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<SEC-DOCUMENT>0001169232-04-005160.txt : 20041013
<SEC-HEADER>0001169232-04-005160.hdr.sgml : 20041013
<ACCEPTANCE-DATETIME>20041013125132
ACCESSION NUMBER:		0001169232-04-005160
CONFORMED SUBMISSION TYPE:	10-Q/A
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20040630
FILED AS OF DATE:		20041013
DATE AS OF CHANGE:		20041013

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:		10-Q/A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-23115
		FILM NUMBER:		041076563

	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>10-Q/A
<SEQUENCE>1
<FILENAME>d60880_10q.txt
<DESCRIPTION>AMENDMENT TO FORM 10-Q
<TEXT>

                                   FORM 10-Q/A
                                 Amendment No. 1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                  For the quarterly period ended June 30, 2004

                          Commission File No. 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
    incorporation or organization)                     Identification Number)

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

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

      Registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
has been subject to such filing requirements for the past 90 days.

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

      COMMON STOCK, no par value, 1,918,420 outstanding Shares, as of June 30,
2004.

<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


The following consolidated financial statements of the Registrant are attached
to this Form 10-Q/A Amendment No. 1:


      1.    Interim Balance Sheet as at June 30, 2004 (unaudited) and December
            31, 2003;

      2.    Interim Statements of Operations (unaudited) for the three and six
            months ended June 30, 2004 and June 30, 2003;

      3.    Interim Statements of Cash Flows (unaudited) for the six months
            ended June 30, 2004 and June 30, 2003.

      4.    Notes to Consolidated Financial Statements

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations

      Net Income (Loss). For the three months ended June 30, 2004, the Company
had incurred a net loss of ($136,000), or ($0.07) per share (basic and diluted)
compared to net income for the same period of 2003 of $133,000, or $0.07 per
share (basic) and $0.06 per share (diluted). For the quarter, the Company
incurred a loss before taxes and minority interest of ($195,000), compared to
income before taxes and minority interest in the same period of 2003 of $6,000.

      For the six months ended June 30, 2004, the Company had net income of
$236,000, or $0.12 per share (basic) and $0.12 per share (diluted), compared to
a net loss of ($557,000) or ($0.29) per share (basic and diluted) for the six
months ended June 30, 2003. For the six months ended June 30, 2004 the Company
had income before taxes and minority interest of $413,000, compared to a loss of
($652,000) for the same period in 2003. Included in the first six months of
2004, are income items (described more fully below) totaling $490,000 which
occurred principally during the first quarter of 2004 and are not expected to
recur in the future.

      Net Sales, For the three months ended June 30, 2004, net sales were
$9,592,000 compared to net sales of $8,662,000 for the same period of 2003, an
increase of 10.7%. Net sales by product categories are as follows for each
period respectively:


                                       2
<PAGE>

                                                For the three month period ended
                                                June 30, 2004       June 30,2003
                                                -------------       ------------

Laminated and Printed Films                       $3,615,000         $4,315,000
Metalized Balloons                                 4,297,000          2,241,000
Latex Balloons                                     1,195,000          1,552,000
Other                                                485,000            554,000
                                                  ----------         ----------
                                                  $9,592,000         $8,662,000

      During the three months ended June 30, 2004, sales of laminated and
printed films represented 38% of sales, metalized balloons 45% of sales and
latex balloons 12% of sales. During the same period of 2003, sales of laminated
and printed films represented 50% of total sales, metalized balloons 26% and
latex balloons 18%. Other sales consists primarily of helium, for which the
company acts as a broker for select customers.

      For the six months ended June 30, 2004, net sales were $20,486,000
compared to net sales of $18,824,000 for the same period of 2003, an increase of
8.8%. For the six months ended June 30, 2003 and 2004, sales by product category
were as follows:

                                                For the six month period ended
                                               June 30, 2004       June 30, 2003
                                               -------------       -------------
Laminated and Printed Films                     $ 7,289,000         $ 8,502,000
Metalized Balloons                                9,228,000           6,953,000
Latex Balloons                                    2,880,000           2,544,000
Other                                             1,089,000             825,000
                                                -----------         -----------
                                                $20,486,000         $18,824,000

      During the six months ended June 30, 2004, sales of laminated and printed
films represented 36% of total sales, metalized balloons 45% of sales and latex
balloons 14% of sales. During the same period of 2003, sales of laminated and
printed films represented 45% of total sales, metalized balloons 37% of total
sales and latex balloons 14% of total sales.

      The decline in sales of laminated and printed films during the second
quarter and the six months ended June 30, 2004 is attributable principally to a
decline in sales to ITW Spacebag. Sales to ITW Spacebag during the first six
months of 2003 were $5,125,000 and during the first six months of 2004 were
$2,423,000. In part, the decline in sales to the customer during the first six
months of 2004 is attributable to (i) the customer engaging in pouch production
internally and (ii) the Company has not supplied a component of the pouches
which it supplied during 2003. We anticipate that sales to ITW Spacebag will
continue during the remainder of 2004 at substantially the same rate as during
the first six months.

      The increase in sales of metalized balloons during the second quarter and
the six months ended June 30, 2004, compared to the same periods in the prior
year, is the result, principally, of sales to a new customer. Sales to this
customer were $1,142,000 for the first quarter and


                                       3
<PAGE>

$2,175,000 for the first six months. We anticipate an increase in metalized
balloon sales during the final six months of 2004 and into the first six months
of 2005, compared to those same periods in 2003 and 2004, primarily as the
result of new customers.

      During the first six months of 2004, there were four customers whose
purchases represented more than 10% of the Company's sales for that period:
$3,946,000, $2,423,000, $2,256,000, and $2,175,000. During the first three
months of 2004, there were three customers whose purchases represent more than
10% of the Company's sales for that period: $1,979,000, $1,245,000, and
$1,142,000.

      Cost of Sales. During the three months ended June 30, 2004, cost of sales
increased to 79% of net sales compared to 78% of net sales for the same period
in 2003. For the six month period ended June 30, 2004, the cost of sales
remained 80%, the same as for the six month period in 2003.

      Administrative Expenses. For the three months ended June 30, 2004,
administrative expenses were $1,175,000, or 12.3% of net sales, compared to
$1,051,000, or 12.1% of net sales for the same period in 2003. For the six
months ended June 30, 2004, administrative expenses were $2,164,000, or 10.6% of
net sales, compared to $2,222,000, or 11.8% of net sales, for the same period in
2003. There were no material changes in administrative expenses during the first
six months of 2004 compared to the same period of the prior year. We do not
anticipate a significant change in administrative expenses for the remainder of
the year.

      Selling Expenses. For the three months ended June 30, 2004, selling
expenses were $357,000, or 3.7% of net sales for the quarter, compared to
$217,000 or 2.5% of net sales for the second quarter of 2003. For the six months
ended June 30, 2004, selling expenses were $747,000 or 3.6% of net sales for the
period, compared to $619,000 or 3.3% of net sales for the same period in 2003.
The increase in selling expense is attributable to a change in department
structure in which the supervision of customer service and an administrative
assistant salary are now charged to selling expense. The other item relating to
this increase is an increase in commission expenses. We do not anticipate a
significant change in selling expenses for the remainder of the year.

      Advertising and Marketing Expense. For the three months ended June 30,
2004, advertising and marketing expenses were $282,000, or 2.9% of net sales for
the period, compared to $661,000 or 7.6% of net sales for the same period of
2003. For the six months ended June 30, 2004, advertising and marketing expenses
were $675,000, or 3.3% of net sales for the period, compared to $1,250,000, or
6.6% of net sales for the same period in 2003. The decline in advertising and
marketing expense is attributable to reduction in personnel, decreases in
spending in tradeshows and catalog expense and a reduction in the cost of
artwork and films. We do not anticipate a significant change in advertising and
marketing expense for the remainder of the year.

      Other Income and Expense. During the three months ended June 30, 2004, the
Company incurred interest expense and loan fees of $338,000, compared to
interest and loan fees of $274,000 during the same period of 2003.


                                       4
<PAGE>

      During the six months ended June 30, 2004, the Company incurred interest
expense and loan fees of $670,000 compared to interest and loan fees of $475,000
during the same period for 2003. The increase in this expense is due to higher
levels of borrowing as a result of increased borrowing capacity to finance our
sales growth, higher interest rates due to cost of capital funding being higher
under our new credit facility and loan fees incurred during these periods. The
interest rate provided in our loan agreement with our bank is variable. However,
we do not believe that a change of one or two percent in interest rate would
have a material effect on our results of operations.

      Also, during the six months ended June 30, 2004, the Company had net other
income items totaling $490,000. Most of this gain is attributable to the first
quarter of 2004. These items included: (i) gains of $64,000 related to
transactions involving the valuation of the foreign currency, the amount of
which will vary from period to period; (ii) gains related to a review and
determination that various accrued items on the books of the Mexican
subsidiaries of the Company, CTI Mexico, S.A. de C.V. and Flexo Universal, S.A.
de C.V., are not due or payable; the items included (a) accrued amounts for
profit sharing or seniority benefits determined on the basis of a legal review
not to be due, totaling $97,950, (b) accrued amounts related to an asset tax
determined not to be due or beyond the statute of limitations, in the amount
approximately of $49,400, (c) accrued amounts with respect to various accounts
settled or determined not to be due or payable, in the aggregate amount of
approximately $190,000; (iii) gains related to the settlement of an account with
a tax authority in the amount of $38,750 based on payment of an amount less than
the amount accrued on the books of CTI Mexico and Flexo Universal and (iv) gains
totaling $70,000 based on the settlement of various accounts in consideration of
payment of an amount less than the amount accrued. Most of these gains related
to the restructuring of CTI Mexico which commenced in February, 2003 when CTI
Mexico effected a spin-off under Mexican law in which a portion of assets,
liabilities and capital were transferred to Flexo Universal and Flexo Universal
became the primary subsidiary of the Company in Mexico. These gains are not
recurring.

      Income Taxes

      During the second quarter of 2004, the Company recorded an income tax
benefit of $58,000, arising from the operating loss in the quarter, compared to
an income tax benefit recorded for the second quarter of 2003 in the amount of
$130,000.

      For the first six months of 2004, the Company recorded income tax expense
of $175,000 compared to an income tax benefit received for the same period of
2003 in the amount of $95,000.

Financial Condition


      During the six months ended June 30, 2004, the Company used cash in
operations of $994,000, compared to cash provided by operations during the first
six months of 2003 in the amount of $1,143,000. For the most part the use of
cash in operations arose from (i) the increase in receivables during the period
by $937,000, and (ii) a reduction in accounts payable and accrued expenses by
$1,298,000. During the six month period cash from operations was affected
positively by depreciation of $910,000; depreciation is expected to continue at
approximately the same rate over the balance of 2004.



                                       5
<PAGE>

      During the six months ended June 30, 2004, investing cash flows consisted
of equipment in the amount of $172,000. The net purchase of equipment during
the first six months of 2003 was $1,319,000. The Company believes its capital
equipment is sufficient to meet planned operations for the next twelve months.
The Company anticipates a replacement of its computer systems and software, but
has no formal commitment as of this date.

      During the six months ended June 30, 2004, cash provided by financing
activities was $1,127,000, compared to net cash provided in the same period of
2003 of $313,000. The source of cash provided in the first six months of 2004
was, principally, net advances on the Company's revolving line of credit in the
amount of $2,301,000. Under the terms of the Company's revolving line of credit,
the bank advances up to 85% of eligible receivables and 50% of eligible
inventory. The amount of the net advances on the line of credit reflect (i)
increased sales during the first six months of 2004 and (ii) an increase in
inventory during the period in the amount of approximately $240,000. Financing
cash outflows consisted of repayments of $294,000 to the term loan and
$1,039,000 on vendor notes.

      Liquidity and Capital Resources. As of June 30, 2004, the Company's cash
balance was $421,000 and there was approximately $101,000 available under the
Company's line of credit with its bank. As of June 30, 2004, the Company had
working capital of $21,000 compared to a working capital deficit of $2,352,000
as of June 30, 2003 and a working capital deficit of $706,000 as of December 31,
2003.

      As of June 30, 2004, the Company was in compliance all loan covenants with
its bank. Based on our financial projections, the Company believes it will
comply with all financial and other covenants of the loan agreement with its
bank for the remainder of 2004 and beyond.

      The Company believes that existing capital resources, cash generated from
operations, and its newly established Standby Equity Distribution Agreement will
be sufficient to meet the Company's requirements for at least twelve months.
Under the SEDA, an investment firm has committed to provide up to $5 million of
funding to be drawn down at the Company's discretion by the purchase of the
Company's common stock. The Company may request up to $100,000 in any seven-day
period in exchange for issuing shares of its common stock to the investment
firm. The purchase price of any shares purchased under the SEDA with respect to
any advance will be equal to 100% of the volume weighted average price of the
Company's common stock on the NASDAQ SmallCap Stock Market for the five days
immediately following the notice date for the advance, subject to payment to the
investment firm of a commitment fee of 5% of the amount of each advance. The
facility may be used in whole or in part entirely at the Company's discretion,
subject to an effective registration of the related shares. As of June 30, 2004,
no shares have been issued or funds received by the Company under this
agreement.

      Seasonality. In the metalized balloon product line, sales have
historically been seasonal, with approximately 22% to 25% of annual sales of
metalized balloons being generated in December and January and 11% to 13% of
annual metalized sales being generated in September and July in recent years.
With the inclusion of a new major customer in metalized balloons with sales that
are from our recurring product line we expect this seasonality effect to be
reduced. In addition, the sale of latex balloons and laminated film products
have not historically been seasonal.


                                       6
<PAGE>

Critical Accounting Policies


      A summary of our critical accounting policies and estimates is presented
on pages 18 and 19 of our 2003 Annual Report on Form 10-K/A, Amendment No. 2, as
filed with the Securities and Exchange Commission.


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 metalized 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 2 (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 2004 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 identifying such statements. These risks,
uncertainties and contingencies include, but are not limited to, the Company's
limited operating history on which expectations regarding its future performance
can be based, 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


                                       7
<PAGE>

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 obligate to update or
revise these forward-looking statements to reflect new events or circumstances.

Item 3. Quantitative and Qualitative Disclosures of Market Risk

      The Company has not identified any material changes in risk factors
identified in its Form 10-K/A Amendment No. 1 for the fiscal year ended December
31, 2003, which would create any material market risk for the Company.

      The Company and its subsidiaries are exposed to market risk in changes of
commodity prices in some of the raw materials they purchase for their
manufacturing needs, particularly nylon film, resin and latex, some of which may
be affected by changes in the prices of natural gas and crude oil. However, the
risk involved would not have a material effect on the Company's results of
operations or financial condition.

Item 4. 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 the end
            of the period covered by this report, have concluded that, as of
            such date our disclosure controls and procedures were adequate and
            effective to ensure that material information relating to the
            Company would be made known to them by others within the Company.

      (b)   Changes in internal controls. There were no significant changes in
            our internal controls or in other factors that could significantly
            affect the Company's disclosure controls and procedures subsequent
            to the date of their evaluation, nor were there any significant
            deficiencies or material weaknesses in the Company's internal
            controls. As a result, no corrective actions were required or
            undertaken.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

      On September 5, 2003, Airgas, Inc., Airgas-Southwest, Inc., Airgas-South,
Inc. and Airgas-East, Inc. filed a joint action against CTI Industries
Corporation for claimed breach of contract in the Circuit Court of Lake County,
Illinois claiming as damages the aggregate amount of $162,242. The Company has
filed an answer denying the material claims of the complaint, affirmative
defenses and a counterclaim. In the action, the plaintiffs claim that CTI
Industries Corporation owes them certain sums for (i) helium sold and delivered,
(ii) rental charges with respect to helium tanks and (iii) replacement charges
for tanks claimed to have been lost. The Company intends to vigorously defend
this action and to pursue its counterclaim. The matter is


                                       8
<PAGE>

currently in the course of discovery and is scheduled for a final pre-trial
conference on January 3, 2005.

      On June 4, 2004, Spar Group, Inc. initiated an arbitration proceeding in
New York City against the Company. In the proceeding, Spar Group claims that
there is due from the Company to Spar Group for services rendered in the amount
of $180,043, plus interest. Spar Group claims to have rendered services to the
Company in various Eckerd stores with respect to the display and ordering of
metalized and latex balloons for sale in those stores. The Company has filed an
answer denying liability with respect to the claim and asserting a counterclaim
for damages against Spar Group for breach of its agreement to provide such
services. The Company belives it has made adequate provision for any settlement
of this matter based on dicussions with counsel.

      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, we do not believe any of these proceedings will
have, individually or in the aggregate, a material adverse effect upon our
financial condition or future results of operation.

Item 2.     Changes in Securities, Use of Proceeds and Issuer Purchases of
            Equity Securities

            Not applicable.

Item 3.     Defaults Upon Senior Securities

            Not applicable.

Item 4.     Submission of Matters to a Vote of Security Holders

            Not applicable.

Item 5.     Other Information

      The Certifications of the Chief Executive Officer and the Chief Financial
Officer of Registrant Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are attached as Exhibits to this Report on Form 10-Q.


                                       9
<PAGE>

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits*

            Exhibit No.                            Description
            -----------                            -----------

                  3.1         Third Restated Certificate of Incorporation of CTI
                              Industries Corporation (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
                              Commission on October 25, 1999)

                  3.2         By-laws of CTI Industries Corporation
                              (incorporated by reference to Exhibits, contained
                              in Registrant's Form SB-2 Registration Statement
                              (File No. 333-31969) effective November 5, 1997)


                  10.1        Standby Equity Distribution Agreement dated July
                              1, 2004, between the Company and Cornell Capital
                              Partners, LP (incorporated by reference to Exhibit
                              contained in the Registrant's Form 10-Q for the
                              quarter ended June 30, 2004, as filed with the
                              Commission on August 23, 2004).

                  10.2        Registration Rights Agreement dated July 1, 2004,
                              between the Company and Cornell Capital Partners,
                              LP


                  11          Statement: Computation of Per Share Earnings

                  31.1        Sarbanes-Oxley Act Section 302 Certifications for
                              Howard W. Schwan

                  31.2        Sarbanes-Oxley Act Section 302 Certification for
                              Stephen M. Merrick

                  32.1        Sarbanes-Oxley Act Section 906 Certification for
                              Stephen M. Merrick, Chief Financial Officer

                  32.2        Sarbanes-Oxley Act Section 906 Certification for
                              Howard W. Schwan, Chief Executive Officer

      (b) The Company filed a Current Report on Form 8-K on May 18, 2004,
      reporting its financial results for the quarter ended March 31, 2004. The
      Company filed another Current Report on Form 8-K on July 7, 2004,
      reporting that it had entered into a Standby Equity Distribution Agreement
      with an investment firm. A copy of this agreement has been added to this
      report as Exhibit 10.1. The Company has not filed any other Current
      Reports on Form 8-K during the quarter covered by this report.

      *     Also incorporated by reference the Exhibits filed as part of the
            SB-2 Registration Statement of the Registrant, effective November 5,
            1997, and subsequent periodic filings.


                                       10
<PAGE>


                                   SIGNATURES

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


      Dated: October 8, 2004                 CTI INDUSTRIES CORPORATION



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


                                             By: /s/ Stephen M. Merrick
                                                 ----------------------------
                                                 Stephen M. Merrick
                                                 Executive Vice President and
                                                 Chief Financial Officer


                                       11
<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                              June 30, 2004    December 31, 2003
                                                                              -------------    -----------------
                     ASSETS                                                     (Unaudited)         (Audited)
<S>                                                                            <C>                <C>
Current assets:
  Cash                                                                         $    421,430       $    329,742
  Accounts receivable, (less allowance for doubtful accounts of $355,469          5,467,657          4,620,276
  and $186,215, respectively)
  Inventories                                                                     9,388,535          9,263,160
  Deferred tax assets                                                               361,751            361,751
  Prepaid expenses and other current assets                                       1,032,989            859,635
                                                                               ------------       ------------

      Total current assets                                                       16,672,362         15,434,564

Property and equipment:
  Machinery and equipment                                                        18,158,239         18,939,535
  Building                                                                        2,714,301          2,678,581
  Office furniture and equipment                                                  1,796,853          1,931,831
  Land                                                                              250,000            250,000
  Leasehold improvements                                                            677,550            582,052
  Fixtures and equipment at customer locations                                    2,286,814          2,232,285
  Projects under construction                                                       237,023            408,961
                                                                               ------------       ------------
                                                                                 26,120,780         27,023,245
    Less: accumulated depreciation                                              (14,847,855)       (14,815,596)
                                                                               ------------       ------------

      Total property and equipment, net                                          11,272,925         12,207,649

Other assets:
  Deferred financing costs, net                                                     175,817            222,696
  Goodwill                                                                        1,113,108          1,113,108
  Deferred tax assets                                                               851,284          1,012,365
  Other assets                                                                      262,692            279,800
                                                                               ------------       ------------

      Total other assets                                                          2,402,901          2,627,969
                                                                               ------------       ------------

TOTAL ASSETS                                                                     30,348,188         30,270,182
                                                                               ============       ============
</TABLE>

See accompanying notes to condensed consolidated unaudited statements

<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                         June 30, 2004    December 31, 2003
                                                                         -------------    -----------------
                                                                          (unaudited)         (audited)
<S>                                                                       <C>                <C>
                   LIABILITIES AND STOCKHOLDERS' EQUITY

  Checks written in excess of bank balance                                     731,029            341,108
  Accounts payable                                                           5,659,098          6,799,490
  Line of credit                                                             5,810,369          3,694,241
  Notes payable - current portion                                            2,528,708          2,998,496
  Accrued liabilities                                                        1,921,724          2,306,745
                                                                          ------------       ------------

      Total current liabilities                                             16,650,928         16,140,080

Long-term liabilities:
  Other Liabilities                                                          1,038,898          1,079,041
  Notes payable                                                              4,726,709          5,766,091
  Notes payable - officers                                                   2,345,024          2,064,126
                                                                          ------------       ------------

      Total long-term liabilities                                            8,110,631          8,909,258

Minority interest                                                               10,230              9,263
Commitments and Contingencies
Stockholders' equity:
  Common stock - no par value, 5,000,000 shares authorized,
  2,150,216 shares issued, 1,918,420 shares outstanding                      3,764,020          3,764,020
  Class B Common stock - no par value, 500,000 shares authorized,
  0 shares issued and outstanding                                                    0                  0
  Paid-in-capital                                                            5,554,332          5,554,332
  Warrants issued in connection with subordinated debt and bank debt           595,174            595,174
  Accumulated deficit                                                       (3,291,843)        (3,528,063)
  Accumulated other comprehensive earnings                                    (106,170)          (234,768)
  Less:
      Treasury stock - 231,796 shares                                         (939,114)          (939,114)
                                                                          ------------       ------------

      Total stockholders' equity                                             5,576,399          5,211,581
                                                                          ------------       ------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                  $ 30,348,188       $ 30,270,182
                                                                          ============       ============
</TABLE>

See accompanying notes to condensed consolidated unaudited statements

<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)

<TABLE>
<CAPTION>
                                                                  Quarter Ended June 30,                  Year to Date June 30,
                                                                  2004                2003              2004               2003
                                                              ------------       ------------       ------------       ------------
<S>                                                           <C>                <C>                <C>                <C>
Net Sales                                                     $  9,591,785       $  8,661,939       $ 20,485,769       $ 18,824,434

Cost of Sales                                                    7,559,756          6,755,910         16,306,371         14,981,352
                                                              ------------       ------------       ------------       ------------

      Gross profit on sales                                      2,032,028          1,906,029          4,179,398          3,843,082

Operating expenses:
  Administrative                                                 1,175,277          1,051,114          2,163,790          2,221,500
  Selling                                                          356,731            217,008            747,287            619,371
  Advertising and marketing                                        282,005            660,637            675,489          1,249,531
                                                              ------------       ------------       ------------       ------------

      Total operating expenses                                   1,814,013          1,928,759          3,586,565          4,090,402
                                                              ------------       ------------       ------------       ------------

Income (loss) from operations                                      218,016            (22,730)           592,833           (247,320)

Other income (expense):
  Interest expense                                                (338,828)          (273,691)          (669,964)          (475,443)
  Interest income                                                       --              1,220                 --              1,608
  Gain (loss) on sale of assets                                     15,024              7,512             15,024             15,024
  Foreign currency (loss) gain                                     (12,914)            96,798             63,841            (11,708)
  Other                                                            (76,094)           196,495            410,802             65,482
                                                              ------------       ------------       ------------       ------------

      Total other (expense) income                                (412,812)            28,334           (180,297)          (405,037)
                                                              ------------       ------------       ------------       ------------

(Loss) income  before income taxes and minority interest          (194,797)             5,604            412,536           (652,357)

Income tax (benefit) expense                                       (58,327)          (129,671)           175,129            (95,425)
                                                              ------------       ------------       ------------       ------------

Income (loss) before minority interest                            (136,470)           135,275            237,408           (556,932)

Minority interest in  income (loss) of subsidiary                     (789)             2,097              1,187               (321)
                                                              ------------       ------------       ------------       ------------

      Net (loss) income                                       $   (135,681)      $    133,178       $    236,220       $   (556,611)
                                                              ============       ============       ============       ============

Income (loss) applicable to common shares                     $   (135,681)      $    133,178       $    236,220       $   (556,611)
                                                              ============       ============       ============       ============

Basic income (loss) per common share                          $      (0.07)      $       0.07       $       0.12       $      (0.29)
                                                              ============       ============       ============       ============

Diluted income (loss) per common share                        $      (0.07)      $       0.06       $       0.12       $      (0.29)
                                                              ============       ============       ============       ============

Weighted average number of shares and equivalent shares
  of common stock outstanding:
    Basic                                                        1,918,420          1,918,420          1,918,420          1,918,420
                                                              ============       ============       ============       ============

    Diluted                                                      1,918,420          2,139,754          2,032,665          1,918,098
                                                              ============       ============       ============       ============
</TABLE>

See accompanying notes to condensed consolidated unaudited statements

<PAGE>

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

<TABLE>
<CAPTION>
                                                                     For the Six Month Period Ended
                                                                   June 30, 2004        June 30, 2003
                                                                   ----------------------------------
<S>                                                                  <C>                  <C>
Cash flows from operating activities:
  Net income (loss)                                                  $   236,220          $  (556,611)
  Adjustment to reconcile net income (loss) to cash
      (used in) provided by operating activities:
    Depreciation and amortization                                        909,605              710,934
    Deferred gain on sale/leaseback                                      (15,024)              15,024
    Amortization of Debt Discount                                        125,746               55,051
    Minority interest in loss of subsidiary                                  967                 (321)
    Provision for losses on accounts receivable                           90,000               30,000
    Provision for loss on inventory                                      115,000               90,000
    Deferred income taxes                                                175,129             (189,289)
    Change in assets and liabilities:
      Accounts receivable                                               (937,381)             368,085
      Inventory                                                         (240,375)            (269,938)
      Other assets                                                      (156,246)              (2,475)
      Accounts payable, accrued expenses and other changes            (1,297,813)             892,374
                                                                     --------------------------------

          Net cash (used in) provided by operating activities           (994,172)           1,142,834

Cash flows from investing activities:
  Cash aquired in acquisition of CTI Mexico                                                    (5,000)
  Purchases of property, plant and equipment                            (171,875)          (1,318,971)
  Proceeds from sale of property and equipment                             2,225
                                                                     --------------------------------

          Net cash used in investing activities                         (169,650)          (1,323,971)

Cash flows from financing activities:
  Checks written in excess of bank balance                               389,921              366,193
  Net change in revolving line of credit                               2,301,280           (2,085,057)
  Proceeds from issuance of long-term debt                                71,270            4,675,665
  Proceeds from issuance of notes due to officer                                              820,000
  Proceeds from the  issuance of short-term debt                                              900,000
  Repayment of long-term debt                                         (1,635,559)          (3,247,329)
  Repayment of short-term debt                                                 0           (1,116,736)
  Proceeds from debt to equity swap                                                            15,750
  Purchase of treasury stock                                                                  (15,226)
                                                                     --------------------------------

          Net cash provided by financing activities                    1,126,912              313,260

Effect of exchange rate changes on cash                                  128,598             (105,368)
                                                                     --------------------------------

Net increase in cash                                                      91,688               26,755

Cash at Beginning of Period                                              329,742              160,493
                                                                     --------------------------------

Cash at End of Period                                                $   421,430          $   187,248
                                                                     ================================
Supplemental Disclosure of non-cash activity
  Settlement of liability with third
  party via ownership transfer of
  long-term asset                                                    $   241,268          $         0

</TABLE>

      See accompanying notes to condensed consolidated unaudited statements

<PAGE>

                                  June 30, 2004
                   CTI Industries Corporation and Subsidiaries
         Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

The accompanying financial statements are unaudited but in the opinion of
management contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial position
and the results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and footnotes required by
U.S. generally accepted accounting principles for complete financial statements.


Operating results for the six months ended June 30, 2004 are not necessarily
indicative of the results that may be expected for the full year ending December
31, 2004. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K/A Amendment No. 2 for the fiscal year ended December 31, 2003.


Principles of consolidation and nature of operations:

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, CTI Balloons Limited and CTF International S.A.
de C.V., as well as its majority owned subsidiaries CTI Mexico S.A. de C.V., and
Flexo Universal, S.A. de C.V. All significant intercompany transactions and
accounts have been eliminated in consolidation. The Company (i) designs,
manufactures and distributes 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.

Use of estimates

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain reported amounts and disclosures. Actual results
may differ from those estimates.

Stock-Based Compensation

As of June 30, 2004, the Company had four stock-based compensation plans. 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

<PAGE>

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. No stock options were granted during the three or six months
ended June 30, 2004.

Historically, the Company's option awards have vested at date of grant.
Accordingly, had the Company applied the fair value recognition provisions of
SFAS No. 123, "Accounting for Stock-based Compensation," there would be no pro
forma effect on net income to disclose in periods with no option awards.

Note 2 - Legal Proceedings

      On September 5, 2003, Airgas, Inc., Airgas-Southwest, Inc., Airgas-South,
Inc. and Airgas-East, Inc. filed a joint action against the Company for claimed
breach of contract in the Circuit Court of Lake County, Illinois claiming as
damages the aggregate amount of $162,242. The Company has filed an answer
denying the material claims of the complaint, affirmative defenses and a
counterclaim. In the action, these plaintiffs claim that the Company owes to
them certain sums for (i) helium sold and delivered, (ii) rental with respect to
helium tanks and (iii) replacement charges for tanks claimed to have been lost.
The Company intends vigorously to defend this action and to pursue its
counterclaim. Currently, the parties are engaged in pre-trial discovery
proceedings. The case is set for a final pre-trial conference on January 3,
2005.

      On June 4, 2004, Spar Group, Inc. initiated an arbitration proceeding in
New York City against the Company. In the proceeding, Spar Group claims that
there is due from the Company to Spar Group for services rendered in the amount
of $180,043, plus interest. Spar Group claims to have rendered services to the
Company in various Eckerd stores with respect to the display and ordering of
metalized and latex balloons for sale in those stores. The Company has filed an
answer denying liability with respect to the claim and asserting a counterclaim
for damages against Spar Group for breach of its agreement to provide such
services. The Company belives it has made adequate provision for any settlement
of this matter based on dicussions with counsel.

      In addition, the Company and its subsidiaries are 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.

Note 3 - Comprehensive Income (Loss)

Comprehensive Income was $46,029 for the three months ended June 30, 2004 and of
$290,328 for the three months ended June 30, 2003. Comprehensive income was
$128,598 for the six months ended June 30, 2004 and there was a comprehensive
loss of ($375,874) for the six months ended June 30, 2003.

<PAGE>

Note 4 - Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed by dividing the net income
(loss) available to common shareholders by the weighted average number of shares
of common stock outstanding during each period.

Diluted earnings per share is computed by dividing the net income (loss) 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.

Potential dilutive securities include 417,470 options and 308,129 warrants.

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

<PAGE>

receivable, inventory and machinery and equipment. Sales and selected Note 4 -
Inventories, net

<TABLE>
<CAPTION>
                                                    June 30, 2004    December 31, 2003
                                                    -------------    -----------------
                                                     (unaudited)
<S>                                                  <C>                <C>
Raw material and work in process                     $ 2,240,179        $ 2,231,428
Finished goods                                         7,681,604          7,523,889
                                                     -----------        -----------
Inventory, Gross                                       9,921,780          9,755,317
Less:  Inventory Reserves                               (533,248)          (492,157)
                                                     -----------        -----------

Inventories, net                                       9,388,535          9,263,160
                                                     ===========        ===========
</TABLE>

Note 5 - Geographic Segment Data

The Company has determined that it operates primarily in one business segment
which designs, manufactures, and distributes film products for use in packaging
and novelty balloon products. The Company operates in foreign and domestic
regions. Information about the Company's operations by geographic areas is as
follows.

<TABLE>
<CAPTION>
                    Net Sales to External Customers      Net Sales to External Customers
                  For the Three Months Ended June 30,   For the Six Months Ended June 30,

                        2004               2003              2004               2003
                        ----               ----              ----               ----
<S>                 <C>                <C>               <C>                <C>
United States       $  8,403,000       $  7,920,000      $ 17,674,000       $ 17,003,000
Mexico                   539,000            543,000         1,411,000          1,070,000
United Kingdom           650,000            199,000         1,401,000            751,000
                    ------------       ------------      ------------       ------------

                    $ 9,592,000       $   8,662,000      $ 20,486,000       $ 18,824,000
                    ============       ============      ============       ============
</TABLE>

                           Total Assets at

                      June 30,        December 31,
                        2004               2003
                        ----               ----
United States       $ 27,388,000      $ 27,603,000
Mexico                 4,702,000         5,476,000
United Kingdom         1,853,000         1,412,000
Eliminations          (3,595,000)       (4,221,000)
                    ------------      ------------

                    $ 30,348,000      $ 30,270,000
                    ============      ============

Note 6 - Concentration of Credit Risk

Concentration of credit risk with respect to trade accounts receivable beyond
our significant customers noted below is generally limited due to the number of
entities comprising the Company's customer base. The Company performs ongoing
credit evaluations and provides an allowance for potential credit losses against
the portion of accounts receivable which is estimated to be uncollectible. Such
losses have historically been within management's expectations. For the six
months ended June 30, 2004, the Company had 4 customers that accounted for
approximately $3,946,000 or 19.3%, $2,423,000 or 11.8%, $2,256,000 or 11.0%, and
$2,175,000 or 10.6%, respectively, of consolidated net sales. For the three
months ended March 31, 2004, the Company had three customers that accounted for
approximately $1,979,000 or 18.2%, $1,245,000 or 11.4% and $1,142,000 or 10.5%,
respectively of consolidated net sales.

As of June 30, 2004 Accounts Receivable balances for the four customers were
$883,915 (16%), $204,927 (4%), $556,088 (10%) and $778,663 (14%)

<PAGE>

respectively. In 2003, the two customers had receivable balances of $548,694
(12%) and $458,162 (10%) respectively.

Note 7 - Subsequent Event - Standby Equity Distribution Agreement

On July 1, 2004, the Company entered into a Standby Equity Distribution
Agreement ("SEDA") with an investment firm. Under the SEDA, the investment firm
has committed to provide up to $5 million of funding to be drawn down at the
Company's discretion by the purchase of the Company's common stock. The Company
may request up to $100,000 in any seven-day period in exchange for issuing
shares of its common stock to the investment firm. The purchase price of any
shares purchased under the SEDA with respect to any advance will be equal to
100% of the volume weighted average price of the Company's common stock on the
NASDAQ SmallCap Stock Market for the five days immediately following the notice
date for the advance, subject to payment to the investment firm of a commitment
fee of 5% of the amount of each advance. The facility may be used in whole or in
part entirely at the Company's discretion, subject to an effective registration
of the related shares. As of June 30, 2004, no shares have been issued or funds
received by the Company under this agreement.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>2
<FILENAME>d60880_ex10-2.txt
<DESCRIPTION>REGISTRATION RIGHTS AGREEMENT
<TEXT>

                                  EXHIBIT 10.2

                          REGISTRATION RIGHTS AGREEMENT

      REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 1, 2004
by and between CTI INDUSTRIES CORPORATION, a Illinois Corporation (the
"Company"), and CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership
(the "Investor").

      WHEREAS:

      A. In connection with the Standby Equity Distribution Agreement by and
between the parties hereto of even date herewith (the "Standby Equity
Distribution Agreement"), the Company has agreed, upon the terms and subject to
the conditions of the Standby Equity Distribution Agreement, to issue and sell
to the Investor that number of shares of the Company's common stock, no par
value per share (the "Common Stock"), which can be purchased pursuant to the
terms of the Equity Line Credit Agreement for an aggregate purchase price of up
to Five Million Dollars ($5,000,000). Capitalized terms not defined herein shall
have the meaning ascribed to them in the Standby Equity Distribution Agreement.

      B. To induce the Investor to execute and deliver the Standby Equity
Distribution Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Investor
hereby agree as follows:

      1.    DEFINITIONS.

      As used in this Agreement, the following terms shall have the following
meanings:

            a. "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.

            b. "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous or delayed basis ("Rule 415"), and the declaration or
ordering of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").

            c. "Registrable Securities" means the Investor's Shares, as defined
in the Standby Equity Distribution Agreement and shares of Common Stock issuable
to Investors pursuant to the Standby Equity Distribution Agreement.


<PAGE>

            d. "Registration Statement" means a registration statement under the
1933 Act which covers the Registrable Securities.

2.    REGISTRATION.

            a. Mandatory Registration. The Company shall prepare and file with
the SEC a Registration Statement on Form S-1, S-3 or on such other form as is
available. The Company shall use reasonable commercial efforts to cause such
Registration Statement to be declared effective by the SEC prior to the first
sale to the Investor of the Company's Common Stock pursuant to the Standby
Equity Distribution Agreement.

            b. Sufficient Number of Shares Registered. In the event the number
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities which the
Investor has purchased pursuant to the Standby Equity Distribution Agreement,
the Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefore, if applicable), or both, so as
to cover all of such Registrable Securities which the Investor has purchased
pursuant to the Standby Equity Distribution Agreement as soon as practicable,
but in any event not later than fifteen (15) days after the necessity therefore
arises. The Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities issuable on an Advance Notice Date is greater than the number of
shares available for resale under such Registration Statement.

3.    RELATED OBLIGATIONS.

            a. The Company shall keep the Registration Statement effective
pursuant to Rule 415 at all times until the date on which the Investor shall
have sold all the Registrable Securities covered by such Registration Statement
(the "Registration Period"), which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.

            b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the 1933 Act with respect to the disposition of
all Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such Registration Statement. In the case of
amendments and supplements to a Registration Statement which are required to be
filed pursuant to this Agreement (including pursuant to this Section 3(b)) by
reason of the


                                       2
<PAGE>

Company's filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous
report under the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the Company shall have incorporated such report by reference into the
Registration Statement, if applicable, or shall file such amendments or
supplements with the SEC on the same day on which the 1934 Act report is filed
which created the requirement for the Company to amend or supplement the
Registration Statement.

            c. The Company shall furnish to the Investor without charge, (i) at
least one copy of such Registration Statement as declared effective by the SEC
and any amendment(s) thereto, including financial statements and schedules, all
documents incorporated therein by reference, all exhibits and each preliminary
prospectus, (ii) ten (10) copies of the final prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents as such Investor may reasonably request from time to time in order to
facilitate the disposition of the Registrable Securities owned by such Investor.

            d. The Company shall use reasonable commercial efforts to (i)
register and qualify the Registrable Securities covered by a Registration
Statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investor reasonably requests, (ii) prepare and file
in those jurisdictions, such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (w) make any change to its certificate of incorporation or by-laws,
(x) qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify the Investor
of the receipt by the Company of any notification with respect to the suspension
of the registration or qualification of any of the Registrable Securities for
sale under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threat of any
proceeding for such purpose.

            e. As promptly as practicable after becoming aware of such event or
development, the Company shall notify the Investor in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such supplement or amendment to each Investor. The
Company shall also promptly notify the Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to the Investor
by


                                       3
<PAGE>

facsimile on the same day of such effectiveness), (ii) of any request by the SEC
for amendments or supplements to a Registration Statement or related prospectus
or related information, and (iii) of the Company's reasonable determination that
a post-effective amendment to a Registration Statement would be appropriate.

            f. The Company shall use reasonable commercial efforts to prevent
the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction within the United States of
America and, if such an order or suspension is issued, to obtain the withdrawal
of such order or suspension at the earliest possible moment and to notify the
Investor of the issuance of such order and the resolution thereof or its receipt
of actual notice of the initiation or threat of any proceeding for such purpose.

            g. At the reasonable request of the Investor, the Company shall
furnish to the Investor, on the date of the effectiveness of the Registration
Statement and thereafter from time to time on such dates as the Investor may
reasonably request (i) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, and (ii) an opinion, dated as of such date, of counsel
representing the Company for purposes of such Registration Statement, in form,
scope and substance as is customarily given in an underwritten public offering,
addressed to the Investor.

            h. The Company shall make available for inspection by (i) the
Investor and (ii) one firm of accountants or other agents retained by the
Investor (collectively, the "Inspectors") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall agree, and the Investor hereby agrees, to hold in
strict confidence and shall not make any disclosure (except to an Investor) or
use of any Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector and the Investor has knowledge.
The Investor agrees that it shall, upon learning that disclosure of such Records
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at
its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, the Records deemed confidential.

            i. The Company shall hold in confidence and not make any disclosure
of information concerning the Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration


                                       4
<PAGE>

Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other final, non-appealable order from a court or governmental body
of competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this Agreement
or any other agreement. The Company agrees that it shall, upon learning that
disclosure of such information concerning the Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt written notice to the Investor and allow the Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

            j. The Company shall use reasonable commercial efforts either to
cause all the Registrable Securities covered by a Registration Statement (i) to
be listed on each securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange or to
secure the inclusion for quotation on the National Association of Securities
Dealers, Inc. OTC Bulletin Board for such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(j).

            k. The Company shall cooperate with the Investor to the extent
applicable, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legend) representing the Registrable Securities to
be offered pursuant to a Registration Statement and enable such certificates to
be in such denominations or amounts, as the case may be, as the Investor may
reasonably request and registered in such names as the Investor may request.

            l. The Company shall use reasonable commercial efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.

            m. The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder.

            n. Within two (2) business days after a Registration Statement which
covers Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities (with copies to the Investor)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

            o. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investor of Registrable Securities
pursuant to a Registration Statement.

      4.    OBLIGATIONS OF THE INVESTOR.

      The Investor agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e), the Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice that no


                                       5
<PAGE>

supplement or amendment is required. Notwithstanding anything to the contrary,
the Company shall cause its transfer agent to deliver unlegended certificates
for shares of Common Stock to a transferee of the Investor in accordance with
the terms of the Standby Equity Distribution Agreement in connection with any
sale of Registrable Securities with respect to which the Investor has entered
into a contract for sale prior to the Investor's receipt of a notice from the
Company of the happening of any event of the kind described in Section 3(f) or
the first sentence of 3(e) and for which the Investor has not yet settled.

      5.    EXPENSES OF REGISTRATION.

      All expenses incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers, legal and accounting
fees shall be paid by the Company.

      6.    INDEMNIFICATION.

      With respect to Registrable Securities which are included in a
Registration Statement under this Agreement:

            a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend the Investor, the directors,
officers, partners, employees, agents, representatives of, and each Person, if
any, who controls the Investor within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified Person"), against any losses, claims, damages,
liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys'
fees, amounts paid in settlement or expenses, joint or several (collectively,
"Claims") incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue statement of
a material fact contained in any final prospectus (as amended or supplemented,
if the Company files any amendment thereof or supplement thereto with the SEC)
or the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which
the statements therein were made, not misleading; or (iii) any violation or
alleged violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation there under relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall
reimburse the Investor and each such controlling person promptly as such
expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or


                                       6
<PAGE>

defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (x) shall
not apply to a Claim by an Indemnified Person arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto; (y) shall not be available to the
extent such Claim is based on a failure of the Investor to deliver or to cause
to be delivered the prospectus made available by the Company, if such prospectus
was timely made available by the Company pursuant to Section 3(e); and (z) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person.

            b. In connection with a Registration Statement, the Investor agrees
to indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement and each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(each an "Indemnified Party"), against any Claim or Indemnified Damages to which
any of them may become subject, under the 1933 Act, the 1934 Act or otherwise,
insofar as such Claim or Indemnified Damages arise out of or is based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by the Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), the Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of the Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the net proceeds to the Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any prospectus shall not inure to the benefit of any Indemnified
Party if the untrue statement or omission of material fact contained in the
prospectus was corrected and such new prospectus was delivered to the Investor
prior to the Investor's use of the prospectus to which the Claim relates.

            c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the


                                       7
<PAGE>

Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses of not more than one counsel
for such Indemnified Person or Indemnified Party to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Indemnified Party or Indemnified Person shall cooperate fully
with the indemnifying party in connection with any negotiation or defense of any
such action or claim by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to the Indemnified Party
or Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its prior written consent,
provided, however, that the indemnifying party shall not unreasonably withhold,
delay or condition its consent. No indemnifying party shall, without the prior
written consent of the Indemnified Party or Indemnified Person, consent to entry
of any judgment or enter into any settlement or other compromise which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided
for hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person or Indemnified
Party under this Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.

            d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

            e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

      7.    CONTRIBUTION.

      To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in


                                       8
<PAGE>

amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.

      8.    REPORTS UNDER THE 1934 ACT.

      With a view to making available to the Investor the benefits of Rule 144
promulgated under the 1933 Act or any similar rule or regulation of the SEC that
may at any time permit the Investors to sell securities of the Company to the
public without registration ("Rule 144") the Company agrees to:

            a. make and keep public information available, as those terms are
understood and defined in Rule 144;

            b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 6.3 of the
Standby Equity Distribution Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and

            c. furnish to the Investor so long as the Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investor to
sell such securities pursuant to Rule 144 without registration.

      9.    AMENDMENT OF REGISTRATION RIGHTS.

      Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only by a written agreement. Any amendment or waiver effected
in accordance with this Section 9 shall be binding upon the Investor and the
Company. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.

      10.   MISCELLANEOUS.

            a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.

            b. Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated


                                       9
<PAGE>

and kept on file by the sending party); or (iii) one business day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

If to the Company, to:         CTI Industries Corporation
                               22160 N. Pepper Road
                               Barrington, IL 60010
                               Attention:   Stephen M. Merrick
                               Telephone:   (847) 382-1000
                               Facsimile:   (847) 382-1219

With a copy to:                Merrick & Klimek
                               33 N. LaSalle Street
                               Chicago, IL 60602
                               Attention:   John M. Klimek, Esq.
                               Telephone:   (312) 284-1520
                               Facsimile:   (312) 284-1521

If to the Investor, to:        Cornell Capital Partners, LP
                               101 Hudson Street - Suite 3700
                               Jersey City, NJ 07302
                               Attention:   Mark Angelo
                                            Portfolio Manager
                               Telephone:   (201) 985-8300
                               Facsimile:   (201) 985-8266

With copy to:                  Butler Gonzalez LLP
                               1416 Morris Avenue - Suite 207
                               Union, NJ 07083
                               Attention:   David Gonzalez, Esq.
                               Telephone:   (908) 810-8588
                               Facsimile:   (908) 810-0973

Any party may change its address by providing written notice to the other
parties hereto at least five days prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date, recipient
facsimile number and an image of the first page of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.

            c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.


                                       10
<PAGE>

            d. The corporate laws of the State of Illinois shall govern all
issues concerning the relative rights of the Company and the Investor. All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
Jersey, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New Jersey or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New Jersey. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the Superior Courts of the State of New Jersey, sitting in
Hudson County, New Jersey and the Federal District Court for the District of New
Jersey sitting in Newark, New Jersey, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

            e. This Agreement, the Standby Equity Distribution Agreement, the
Escrow Agreement and the Placement Agent Agreement constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Standby Equity Distribution Agreement, the Escrow Agreement and the Placement
Agent Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.

            f. This Agreement shall inure to the benefit of and be binding upon
the permitted successors and assigns of each of the parties hereto.

            g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

            h. This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.


                                       11
<PAGE>

            i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

            j. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

            k. This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       12
<PAGE>

      IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.

                                            COMPANY:
                                            CTI INDUSTRIES CORPORATION

                                            By: /s/ Stephen M. Merrick
                                                --------------------------------
                                            Name:  Stephen M. Merrick
                                            Title: Executive Vice-President

                                            INVESTOR:
                                            CORNELL CAPITAL PARTNERS, LP

                                            By:    Yorkville Advisors, LLC
                                            Its:   General Partner

                                            By: /s/ Mark Angelo
                                                --------------------------------
                                            Name:  Mark Angelo
                                            Title: Portfolio Manager


                                       13
<PAGE>

                                                                       EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

INSERT

Attention: _____________

            Re:   CTI INDUSTRIES CORPORATION

Ladies and Gentlemen:

      We are counsel to CTI Industries Corporation, a Illinois corporation (the
"Company"), and have represented the Company in connection with that certain
Standby Equity Distribution Agreement (the "Standby Equity Distribution
Agreement") entered into by and between the Company and Cornell Capital
Partners, LP (the "Investor") pursuant to which the Company issued to the
Investor shares of its Common Stock, no par value per share (the "Common
Stock"). Pursuant to the Standby Equity Distribution Agreement, the Company also
has entered into a Registration Rights Agreement with the Investor (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement) under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ____________ ____, the Company filed a Registration
Statement on Form ________ (File No. 333-_____________) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities which names the Investor as a selling stockholder
thereunder.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and the Registrable
Securities are available for resale under the 1933 Act pursuant to the
Registration Statement.

                                          Very truly yours,


                                          By:
                                             -----------------------------------

cc:   Cornell Capital Partners, LP

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>d60880_ex31-1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>

                                  EXHIBIT 31.1
                                 CERTIFICATIONS

      I, Howard W. Schwan, President of CTI Industries Corporation, certify
that:

      1. I have reviewed this quarterly report on Form 10-Q/A Amendment No. 1 of
CTI Industries Corporation.

      2. Based on my knowledge, this 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 report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;

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

      a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

      b) Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release 34-47986;

      c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and

      d) Disclosed in this report any change in the registrant's internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

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

<PAGE>

      a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: October 8, 2004

                                             CTI INDUSTRIES CORPORATION


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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>d60880_ex31-2.txt
<DESCRIPTION>CERTIFICATION
<TEXT>

                                  EXHIBIT 31.2
                                 CERTIFICATIONS

      I, Stephen M. Merrick, Executive Vice-President and Chief Financial
Officer of CTI Industries Corporation certify that:

      1. I have reviewed this quarterly report on Form 10-Q/A Amendment No. 1 of
CTI Industries Corporation.

      2. Based on my knowledge, this 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 report;

      3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;

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

      a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

      b) Paragraph omitted in accordance with SEC transition instructions
contained in SEC Release 34-47986;

      c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and

      d) Disclosed in this report any change in the registrant's internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) that occurred during the registrant's most recent fiscal quarter (the
registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.

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

<PAGE>

      a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: October 8, 2004

                                       CTI INDUSTRIES CORPORATION


                                       By: /s/ Stephen M. Merrick
                                           -------------------------------------
                                           Stephen M. Merrick, Executive
                                           Vice-President and Chief Financial
                                           Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>5
<FILENAME>d60880_ex32-1.txt
<DESCRIPTION>CERTIFICATION
<TEXT>

                                  EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CTI Industries Corporation (the
"Company") on Form 10-Q/A Amendment No. 1 for the period ending June 30, 2004,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Howard W. Schwan, President of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:

      (1)   The Report fully complies with the requirements of section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The information contained in the Report fairly presents, in all
            material respects, the financial condition and result of operations
            of the Company.


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

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>6
<FILENAME>d60880_ex32-2.txt
<DESCRIPTION>CERTIFICATION
<TEXT>

                                  EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CTI Industries Corporation (the
"Company") on Form 10-Q/A Amendment No. 1 for the period ending June 30, 2004,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Stephen M. Merrick, Executive Vice-President and Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

      (1)   The Report fully complies with the requirements of section 13(a) or
            15(d) of the Securities Exchange Act of 1934; and

      (2)   The information contained in the Report fairly presents, in all
            material respects, the financial condition and result of operations
            of the Company.

                                    CTI INDUSTRIES CORPORATION


                                By: /s/ Stephen M. Merrick
                                    --------------------------------------------
                                    Stephen M. Merrick, Executive Vice-President
                                    and Chief Financial Officer


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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