercise Price, the number of shares of Common Stock, calculated to the nearest
full share, obtained by multiplying the number of Warrant Securities purchasable
pursuant to this Warrant immediately prior to the adjustment of the Exercise
Price by the Exercise Price in effect immediately prior to its adjustment and
dividing the product so obtained by the new Exercise Price.

      (g) If consideration other than money is received by the Company upon the
issuance or sale of Common Stock, Convertible Securities, or other securities or
interests, the fair market value of such consideration, as reasonably determined
by the Board of Directors of the Company, shall be used for purposes of any
adjustment required by this Section 3. The fair market value of such
consideration shall be determined as of the date of the adoption of the
resolution of the Board of Directors of the Company that authorizes the
transaction giving rise to the adjustment. In case of the issuance or sale of
Common Stock, Convertible Securities, or other securities or interests in
conjunction with the issuance or sale of other securities or property without a
separate allocation of the purchase price, the Board of Directors of the Company
shall reasonably determine an allocation of the consideration among the items
being issued or sold. The reclassification of securities other than Common Stock
into securities including Common Stock shall be deemed to involve the issuance
of that Common Stock for a consideration other than money immediately prior to
the close of business on the date fixed for the determination of shareholders
entitled to receive that Common Stock.

      The Company shall promptly deliver written notice of all such
determinations by its Board of Directors to the Holder or Holders of this
Warrant, and those determinations shall be final and binding on the Holder or
Holders.

      (h) The provisions of this Section 3 shall apply to successive events that
may occur from time to time but shall only apply to a particular event if it
occurs prior to the expiration of this Warrant either by its terms or by its
exercise in full.


                                        5

<PAGE>

      (i) For purposes of subsections (a) and (b) above, Shares of the Company's
Common Stock owned or held at any relevant time by, or for the account of, the
Company, in its treasury or otherwise, shall not be deemed to be outstanding for
purposes of the calculations and adjustments described.

      4. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant for any issuance tax in respect thereof.

      5. Closing of Books. The Company will at no time close its transfer books
against the transfer of this Warrant or of any shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.

      6. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.

      7. Warrants Transferable. Subject to the restrictions referred to in the
legend set forth on the face of this Warrant, this Warrant and all rights
hereunder are transferable to any person, in whole or in part, without charge to
the holder hereof, at the office of the Company referred to in paragraph 1
above, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding. Until such transfer on such books, however, the
Company may treat the registered holder hereof as the owner for all purposes.

      8. Transfer to Comply With the Securities Act of 1933.

            (a) All securities issued or issuable upon exercise of this Warrant,
      may not be offered, sold or transferred, in whole or in part, except in
      compliance with the Securities Act of 1933, as amended (the "Act"), and
      except in compliance with all applicable state securities statutes.

            (b) The Company may cause the following legend, or its equivalent,
      to be set forth on each certificate representing any security issued or
      issuable upon exercise of this Warrant to the extent such Common Stock has
      not been registered for sale by the Company.

            "The shares represented by this Certificate have not been registered
            under the Securities Act of 1933 ("the Act") and are 'restricted
            securities' as that


                                        6

<PAGE>

            term is defined in Rule 144 under the Act. The shares may not be
            offered for sale, sold or otherwise transferred except pursuant to
            an effective registration statement under the Act or pursuant to an
            exemption from registration under the Act, the availability of which
            is to be established to the satisfaction of the Company."

      9. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon its surrender by the holder hereof at the office of the
Company referred to in paragraph 1 above, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of Shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.

      10. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience of reference
only and do not constitute a part of this Warrant. This Warrant is being
delivered and is intended to be performed in the State of Illinois and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of such State.

      11. Certain Covenants of the Company. So long as this Warrant remains
outstanding, in whole or in part, the Company will, unless the holder of this
Warrant otherwise consents in writing:

            (a) within 60 days after the end of each of the first three
      quarterly fiscal periods in each fiscal year of the Company, deliver to
      the holder of this Warrant (i) a consolidated balance sheet of the Company
      and its subsidiaries, if any, as at the end of such period, and (ii)
      consolidated statements of income and of surplus of the Company and its
      subsidiaries, if any, for such period and (in the case of the second and
      third such quarterly periods) for the period from the beginning of the
      current fiscal year to the end of such quarterly period, setting forth in
      each case in comparative form the consolidated figures for the
      corresponding periods of the previous fiscal year, all in reasonable
      detail and certified as prepared in accordance with generally accepted
      accounting principles consistently applied, subject to exchanges resulting
      from year-end audit adjustments, by the principal financial officer of the
      Company; and

            (b) within 90 days after the end of each fiscal year of the Company,
      deliver to the holder of this Warrant (i) a consolidated balance sheet of
      the Company and its subsidiaries, if any, as at the end of such year, and
      (ii) consolidated statements of income and of surplus of the Company and
      its subsidiaries, if any, for such year, setting forth in each case in
      comparative form the consolidated figures for the previous fiscal year,
      all in reasonable detail and accompanied by an opinion thereon of
      independent public accountants, which opinion shall state that such
      financial statements have been prepared in accordance with generally
      accepted accounting principles consistently applied and that the


                                        7

<PAGE>

      audit by such accountants in connection with such financial statements has
      been made in accordance with generally accepted auditing standards; and

            (c) as soon as practicable, notify the holder of this Warrant in
      writing of any potentially material adverse development concerning the
      Company; and permit such holder of his representative to examine the books
      and records of the company at any time during regular business hours and
      make copies of any portions thereof desired to be copied by such holder or
      his representative.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers under its corporate seal and this Warrant to be
dated this 20th day of March, 2003.

                                            CTI INDUSTRIES CORPORATION


                                            By: /s/ Howard W. Schwan
                                               ---------------------------------
                                                President

(CORPORATE SEAL)

Attest:


/s/ Stephen M. Merrick
- ----------------------------------
Secretary


                                        8

<PAGE>

                             SUBSCRIPTION AGREEMENT

                                                   Dated: ______________, 200_

To:   CTI Industries Corporation
      22160 N. Pepper Road
      Barrington, Illinois

      The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase shares of the Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant.

                                          Signature___________________________

                                          Address_____________________________

                                          ____________________________________


                                        9

<PAGE>

                                   ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common stock set forth below, unto:

Name of Assignee            Address                          Number of Shares
- ----------------            -------                          ----------------



Dated: __________________, 200__

                                         Signature___________________________

                                         Witness_____________________________


                                       10


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>12
<FILENAME>d55197_ex10-14.txt
<DESCRIPTION>J. SCHWAN WARRANT DATED 3/20/03
<TEXT>
                                  EXHIBIT 10.14

           The securities represented by this Warrant have not been
           registered under the Securities Act of 1933, and thus
           may not be transferred unless registered under that Act
           or unless an exemption from registration is available.

                                                   Warrant dated March 20, 2003,
                                                   to purchase 93,000 Shares of
                                                   Common Stock on or before
                                                   March 20, 2008.

                             STOCK PURCHASE WARRANT
                           TO PURCHASE COMMON STOCK OF
                           CTI INDUSTRIES CORPORATION

      This certifies that, for value received, John H. Schwan, or his assigns,
is entitled to subscribe for and purchase from CTI INDUSTRIES CORPORATION, an
Illinois corporation (hereinafter called the "Company"), at a price of $4.87per
share (subject to adjustment as set forth in paragraph 3 below) and at any time
after the date hereof to and including March 20, 2008, 93,000 (subject to
adjustment as set forth in paragraph 3 below) fully paid and non-assessable
shares of the Company's no par value common stock (hereinafter referred to as
the "Common Stock").

      This Warrant is subject to the following provisions, terms and conditions:

      1. Exercise; Issuance of Certificates; Payment for Shares. The rights
represented by this Warrant may be exercised by the holder hereof at any time
within the period specified above, in whole or in part (but not as to a
fractional share of Common Stock), by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company (or such other
office of the Company as it may designate by notice in writing to the holder
hereof at the address of such holder appearing on the books of the Company) (a)
specifying the number of shares of Common Stock being purchased and (b)
accompanied by a check payable to the Company for the purchase price for such
shares. The Company agrees that the shares so purchased shall be deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Certificates for the shares so
purchased shall be delivered to the holder hereof within a reasonable time, not
exceeding ten days, after the rights represented by this Warrant shall have been
so exercised, and, unless this Warrant has expired, a new Warrant of like tenor,
representing the right to purchase the number of shares, if any, with respect to
which this Warrant shall not then have been exercised, shall also be delivered
to the holder hereof within such time.

<PAGE>

      2. Shares to be Fully Paid; Reservation of Shares. The Company covenants
and agrees:

            (a) that all shares of Common Stock which may be issued upon
      exercise of the rights represented by this Warrant will, upon issuance, be
      fully paid and nonassessable and free from all taxes, liens and charges
      with respect to the issue thereof;

            (b) without limiting the generality of the foregoing, that the
      Company will from time to time take all such action as may be required to
      assure that the par value, if any, per share of Common Stock is at all
      times equal to or less than the then effective Warrant Purchase Price (as
      hereinafter defined) per share of Common Stock issuable pursuant to this
      Warrant;

            (c) that, during the period within which the rights represented by
      this Warrant may be exercised, the Company will at all times have
      authorized, and reserved for the purpose of issue or transfer upon
      exercise of the rights evidenced by this Warrant, a sufficient number of
      shares of Common Stock to provide for the full exercise of the rights
      represented by this Warrant;

            (d) that the Company will take all such action as may be necessary
      to assure that the Common Stock issuable upon the exercise hereof may be
      so issued without violation of any applicable law or regulation; and

            (e) that the Company will not take any action which would result in
      any adjustment of the Warrant Purchase Price if (i) the total number of
      shares of Common Stock issuable after such action upon exercise of this
      Warrant, together with all shares of Common Stock then outstanding and all
      shares of Common Stock then issuable upon exercise of all Options (as
      hereinafter defined) and upon conversion of all Convertible Securities (as
      hereinafter defined) then outstanding, would exceed (ii) the total number
      of shares of Common Stock then authorized by the Company's Articles of
      Incorporation (all such issued and issuable Common Stock being called the
      "Potentially Outstanding Common Stock").

In the event any stock or securities of the Company other than Common Stock are
issuable upon the exercise hereof, the Company will take or refrain from taking
any action referred to in clauses (a) through (e) of this paragraph 2 as though
such clauses apply, equally, to such other stock or securities then issuable
upon the exercise hereof.

      3. Adjustments: Stock Dividends, Reclassification, Reorganization and
Merger Provisions.

      (a) If the Company increases or decreases the number of its issued and
outstanding shares of Common Stock, or changes in any way the rights and
privileges of such shares, by


                                        2

<PAGE>

means of (i) the payment of a stock dividend or the making of any other
distribution on such shares payable in its Common Stock, (ii) a forward or
reverse stock split or other subdivision of shares, (iii) a consolidation or
combination involving its Common Stock, or (iv) a reclassification or
recapitalization involving its Common Stock, then the Exercise Price in effect
at the time of such action and the number of Warrant Securities purchasable
pursuant to this Warrant at that time shall be proportionately adjusted so that
the numbers, rights, and privileges relating to the Warrant Securities then
purchasable pursuant to this Warrant shall be increased, decreased or changed in
like manner, for the same aggregate purchase price as set forth in this Warrant,
as if the Warrant Securities purchasable pursuant to this Warrant immediately
prior to the event at issue had been issued, outstanding, fully paid and
nonassessable at the time of that event. As an example, if the Company were to
declare a two-for-one forward stock split or a 100 percent stock dividend, then
the unpurchased number of Warrant Securities subject to this Warrant would be
doubled and the Exercise Price for all unpurchased Warrant Securities would be
reduced by 50 percent. These adjustments would result in the Holder's rights
under this Warrant not being diluted by the stock split or stock dividend and
the Holder paying the same aggregate exercise price.

      If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of Common Stock from the proceeds of such dividend or for
an amount substantially equal to the dividend, all shares of Common Stock so
issued shall, for purposes of this Warrant, be deemed to have been issued as a
stock dividend.

      (b) If the Company pays or makes any dividend or other distribution upon
its Common Stock payable in securities or other property, excluding money or
shares of the Company's Common Stock but including (without limitation) shares
of any other class of the Company's stock or stock or other securities
convertible into or exchangeable for shares of Common Stock or any other class
of the Company's stock or other interests in the Company or its assets
("Convertible Securities"), a proportionate part of those securities or that
other property shall be set aside by the Company and delivered to the Holder in
the event that the Holder exercises this Warrant. The securities and other
property then deliverable to the Holder upon the exercise of this Warrant shall
be in the same ratio to the total securities and property set aside for the
Holder as the number of Warrant Securities with respect to which the Warrant is
then exercised is to the total Warrant Securities purchasable pursuant to this
Warrant at the time the securities or property were set aside for the Holder.

      If the Company shall declare a dividend payable in money on its Common
Stock and at substantially the same time shall offer to its shareholders a right
to purchase new shares of a class of stock (other than Common Stock),
Convertible Securities, property or other interests from the proceeds of such
dividend or for an amount substantially equal to the dividend, all shares of
stock, Convertible Securities, property or other interests so issued or
transferred shall, for purposes of this Warrant, be deemed to have been issued
as a dividend or other distribution subject to this subsection (b).


                                        3

<PAGE>

      If the Company shall declare a dividend payable in money or shares of the
Company's Common Stock, and Holder has not fully exercised this Warrant, then,
subject to the provisions of Section 4 hereof, Holder shall only be permitted to
receive or participate in said dividends to the extent of his ownership of
Warrant Securities actually purchased hereunder.

      (c) If at any time the Company grants to its shareholders rights to
subscribe pro rata for additional securities of the Company, whether Common
Stock, Convertible Securities, or other classifications, or for any other
securities, property or interests that the Holder would have been entitled to
subscribe for if, immediately prior to such grant, the Holder had exercised this
Warrant, then the Company shall cause the Company also to grant to the Holder
the same subscription rights that the Holder would be entitled to if the Holder
had exercised this Warrant in full immediately prior to such grant.

      (d) The Company shall cause the Company to make effective provision so
that the Holder shall have the right thereafter, by the exercise of this
Warrant, to purchase for the aggregate Exercise Price described in this Warrant
the kind and amount of shares of stock and other securities, and property and
interests, as would be issued or payable with respect to or in exchange for the
number of Warrant Securities of the Company that are then purchasable pursuant
to this Warrant as if such Warrant Securities had been issued to the Holder
immediately before the occurrence of any of the following events: (i) the
reclassification, capital reorganization, or other similar change of outstanding
shares of Common Stock of the Company, other than as described and provided for
in subsection (a) above; (ii) the merger or consolidation of the Company with
one or more other corporations or other entities, other than a merger with a
subsidiary or affiliate pursuant to which the Company is the continuing entity
and the outstanding shares of Common Stock, including the Warrant Securities
purchasable pursuant to this Warrant, are not affected; or (iii) the spin-off of
assets to a subsidiary or an affiliated entity, or the sale, lease, or exchange
of a significant portion of the Company's assets, in a transaction pursuant to
which the Company's shareholders of record are to receive securities or other
interests in another entity. Any such provision made by the Company for
adjustments with respect to this Warrant shall be as nearly equivalent to the
adjustments otherwise provided for in this Warrant as is reasonably practicable.
The foregoing provisions of this subsection (d) shall similarly apply to
successive reclassifications, capital reorganizations and similar changes of
shares of Common Stock and to successive consolidations, mergers, spin-offs,
sales, leases or exchanges.

      (e) If any sale, lease or exchange of all, or substantially all, of the
Company's assets or business or any dissolution, liquidation or winding up of
the Company (a "Termination of Business") shall be proposed, the Company shall
cause effective provision to be made that the Company shall deliver written
notice to the Holder or Holders of this Warrant in accordance with Section 4
below as a condition precedent to the consummation of that Termination of
Business. If the result of the Termination of Business is that shareholders of
the Company are to receive securities or other interests of another entity, the
provisions of subsection (d) above shall apply. However, if the result of the
Termination of Business is that shareholders of the Company are to receive money
or property other than securities or other interests in another entity, the
Holder or


                                        4

<PAGE>

Holders of this Warrant shall be entitled to exercise this Warrant prior to the
consummation of the event at issue and, with respect to any Warrant Securities
so purchased, shall be entitled to all of the rights of the other shareholders
of Common Stock with respect to any distribution by the Company in connection
with the Termination of Business. In the event no other entity is involved and
subsection (d) does not apply, all purchase rights under this Warrant shall
terminate at the close of business on the date as of which shareholders of
record of the Common Stock shall be entitled to participate in a distribution of
the assets of the Company in connection with the Termination of Business;
provided, that in no event shall that date be less than 30 days after delivery
to the Holder or Holders of this Warrant of the written notice described above
and in Section 4. If the termination of purchase rights under this Warrant is to
occur as a result of the event at issue, a statement to that effect shall be
included in that written notice.

      (f) Except as otherwise provided in this Section 3, upon any adjustment of
the Exercise Price, the Holder shall be entitled to purchase, at the new
Exercise Price, the number of shares of Common Stock, calculated to the nearest
full share, obtained by multiplying the number of Warrant Securities purchasable
pursuant to this Warrant immediately prior to the adjustment of the Exercise
Price by the Exercise Price in effect immediately prior to its adjustment and
dividing the product so obtained by the new Exercise Price.

      (g) If consideration other than money is received by the Company upon the
issuance or sale of Common Stock, Convertible Securities, or other securities or
interests, the fair market value of such consideration, as reasonably determined
by the Board of Directors of the Company, shall be used for purposes of any
adjustment required by this Section 3. The fair market value of such
consideration shall be determined as of the date of the adoption of the
resolution of the Board of Directors of the Company that authorizes the
transaction giving rise to the adjustment. In case of the issuance or sale of
Common Stock, Convertible Securities, or other securities or interests in
conjunction with the issuance or sale of other securities or property without a
separate allocation of the purchase price, the Board of Directors of the Company
shall reasonably determine an allocation of the consideration among the items
being issued or sold. The reclassification of securities other than Common Stock
into securities including Common Stock shall be deemed to involve the issuance
of that Common Stock for a consideration other than money immediately prior to
the close of business on the date fixed for the determination of shareholders
entitled to receive that Common Stock.

      The Company shall promptly deliver written notice of all such
determinations by its Board of Directors to the Holder or Holders of this
Warrant, and those determinations shall be final and binding on the Holder or
Holders.

      (h) The provisions of this Section 3 shall apply to successive events that
may occur from time to time but shall only apply to a particular event if it
occurs prior to the expiration of this Warrant either by its terms or by its
exercise in full.


                                        5

<PAGE>

      (i) For purposes of subsections (a) and (b) above, Shares of the Company's
Common Stock owned or held at any relevant time by, or for the account of, the
Company, in its treasury or otherwise, shall not be deemed to be outstanding for
purposes of the calculations and adjustments described.

      4. Issue Tax. The issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant for any issuance tax in respect thereof.

      5. Closing of Books. The Company will at no time close its transfer books
against the transfer of this Warrant or of any shares of Common Stock issued or
issuable upon the exercise of this Warrant in any manner which interferes with
the timely exercise of this Warrant.

      6. No Voting Rights. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.

      7. Warrants Transferable. Subject to the restrictions referred to in the
legend set forth on the face of this Warrant, this Warrant and all rights
hereunder are transferable to any person, in whole or in part, without charge to
the holder hereof, at the office of the Company referred to in paragraph 1
above, by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant properly endorsed. Each taker and holder of this
Warrant, by taking or holding the same, consents and agrees that this Warrant,
when endorsed in blank, shall be deemed negotiable, and that the holder hereof,
when this Warrant shall have been so endorsed, may be treated by the Company and
all other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding. Until such transfer on such books, however, the
Company may treat the registered holder hereof as the owner for all purposes.

      8. Transfer to Comply With the Securities Act of 1933.

            (a) All securities issued or issuable upon exercise of this Warrant,
      may not be offered, sold or transferred, in whole or in part, except in
      compliance with the Securities Act of 1933, as amended (the "Act"), and
      except in compliance with all applicable state securities statutes.

            (b) The Company may cause the following legend, or its equivalent,
      to be set forth on each certificate representing any security issued or
      issuable upon exercise of this Warrant to the extent such Common Stock has
      not been registered for sale by the Company.

            "The shares represented by this Certificate have not been registered
            under the Securities Act of 1933 ("the Act") and are 'restricted
            securities' as that


                                        6

<PAGE>

            term is defined in Rule 144 under the Act. The shares may not be
            offered for sale, sold or otherwise transferred except pursuant to
            an effective registration statement under the Act or pursuant to an
            exemption from registration under the Act, the availability of which
            is to be established to the satisfaction of the Company."

      9. Warrant Exchangeable for Different Denominations. This Warrant is
exchangeable, upon its surrender by the holder hereof at the office of the
Company referred to in paragraph 1 above, for new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the number
of Shares which may be subscribed for and purchased hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
shares as shall be designated by said holder hereof at the time of such
surrender.

      10. Descriptive Headings and Governing Law. The descriptive headings of
the several paragraphs of this Warrant are inserted for convenience of reference
only and do not constitute a part of this Warrant. This Warrant is being
delivered and is intended to be performed in the State of Illinois and shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of such State.

      11. Certain Covenants of the Company. So long as this Warrant remains
outstanding, in whole or in part, the Company will, unless the holder of this
Warrant otherwise consents in writing:

            (a) within 60 days after the end of each of the first three
      quarterly fiscal periods in each fiscal year of the Company, deliver to
      the holder of this Warrant (i) a consolidated balance sheet of the Company
      and its subsidiaries, if any, as at the end of such period, and (ii)
      consolidated statements of income and of surplus of the Company and its
      subsidiaries, if any, for such period and (in the case of the second and
      third such quarterly periods) for the period from the beginning of the
      current fiscal year to the end of such quarterly period, setting forth in
      each case in comparative form the consolidated figures for the
      corresponding periods of the previous fiscal year, all in reasonable
      detail and certified as prepared in accordance with generally accepted
      accounting principles consistently applied, subject to exchanges resulting
      from year-end audit adjustments, by the principal financial officer of the
      Company; and

            (b) within 90 days after the end of each fiscal year of the Company,
      deliver to the holder of this Warrant (i) a consolidated balance sheet of
      the Company and its subsidiaries, if any, as at the end of such year, and
      (ii) consolidated statements of income and of surplus of the Company and
      its subsidiaries, if any, for such year, setting forth in each case in
      comparative form the consolidated figures for the previous fiscal year,
      all in reasonable detail and accompanied by an opinion thereon of
      independent public accountants, which opinion shall state that such
      financial statements have been prepared in accordance with generally
      accepted accounting principles consistently applied and that the


                                        7

<PAGE>

      audit by such accountants in connection with such financial statements has
      been made in accordance with generally accepted auditing standards; and

            (c) as soon as practicable, notify the holder of this Warrant in
      writing of any potentially material adverse development concerning the
      Company; and permit such holder of his representative to examine the books
      and records of the company at any time during regular business hours and
      make copies of any portions thereof desired to be copied by such holder or
      his representative.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officers under its corporate seal and this Warrant to be
dated this 20th day of March, 2003.

                                            CTI INDUSTRIES CORPORATION


                                            By: /s/ Howard W. Schwan
                                               --------------------------------
                                                President

(CORPORATE SEAL)

Attest:


/s/ Stephen M. Merrick
- ------------------------------
Secretary


                                        8

<PAGE>

                             SUBSCRIPTION AGREEMENT

                                                   Dated: ______________, 200_

To:   CTI Industries Corporation
      22160 N. Pepper Road
      Barrington, Illinois

      The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to subscribe for and purchase shares of the Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by such Warrant.

                                          Signature___________________________

                                          Address_____________________________

                                          ____________________________________


                                        9

<PAGE>

                                   ASSIGNMENT

      FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
all of the rights of the undersigned under the within Warrant, with respect to
the number of shares of Common stock set forth below, unto:

Name of Assignee             Address                       Number of Shares
- ----------------             -------                       ----------------



Dated: __________________, 200__

                                             Signature__________________________

                                             Witness____________________________


                                       10


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.23
<SEQUENCE>13
<FILENAME>d55197_ex10-23.txt
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
                                                                   EXHIBIT 10.23

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-76006) pertaining to the CTI Industries Corporation 2001 Stock
Option Plan, in the Registration Statement (Form S-8 No. 333-76008) pertaining
to the CTI Industries Corporation 1999 Stock Option Plan and Registration
Statement (Form SB-2 No. 333-31969), of our report dated April 15, 2003, with
respect to the consolidated financial statements included in the Annual Report
of CTI Industries Corporation and Subsidiaries on Form 10-KSB for the year ended
December 31, 2002.


/s/ McGladrey & Pullen, LLP

Schaumburg, Illinois
April 29, 2003

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>14
<FILENAME>d55197_ex10-24.txt
<DESCRIPTION>CONSENT OF INDEPENDENT
<TEXT>
                                  EXHIBIT 10.24

               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated April 16, 2002, except for Note 2, which is
dated April 15, 2003, accompanying the consolidated financial statements
included in the Annual Report of CTI Industries Corporation and Subsidiaries on
Form 10-KSB for the year ended December 31, 2001. We hereby consent to the
incorporation by reference of said report in the Registration Statements of CTI
Industries Corporation and Subsidiaries on Form S-8 (Nos.333-76006 and
333-76008) and SB-2 (No. 333-31969).


/s/ Grant Thornton, LLP

Chicago, Illinois
April 29, 2003


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
