CTI INDUSTRIES CORP (Form: 10-K, Received: 03/29/2012 15:22:11)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to_________

Commission File Number

000-23115

CTI INDUSTRIES CORPORATION

(Exact name of Registrant as specified in its charter)

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

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

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

Securities Registered pursuant to sections 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered

Common Stock, No Par	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ð No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ð No þ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller Reporting Company þ

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Based upon the closing price of $5.25 per share of the Registrant’s Common Stock as reported on NASDAQ Capital Market tier of The NASDAQ Stock Market on June 30, 2011, the aggregate market value of the voting common stock held by non-affiliates of the Registrant was then approximately $8,911,000. (The determination of stock ownership by non-affiliates was made solely for the purpose of responding to the requirements of the Form and the Registrant is not bound by this determination for any other purpose.)

The number of shares outstanding of the Registrant’s Common Stock as of March 1, 2012 was 3,204,506 (excluding treasury shares).

DOCUMENTS INCORPORATED BY REFERENCE

	Part of Form 10-K into Which
Document	Document Is Incorporated

Sections of the registrant’s Proxy Statement	Part III
To be filed on or before April 30, 2012 for the
Annual Meeting of Stockholders

TABLE OF CONTENTS

INDEX


FORWARD LOOKING STATEMENTS

Part I

Item No. 1	Description of Business	1
Item No. 1B	Unresolved Staff Comments	14
Item No. 2	Properties	14
Item No. 3	Legal Proceedings	15

Part II

Item No. 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
Item No. 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item No. 7A	Quantitative and Qualitative Disclosures Regarding Market Risk	27
Item No. 8	Financial Statements and Supplementary Data	27
Item No. 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	27
Item No. 9A	Controls and Procedures	27
Item No. 9B	Other Information	28

Part III

Item No. 10	Directors and Executive Officers of the Registrant	29
Item No. 11	Executive Compens ation	29
Item No. 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
Item No. 13	Certain Relationships and Related Transactions	29
Item No. 14	Principal Accounting Fees and Services	29

Part IV

Item No. 15	Exhibits and Financial Statement Schedules	29

FORWARD-LOOKING STATEMENTS

This annual report includes both historical and “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on our current expectations and projections about future results. Words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or similar words are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believe that our opinions and expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements, and our actual results may differ substantially from the views and expectations set forth in this annual report. We disclaim any intent or obligation to update any forward-looking statements after the date of this annual report to conform such statements to actual results or to changes in our opinions or expectations. These forward-looking statements are affected by factors, risks, uncertainties and assumptions that we make, including, without limitation, our participation in highly competitive markets, potential changes in the cost or availability of raw materials, our dependence on a limited number of suppliers, the possible inability to obtain an adequate supply of raw materials, our reliance on a limited number of key customers, the loss of one or more of our key customers, changing consumer demands, developments or changes in technology, risks of international operations and political environments, dependence on our intellectual property, compliance with federal, state or local regulations, restrictions included in the Company’s credit facility, the availability of funds under the Company’s credit facility, damage to or destruction of one or both of the Company’s principal plants, our ability to service our indebtedness, our ability to invest in needed plant or equipment.

PART I

Item No. 1 – Description of Business

Business Overview

We are a leading developer, manufacturer and supplier of innovative flexible film products. We provide value-added design, engineering and production for flexible film products. We have developed, designed, and produced a number of innovative products utilizing flexible films including: novelty foil balloons, pouches for food and home storage, specialty films for packaging and unique film products for medical applications.

We produce, market and sell four principal lines of products:

Novelty Products , principally balloons, including foil balloons, latex balloons, punch balls and other inflatable toy items,

Flexible Containers for home and consumer use for the storage and preservation of food and personal items,

Flexible Films for food and other packaging and commercial applications, and,

Specialty Film Products of unique design for various applications including for medical uses.

Our design and development services, and the application of our technical expertise to the development of flexible film products, represent a significant component of our business activity. We leverage our technology to design and develop proprietary products which we market and sell and which we develop for our customers. We have been engaged in the business of developing flexible film products for 35 years and have acquired significant technology and know-how in that time. Presently, we hold 11 patents, and have several patent applications pending, relating to flexible film products including specific films, zipper closures, valves and other features of these products.

We print, process and convert plastic film into finished products and we produce latex balloons and novelty items. Our principal manufacturing processes include:

Coating and laminating plastic film. Generally, we adhere polyethylene film to another film such as nylon or polyester.

Printing plastic film and latex balloons. We print films, both plastic and latex with a variety of graphics for use as packaging film or for balloons.

Converting printed plastic film to balloons.

Converting plastic film to flexible containers.

Producing latex balloons and other latex novelty items.

We market and sell foil and latex balloons in the United States and in several other countries. We supply coated, laminated and printed films to a number of companies who generally convert these films into containers for the packaging of food and other items. We supply flexible containers to companies who market them to consumers who use them for the storage of food and personal items. We also market containers to and through retail outlets for use by consumers that include a resealable closure system and a valve permitting the evacuation of air from the pouch by a small pump device, which we also supply. Commencing in the fourth quarter of 2011, we began marketing vacuum sealing machines for home use to vacuum seal and store food and household items.

In 1978, we began manufacturing metalized balloons (sometimes referred to as "foil" balloons), which are balloons made of a base material (usually nylon or polyester) having vacuum deposited aluminum and polyethylene coatings. These balloons remain buoyant when filled with helium for much longer periods than latex balloons and permit the printing of graphic designs on the surface. In 1985, we began marketing latex balloons and, in 1988, we began manufacturing latex balloons. In 1999, we acquired an extrusion coating and laminating machine and began production of coated and laminated films, which we have produced since that time.

During the period from 1976 to 1986 and from 1996 to the present, we have produced flexible containers for the storage of liquids, food products, household goods and other items.

We market and sell our foil and latex balloons and related novelty items directly to retail stores and chains and through distributors, who in turn sell to retail stores and chains. Our balloon and novelty products are sold to consumers through a wide variety of retail outlets including general merchandise, discount and drugstore chains, grocery chains, card and gift shops, and party goods stores, as well as through florists and balloon decorators.

Most of our foil balloons contain printed characters, designs and social expression messages, such as “Happy Birthday,” “Get Well” and similar items. For a number of our balloon designs, we obtain licenses for well-known characters and print those characters and messages on our balloons.

We provide laminated films and printed films to a number of customers who utilize the film to produce bags or pouches for the packaging of food, liquids and other items. We also produce finished products – pouches and bags – which are used for a variety of applications, including (i) as vacuumable pouches for household use in storage of food items, (ii) as vacuumable consumer storage devices for clothing and other household items, and (iii) custom and medical applications.

In 2011, our revenues from our product lines, as a percent of total revenues were:

	· Novelty Products	69% of revenues
	· Film Products	13% of revenues
	· Flexible Containers	18% of revenues

We are an Illinois corporation with our principal offices and plant at 22160 N. Pepper Road, Lake Barrington, Illinois.

Business Strategies

Our essential business strategies are as follows:

Focus on our Core Assets and Expertise . We have been engaged in the development, production and sale of film products for 35 years and have developed assets, technology and expertise which, we believe, enable us to develop, manufacture, market and sell innovative products of high quality within our area of knowledge and expertise. We plan to focus our efforts on these core assets and areas of expertise – laminated films, printed films, pouches, specialty film products and film novelty products – to develop new products, to market and sell our products and to build our revenues.

Maintain a Focus on Margin Levels and Cost Controls in Order to Establish and Maintain Profitability . We engage in constant review and effort to control our production, and our selling, general and administrative expenses in order to establish and enhance profitability.

Develop New Products, Product Improvements and Technologies . We work to develop new products, to improve existing products and to develop new technologies within our core product areas in order to enhance our competitive position and our sales. We seek to leverage our technology to develop innovative and proprietary products. In the novelty line, our development work includes new designs, new character licenses and new product developments. Over the past several years we have developed new pouch closure systems and valves and new film methods for packaging applications. We have received eleven patents for these developments and have several patent applications pending. We introduced a line of resealable pouches with a valve and pump system for household storage and vacuum sealing of food items. In 2011, we introduced a line of vacuum sealing equipment for the vacuum sealing of pouches for food and household items. We work with customers to develop custom film products which serve the unique needs or requirements of the customer. We have participated in the development of, and are now producing and selling, a patient transfer device which is used to move medical patients from one surface to another.

Develop New Channels of Distribution and New Sales Relationships . In order to increase sales, we endeavor to develop new channels of distribution and new sales relationships, both for existing and new products. On February 1, 2008, we entered into a Supply and License Agreement with S.C. Johnson & Son, Inc (“SC Johnson”) to manufacture and supply to SC Johnson certain home food management products to be sold under the SC Johnson ZipLoc ^® brand. In February 2011, SC Johnson renewed this agreement for an additional two-year term commencing on July 1, 2011. During 2009 and 2010, we developed new distributors and customers for our pouch and novelty products in Europe, Mexico, Latin America, Australia and New Zealand, expanding the scope and level of our international sales and activities. During 2010, we established an office and warehouse in Germany to support the extension of our sales and fulfillment activities in Europe. During 2011, we entered into a Trademark License Agreement with SC Johnson under which SC Johnson licensed our company to use the ZipLoc® brand for vacuum sealing machines and pouches for home use with vacuum sealing machines to seal and store food and household items, and we have introduced and commenced the marketing and sale of these machines and pouches.

Enhance Our Productive Capacity. We invest in new plant and equipment when appropriate to expand the range and volume of products we produce. During 2008 and 2009, we acquired, installed and commenced operation of equipment which enables us to produce in the range of 60 million pouches annually. During 2010 and 2011, we designed, assembled and installed latex balloon production equipment which has enhanced our production capacity for latex balloons by approximately 70%.

Products

Foil Balloons . We have designed, produced and sold foil balloons since 1979 and, we believe, are the second largest manufacturer of foil balloons in the United States. Currently, we produce about 900 foil balloon designs, in different shapes and sizes, including the following:

Superloons ^® - 18" foil balloons in round or heart shape, generally made to be filled with helium and remain buoyant for long periods. This is the predominant foil balloon size.

Ultraloons ^® - 31" jumbo foil balloons made to be filled with helium and remain buoyant.

Miniloons ^® - 9" foil balloons made to be air-filled and sold on holder-sticks or for use in decorations.

Card-B-Loons ^® - 4 ½" air-filled foil balloons, often sold on a stick, used in floral arrangements or with a container of candy.

Shape-A-Loons ^® - “18 to 48” shaped foil balloons made to be filled with helium.

Minishapes - 11” to 16” small shaped foil balloons designed to be air filled and sold on sticks as toys or inflated characters.

Balloon Jamz ^TM - 20” to 40” round and shaped foil balloons which emit and amplify sound through a speaker attached to the balloon.

In addition to size and shape, a principal element of the Company's foil balloon products is the printed design or message contained on the balloon. These designs include figures and licensed characters many of which are well known. We maintain licenses for several well-known characters.

Latex Balloons . Through our majority-owned subsidiary in Guadalajara, Mexico, Flexo Universal, S.A. de C.V. (“Flexo Universal”), we manufacture latex balloons in 11 shapes and 46 colors. These balloons are marketed under the name Partyloons ^® . We also manufacture toy balloon products including punch balls, water bombs and "Animal Twisties."

Packaging Films and Custom Film Products. We produce and sell films that are utilized for the packaging of various products, principally food products. We laminate, extrusion coat and print films and sell them to customers who utilize the films for packaging applications. Our customers generally use these film products to convert them to bags or pouches for the packaging of food and other products. We develop and produce for customers unique products composed of flexible film, including products for medical applications.

Pouches and Bags . We produce a variety of completed film products, generally in the form of a bag or pouch. These products include (i) valved, resealable pouches for storage of household items, (ii) vacuum sealable bags for food storage, and (iii) resealable, valved bags for storage and vacuum sealing of food items in the household. During 2008, we introduced a line of resealable, valved bags for storage and vacuum sealing of food items in the household. These storage bags function with a small hand or powered pump to evacuate air when the bag is sealed. This product line is marketed under the brand ZipVac ^® . We also produce a line of resealable, valved bags for SC Johnson which they market under their ZipLoc ^® brand. For several years, we have produced and marketed open-top pouches for use with vacuum sealing machines to vacuum seal and store food and household items. We now produce and market such pouches under the ZipLoc ^® brand and also market vacuum sealing machines, produced for us, under the ZipLoc ^™ brand, which utilize these vacuum sealing pouches.

Markets

Foil Balloons

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

Foil balloons are now sold in virtually every region of the world. The United States, however, remains the largest market for these products.

Foil balloons are sold in the United States and foreign countries directly by producers to retail outlets and through distributors and wholesalers. Often the sale of foil balloons by the wholesalers/distributors is accompanied by related products including latex balloons, floral supplies, candy containers, mugs, plush toys, baskets and a variety of party goods.

Latex Balloons

For a number of years, latex balloons and related novelty/toy latex items have been marketed and sold throughout the United States and in most other countries. Latex balloons are sold as novelty/toy items, for decorative purposes, as part of floral designs and as party goods and favors. In addition to standard size and shape balloons, inflatable latex items include punch balls, water bombs, balloons to be twisted into shapes, and other specialty designs. Often, latex balloons included printed messages or designs.

Latex balloons are sold principally in retail outlets, including party goods stores, general merchandise stores, discount chains, gift stores and drugstore chains. Latex balloons are also purchased by balloon decorators and floral outlets for use in decorative or floral designs.

Printed latex balloons are sold both in retail outlets and for balloon decoration purposes including floral designs. "Toy" balloons include novelty balloons sold in toy departments or stores, punch balls, water bombs and other specialty designs.

Latex balloons are sold both through distributors and directly to retail outlets by the producers.

Printed and Specialty Films

The industry and market for printed and specialty films is fragmented and includes many participants. There are hundreds of manufacturers of printed and specialty film products in the United States and in other markets. In many cases, companies who provide food and other products in film packages also produce or process the films used for their packages. The market for the Company's film products consists principally of companies who utilize the films for the packaging of their products, including food products and other items, usually by converting the film to a flexible container. In addition to the packaging of food products, flexible containers are used for medical purposes (such as colostomy bags, containers for saline solution and other items), "dunnage" (to cushion products being packaged), storage of personal and household items and other purposes.

Flexible Containers/Pouches

The market for flexible containers and pouches is large and diverse. Many companies engaged in the production of food items package their products in flexible containers or pouches, and, therefore, represent a market for these containers. Many of these companies purchase film – often printed film – and convert the film to pouches or packages at their own facilities while others purchase completed containers from suppliers.

Flexible containers and pouches are sold and utilized in the consumer market in numerous forms. They include simple open-top plastic bags, resealable bags and zippered bags. The market also includes containers and pouches of special design or purpose, including vacuumable bags for storage of food or household items, medical bags, or commercial uses.

Marketing, Sales and Distribution

Balloon Products

We market and sell our foil balloon, latex balloon and related novelty products throughout the United States and in a number of other countries. We maintain a marketing, sales and support staff of five individuals and a customer service department of four individuals in the United States. Sales in the United Kingdom are conducted by CTI Balloons, the Company's subsidiary located in Rugby, England. In January 2010, we commenced the sale of balloon products through a facility near Frankfurt, Germany. Flexo Universal conducts sales and marketing activities for the sale of balloon products in Mexico, Latin America, and certain other markets. Sales in other foreign countries are made generally to distributors in those countries and are managed at the Company's principal offices.

We sell and distribute our balloon products (i) by our employed staff of sales and customer service personnel in the United States, Mexico, the UK and Germany, (ii) through a network of distributors and wholesalers in the United States, Mexico, the UK and Europe, (iii) through several groups of independent sales representatives, and (iv) to selected retail chains. The distributors and wholesalers are generally engaged principally in the sale of balloons and related products (including such items as plush toys, mugs, containers, floral supplies and other items) and sell balloons and related products to retail outlets including grocery, general merchandise and drug store chains, card and gift shops, party goods stores as well as florists and balloon decorators.

Our largest customer for balloons during 2011 was Dollar Tree Stores. Sales to this chain in 2011 represented $13,584,000 or approximately 28.8% of our consolidated net sales.

We engage in a variety of advertising and promotional activities to promote the sale of our balloon products. Each year, we produce a complete catalog of our balloon products, and also prepare various flyers and brochures for special or seasonal products, which we disseminate to thousands of customers, potential customers and others. We participate in several trade shows for the gift, novelty, balloon and other industries and advertise in several trade and other publications.

Printed and Specialty Films

We market and sell printed and laminated films directly and through independent sales representatives throughout the United States. We sell laminated and printed films to companies that utilize these films to produce packaging for a variety of products, including food products, in both solid and liquid form, such as cola syrup, coffee, juices and other items. We seek to identify and maintain customer relationships in which we provide added value in the form of technology or systems. Our largest customer for film products is Rapak, L.L.C. (“Rapak”) to whom we provide a patented embossed film, as well as other film products. During 2011, our sales to Rapak totaled $5,773,000, representing 12.2% of our consolidated net sales . Under our agreement with Rapak, which continues through October 31, 2012, Rapak is committed to purchase at least 75% of its requirements for embossed film from us.

Flexible Containers/Pouches

We market flexible containers and pouches to various companies for commercial packaging purposes and we market lines of consumer storage packages both to a principal customer and to retail chains and outlets.

On February 1, 2008, we entered into a License and Supply Agreement with SC Johnson. The agreement provides for the Company to manufacture and sell to SC Johnson (or its designee, Goodwill Commercial Services, Inc.) certain home food management products to be sold under the SC Johnson ZipLoc ^® brand. The agreement is for a term initially expiring on June 30, 2011 and provides for two renewal terms of two years each at the option of SC Johnson. In February 2011, SC Johnson renewed the agreement for an additional two-year term commencing on July 1, 2011.

During 2005, we introduced a line of universal vacuumable bags for household storage of food products. These bags are designed to be used with existing vacuum and sealing devices. We market these bags through various retail channels and introduced this line of products to additional retail chains in 2011.

On December 14, 2011, the Company entered into a Trademark License Agreement with SC Johnson under which the Company is licensed to manufacture and sell a line of vacuum sealing machines and pouches under the ZipLoc™ brand and trademark. The agreement is for a three year term expiring on December 31, 2014. The licensed product line includes vacuum sealing machines manufactured for the Company and pouches manufactured by the Company for use in the home to vacuum seal food items to preserve freshness and help prevent freezer burn.

During 2007, we introduced a line of re-sealable pouches incorporating a valve permitting the evacuation of air from the sealed pouch by use of a hand pump supplied with the pouches. This line of products is marketed under the brand name ZipVac ^® . We market this line of products to various distributors and retail outlets.

Production and Operations

We conduct our operations at our facilities: (i) our headquarters, offices and plant in Lake Barrington, Illinois, consisting of a total of approximately 75,000 square feet of office, production and warehouse space, (ii) a warehouse in Elgin, Illinois consisting of approximately 30,000 square feet, (iii) a plant, office and warehouse in Guadalajara, Mexico, consisting of approximately 73,000 square feet of office, warehouse and production space, (iv) an office and warehouse facility in Rugby, England, consisting of approximately 9,000 square feet of space, and (v) an office and warehouse facility in Heusenstamm, Germany, consisting of approximately 3,000 square feet.

We conduct production operations at our plants in Lake Barrington, Illinois and Guadalajara, Mexico. At our plants, our production operations include (i) lamination and extrusion coating of films, (ii) slitting of film rolls, (iii) printing on film and on latex balloons, (iv) converting of film to completed products including balloons, flexible containers and pouches, and (v) production of latex balloon products. We perform all of the lamination, extrusion coating and slitting activities in our Lake Barrington, Illinois plant and produce all of our latex balloon products at our Guadalajara, Mexico plant. We print films in Lake Barrington, Illinois and we print latex balloons in Guadalajara, Mexico.

We warehouse raw materials at our plants in Lake Barrington, Illinois and Guadalajara, Mexico and we warehouse finished goods at our facilities in Lake Barrington, Illinois; Elgin, Illinois; Guadalajara, Mexico; Rugby, England and Heusenstamm, Germany. We maintain customer service and fulfillment operations at each of our warehouse locations. We conduct sales operations for the United States and for all other markets, except those handled by our Mexico, Germany and England facilities, at the Lake Barrington, Illinois facility. Sales for Mexico and Latin America are handled at our Guadalajara, Mexico facility; sales for the United Kingdom are handled at our Rugby, England facility; sales for Europe are conducted from our facility in Heusenstamm, Germany.

We maintain a graphic arts and development department at our Lake Barrington, Illinois facility which designs our balloon products and graphics. Our creative department operates a networked, computerized graphic arts system for the production of these designs and of printed materials including catalogues, advertisements and other promotional materials.

We conduct administrative and accounting functions at our headquarters in Lake Barrington, Illinois and at our facilities in Guadalajara, Mexico and Rugby, England.

Raw Materials

The principal raw materials we use in manufacturing our products are (i) petroleum or natural gas-based films, (ii) petroleum or natural gas-based resin, (iii) latex, and (iv) printing inks. The cost of raw materials represents a significant portion of the total cost of our products, with the result that fluctuations in the cost of raw materials has a material effect on our profitability. The cost of our raw materials represented approximately 47% of our net revenues in 2011 compared to 45% in 2010. During the past several years, we have experienced significant fluctuations in the cost of these raw materials. We do not have any long-term agreements for the supply of raw materials and may experience wide fluctuations in the cost of raw materials in the future. Further, although we have been able to obtain adequate supplies of raw materials in the past, there can be no assurance that we will be able to obtain adequate supplies of one or more of our raw materials in the future.

A principal raw material for our latex balloon is natural latex. During the latter part of 2010 and into 2011, the price of natural latex increased substantially from a low in the first quarter 2010 of approximately $2.99 per kilo to a high in the first half of 2011 to approximately $5.64 per kilo. We were unable to increase the selling price of our latex balloons sufficiently to reflect this increase in the cost of latex and, as a result, during much of 2011, our margins on the sale of latex balloons decreased. The price of natural latex has declined in the second half of 2011. However, the price of natural latex remains volatile and we may not be able to increase the selling price of our latex balloon products in the future to offset fully increases in the cost of natural latex.

Many of the foil balloons we produce and sell are intended to be filled with helium in order to be buoyant. Over the past year, the price of helium has increased substantially and the availability of helium has declined. The increase in the price of helium and its lack of availability may adversely affect our sales of foil balloons.

Information Technology Systems

Our corporate headquarters in Lake Barrington, Illinois and our warehouse facility in Elgin, Illinois are serviced by a PC-based local area network. We connect the facilities via a high speed T1 line that carries both voice and data communications. Access to the network is available to all appropriate employees but is secured through four Microsoft servers running Active Directory authentication. The network allows us to leverage printing resources, create shared file areas for cross-departmental functions and allows for a single source backup of critical business files. On the network we run Macola financial system software. Macola is a modular software system. We presently use the general ledger, order entry, inventory management, purchase order, manufacturing costing, controls and inventory controls, electronic data exchange and custom report writing modules of that system. Internal and external employee communications are handled by industry standard Microsoft Exchange email, allowing us to communicate with customers and vendors all over the world. We also provide a secure, firewall protected, load balanced and redundant T1 and cable internet connection allowing employees to use e-mail, research issues, support customers and securely move data.

At each of our Mexico, England and Germany facilities, we operate server computers and local area networks, accessible to employees at those facilities. At each of those facilities, we operate separate integrated financial, order entry and inventory management systems.

Competition

The balloon and novelty industry is highly competitive, with numerous competitors. We believe there are presently six principal manufacturers of foil balloons whose products are sold in the United States including Anagram International, Inc., Pioneer Balloon Company, Convertidora International S.A. de C.V., Barton Enterprises Inc., and Betallic, LLC. Several companies market and sell foil balloons designed by them and manufactured by others for them.

We believe there are approximately five manufacturers of latex balloons whose products are sold in the United States and numerous others whose products are sold in other countries.

We also compete with other manufacturers of foil and latex balloons in Europe, Latin America and Asia.

The market for films, packaging, flexible containers and custom products is fragmented, and competition in this area is difficult to gauge. However, there are numerous participants in this market and the Company can expect to experience intense quality and price competition.

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

Patents, Trademarks and Copyrights

We have developed or acquired a number of intellectual property rights which we believe are significant to our business.

Copyright Licenses. We maintain licenses on certain popular characters and designs for our balloon products. We presently maintain a number of licenses and produce balloon designs utilizing the characters or designs covered by the licenses. Licenses are generally maintained for a one or two-year term, although the Company has maintained long term relationships with several of its licensors.

Trademarks. We own 9 registered trademarks in the United States relating to our balloon products. Many of these trademarks are registered in foreign countries, principally in the European Union.

Patent Rights. We own, or have license rights under, or have applied for, patents related to our balloon products, certain film products and certain flexible container products. These include (i) ownership of two patents, relating to self-sealing valves for foil balloons and methods of making balloons with such valves, (ii) several foil balloon design patents, (iii) patents and applications related to the design and structure of, and method of, inserting and affixing, zipper-closure systems in a bag, (iv) patents related to one-way valves for pouches, (v) a patent related to methods of embossing film and utilizing such film to produce pouches with fitments, and (vi) patent applications related to vacuumable storage bags with fitments.

Research and Development

We maintain a product development and research department of seven individuals for the development or identification of new products, product components and sources of supply. Research and development includes (i) creative product development, (ii) creative marketing, and (iii) engineering development. During each of the fiscal years ended December 31, 2011 and 2010, we estimate that the total amount spent on research and development activities was approximately $728,000 and $443,000, respectively.

Employees

As of December 31, 2011, the Company had 152 full-time employees in the United States, of whom 20 are executive or supervisory, 5 are in sales, 104 are in manufacturing or warehouse functions and 17 are clerical. As of that same date, we had 18 full-time employees in England, of whom 3 are executive or supervisory, 3 are in sales, 10 are in warehousing and 2 are clerical. At Flexo Universal, our Mexico subsidiary, as of December 31, 2011, we had 299 full-time employees, of whom 4 are executive or supervisory, 3 are in sales, 270 are in manufacturing and 22 are clerical. As of December 31, 2011, the Company had 3 full-time employees in Germany, of whom one is executive or supervisory, one is in warehousing and one is clerical. The Company is not a party to any collective bargaining agreement in the United States, has not experienced any work stoppages and believes that its relationship with its employees is satisfactory.

Regulatory Matters

Our manufacturing operations in the United States are subject to the U.S. Occupational Safety and Health Act ("OSHA"). We believe we are in material compliance with OSHA. The Company generates liquid, gaseous and solid waste materials in its operations in Lake Barrington, Illinois and the generation, emission or disposal of such waste materials are, or may be, subject to various federal, state and local laws and regulations regarding the generation, emission or disposal of waste materials. We believe we are in material compliance with applicable environmental rules and regulations. Several states have enacted laws limiting or restricting the release of helium filled foil balloons. We do not believe such legislation will have any material effect on our operations.

International Operations

We sell balloon products in a number of countries outside of the United States. Our facility and personnel in Rugby, England handle the sales of these products in the United Kingdom. Our facility and personnel in Guadalajara, Mexico handle the sales of these products in Mexico and Latin America. In January 2010, we commenced the sale of novelty products in Europe through a facility in Heusenstamm, Germany. In other countries, we sell balloon products through distributors located in those countries. We conduct production, packaging, warehousing and sales operations in Mexico. We conduct warehousing and sales operations in the United Kingdom and Germany. We rely, and are dependent, on our operations in Mexico for the supply of latex balloons in the United States, Mexico, Europe and other markets. Interruption of that supply would have a materially adverse effect on the business of the Company.

Our domestic and international sales to outside customers and assets by area over the period 2010-2011 have been as follows:

	United States		United Kingdom (UK)		Europe (Excluding UK)		Mexico		Consolidated
Year ended 12/31/11
Sales to outside customers	$	34,657,000	$	1,838,000	$	376,000	$	10,300,000	$	47,171,000
Total Assets	$	25,302,000	$	734,000	$	464,000	$	7,116,000	$	33,616,000

		United States		United Kingdom (UK)		Europe (Excluding UK)		Mexico		Consolidated
Year ended 12/31/10
Sales to outside customers	$	36,721,000	$	2,387,000	$	108,000	$	8,532,000	$	47,748,000
Total Assets	$	24,711,000	$	977,000	$	220,000	$	6,953,000	$	32,861,000

Item No. 1B – Unresolved Staff Comments

As of the filing of this Annual report on Form 10-K, we had no unresolved comments from the staff of the Securities and Exchange Commission that were received not less than 180 days before the end of our 2011 fiscal year.

Item No. 2 – Properties

We own our principal plant and offices located in Lake Barrington, Illinois, approximately 45 miles northwest of Chicago, Illinois. The facility includes approximately 75,000 square feet of office, manufacturing and warehouse space. This facility is subject to a mortgage loan with an initial principal of $2,300,000, having a term of 3 years, with payments amortized over 25 years.

In October 2011, we entered into a lease agreement, expiring on December 31, 2012, to rent approximately 30,000 square feet of warehouse space in Elgin, Illinois at a cost of $20,000 per month.

In December 2011, CTI Balloons, Ltd. entered into a 3-year lease agreement for approximately 9,000 square feet of office and warehouse space in Rugby, England at a cost of $5,000 per month. This facility is utilized to warehouse balloon products and to manage and service the Company's operations in England.

In August 2011, Flexo Universal entered into a 5-year lease agreement, expiring July 31, 2016, for the lease of approximately 73,000 square feet of manufacturing, warehouse and office space in Guadalajara, Mexico at a cost of $30,000 per month.

In September 2010, CTI Europe GmbH entered into a 3-year lease agreement for a facility located in Heusenstamm, Germany located approximately 15 miles from Frankfurt International Airport. The facility includes approximately 3,000 square feet of office and warehouse space at a cost of $2,000 per month.

We believe that our properties have been adequately maintained, are in generally good condition and are suitable for our business as presently conducted. We believe our existing facilities provide sufficient production capacity for our present needs and for our presently anticipated needs in the foreseeable future. We also believe that, with respect to leased properties, upon the expiration of our current leases, we will be able to either secure renewal terms or to enter into leases for alternative locations at market terms.

Item No. 3 – Legal Proceedings

The Company may be party to certain lawsuits or claims 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, cash flows or future results of operation.

PART II

Item No. 5 – Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company's Common Stock was admitted to trading on the NASDAQ SmallCap Market (now the NASDAQ Capital Market) under the symbol CTIB on November 5, 1997.

The high and low sales prices for the last eight fiscal quarters according to the NASDAQ Stock Market's Stock Price History Report, were:

	High		Low
January 1, 2010 to March 31, 2010	$	4.70	$	2.26
April 1, 2010 to June 30, 2010		7.60		2.77
July 1, 2010 to September 30, 2010		9.05		4.87
October 1, 2010 to December 31, 2010		9.75		5.03
January 1, 2011 to March 31, 2011		6.90		4.75
April 1, 2011 to June 30, 2011		5.98		4.33
July 1, 2011 to September 30, 2011		5.50		3.31
October 1, 2011 to December 31, 2011		5.72		3.80

As of December 31, 2011 there were approximately 43 holders of record of the Company’s Common Stock. The Company believes that its total number of beneficial owners of common stock of the Company exceeds 670.

During 2011, the Company declared and paid dividends of five cents ($0.05) per share on the Company’s outstanding common stock to shareholders of record on July 18, 2011. The total amount of the dividends paid on July 28, 2011 was $158,000. Under the terms of its current loan agreement, the amount of dividends the Company may pay is limited by the terms of the financial covenants our Credit Agreement with Harris N.A.

Sales of Unregistered Securities

On February 1, 2006, two principal officers and shareholders of our Company each loaned to our Company the sum of $500,000 in exchange for (i) Promissory Notes due on demand and bearing interest at the rate of 2% per annum in excess of the prime rate determined quarterly and (ii) five year Warrants to purchase up to 151,515 shares of common stock of the Company at the price of $3.30 per share (110% of the closing market price on the day preceding the date of the loans). On May 28, 2010, each of these officer/shareholders exercised the Warrants to purchase 151,515 shares each of common stock of the Company in exchange for cancellation of indebtedness of the Company to them in the amount of the purchase price for the shares.

On October 1, 2008, the Company issued warrants to two principal officers and shareholders of the Company to purchase up to 20,000 shares each of common stock of the Company at the price of $4.80 per share (the market price of the common stock on the date of the issuance of the warrants) in consideration of the personal guarantees by each of up to $2 million in principal amount of the bank debt of the Company. On May 28, 2010, these warrants were exercised and the shares issued.

In separate transactions, on December 29, 2011, John Schwan and Stephen Merrick purchased 42,105 and 21,053 shares, respectively, of common stock of the Company at $4.75 per share. The closing price of the stock that day on the NASDAQ Capital Market was $4.44 per share. Both of Mr. Schwan and Mr. Merrick are officers, directors and principal shareholders of the Company.

An exemption from registration for each of such issuances of shares of common stock of the Company is claimed under Section 4(2) of the Securities Act of 1933 by reason of the facts that such shares were purchased by sophisticated investors who are officers of the Company, such shares were purchased for investment and not with a view to the resale or distribution thereof and transfer of such shares is restricted.

Item No. 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company produces film products for novelty, packaging and container and custom product applications. These products include foil balloons, latex balloons and related latex toy products, films for packaging applications, flexible containers for packaging and storage applications and custom film products. We produce all of our film products for packaging and container applications at our facilities in Lake Barrington, Illinois. We produce all of our latex balloons and latex products at our facility in Guadalajara, Mexico. Substantially all of our film products for packaging applications and flexible containers for packaging and storage are sold to customers in the United States. We market and sell our novelty items – principally foil balloons and latex balloons – in the United States, Mexico, the United Kingdom and a number of additional countries.

Our revenues from each of our product categories in each of the past two years have been as follows:

	(000 Omitted)
	$		% of		$		% of
Product Category	2011		Net Sales		2010		Net Sales

Metalized Balloons		21,443		45.4%		21,915		45.9%

Film Products		6,259		13.3%		7,428		15.5%

Pouches		8,311		17.6%		8,676		18.2%

Latex Balloons		10,202		21.7%		8,589		18.0%

Other		956		2.0%		1,140		2.4%

Total		47,171		100.0%		47,748		100.0%

Our primary expenses include the cost of products sold and selling, general and administrative expenses.

Cost of products sold primarily consists of expenses related to raw materials, labor, quality control and overhead expenses such as supervisory labor, depreciation, utilities expense and facilities expense directly associated with production of our products, as well as shipping costs relating to the shipment of products to customers. Cost of products sold is impacted by the cost of the raw materials used in our products, the cost of shipping, along with our efficiency in managing the production of our products.

Selling, general and administrative expenses include the compensation and benefits paid to our employees, all other selling expenses, marketing, promotional expenses, travel and other corporate administrative expenses. These other corporate administrative expenses include professional fees, depreciation of equipment and facilities utilized in administration, occupancy costs, communication costs and other similar operating expenses. Selling, general and administrative expenses can be affected by a number of factors, including staffing levels and the cost of providing competitive salaries and benefits, the cost of regulatory compliance and other administrative costs.

Purchases by a limited number of customers represent a significant portion of our total revenues. In 2011, sales to our top 10 customers represented 70.9% of net revenues. During 2011, there were two customers to whom our sales represented more than 10% of net revenues. Our principal customers sales for 2011 and 2010 were:

Customer	Product	2011 Sales		% of 2011 Revenues		2010 Sales		% of 2010 Revenues

Dollar Tree Stores	Balloons		$13,584,000		28.8%		$13,722,000		28.7%
Rapak L.L.C	Films		$5,773,000		12.2%		$6,766,000		14.2%

The loss of one or more of these principal customers, or a significant reduction in purchases by one or more of them, could have a material adverse effect on our business.

Except as previously described (see page 9), we generally do not have agreements with our customers under which customers are obligated to purchase any specific or minimum amount of product from us.

Results of Operations

The following table sets forth selected results of our operations expressed as a percentage of net sales for the years ended December 31, 2011 and 2010. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.

	Year ended December 31,
	2011	2010

Net sales	100.0%	100.0%
Costs and expenses:
Cost of products sold	80.5	77.8
Operating Expenses	16.5	15.8

Income from operations	3.0	6.4
Interest expense	(1.7)	(2.0)
Other income	0.0	0.0

Income before income taxes	1.5	4.4
Provision for income taxes	0.7	0.7

Net profit	1.0%	3.7%

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net Sales

For the fiscal year ended December 31, 2011, consolidated net sales from the sale of all products were $47,171,000 compared to consolidated net sales of $47,748,000 for the year ended December 31, 2010, a decrease of 1.2%.

Sales of foil balloons were $21,915,000 in 2010 and $21,443,000 in 2011. Of our total foil balloon sales in 2011, $13,165,000 were to Dollar Tree. The remaining sales were made to over 500 customers including distributors and retail stores or chains in the United States, Mexico, the United Kingdom, Europe and Latin America. Sales to these other customers increased from $8,193,000 in 2010 to $8,278,000 in 2011.

Sales of film products decreased by 15.7% from $7,428,000 in 2010 to $6,259,000 in 2011. This decrease includes a decrease in sales to Rapak, L.L.C. of $993,000. In addition to Rapak, film sales included sales to 12 other customers including sales of a medical bag device.

Sales of pouch products decreased by 4.2% from $8,676,000 in 2010 to $8,311,000 in 2011. This decrease is attributable principally to a decrease in sales of our zippered vacuumable pouch products. Sales of our universal vacuumable pouch products increased during the year.

Sales of latex balloons increased by 18.8% from $8,589,000 in 2010 to $10,202,000 in 2011. The increase is attributable to an increase in latex sales to a variety of customers in the United States, Mexico, Latin America and Europe.

Cost of Sales

Cost of sales increased from 77.8% of sales in 2010 to 80.5% of sales in 2011. A mix of factors affected cost of goods including an increase in the cost of raw materials from 45% of sales in 2010 to 47% of sales in 2011. A significant factor in the increase was the increase in the price of raw material latex which we experienced in 2011. During 2010, our average price per kilo of latex was $3.73. During 2011, the average price was $5.07. We purchased 1,158,000 kilos of latex in 2011 so the increase in cost we incurred, over 2010 price levels was approximately $1,551,000. Other factors which affected gross margin in 2011 included (i) an increase in factory overhead of approximately 7.6%, and (ii) price increases of films and other raw materials of approximately 15%. We did increase the selling price of latex balloons and certain other items during 2011. However, the increases were not sufficient in time or amount to offset fully these increases in costs.

In the fourth quarter 2011, prices of certain raw materials, particularly latex, began to moderate and, in the fourth quarter, our cost of sales declined to 78.3% of fourth quarter sales.

General and Administrative Expenses

General and administrative expenses increased from $4,921,000 in 2010 or 10.3% of net sales to $5,279,000 or 11.2% of net sales in 2011. This increase is attributable to an increase in administrative expenses at our foreign subsidiaries including Flexo, CTI Balloons, and CTI Europe.

Operating expenses (including administrative, selling and advertising expenses) increased in the fourth quarter by $283,000 from $1,747,000 in the fourth quarter 2010 to $2,030,000 in the fourth quarter 2011. This increase included $72,000 in selling, advertising, and administrative expenses related to the project associated with the Trademark License agreement with SC Johnson, costs related to the initiation of new accounts, commission payouts, bonus accrual, and administrative expenses at Flexo Universal.

Selling

Selling expenses decreased from $915,000 or 1.9% of sales in 2010 to $911,000 or 1.9% of sales in 2011.

Advertising and Marketing

Advertising and marketing expenses decreased from $1,720,000 or 3.6% of sales in 2010 to $1,579,000 or 3.3% of sales in 2011.

Other Income or Expense

During 2011, we incurred net interest expense of $773,000 compared to net interest expense of $919,000 during 2010.

During 2011, we realized a foreign currency gain in the amount of $38,000 compared to foreign currency loss in 2010 of $31,000.

Net Income or Loss

During 2011, we had net income of $484,000 compared to net income of $1,827,000 in 2010. The decrease in income is attributable to the reduction of margin and the increase in administrative expenses. In 2010, the Company determined it was more likely than not that the Company would generate taxable income thus remaining valuation allowance on the deferred tax assets was eliminated. The effect was a reduction to income tax expense and therefore an increase in net income. Going forward, the Company expects to recognize a higher level of income tax expense for financial statement purposes.

Income Taxes

In 2011, the Company recognized income tax expense, on a consolidated basis, of $319,000. This income tax expense is composed of an income tax expense in the United States of $244,000, an income tax benefit realized by CTI Balloons, our United Kingdom subsidiary, in the amount of $54,000, an income tax benefit realized by CTI Europe, our Germany subsidiary, in the amount of $156,000 and an income tax expense by Flexo Universal, our Mexico subsidiary, in the amount of $285,000. In 2010, the Company recognized income tax expense, on a consolidated basis, of $343,000. This income tax expense is composed of an income tax expense in the United States of $166,000, an income tax benefit realized by CTI Balloons, our United Kingdom subsidiary, in the amount of $5,000, an income tax benefit realized by CTI Europe, our Germany subsidiary, in the amount of $73,000 and an income tax expense by Flexo Universal, our Mexico subsidiary, in the amount of $255,000. In 2010, in the United States, the Company did recognize income tax expense, representing the amount of the reduction in its deferred tax asset account arising from its U.S. income for the year, but will not be required to pay tax for 2010 or 2011 by reason of the balance of its tax loss carryforward account. During the fourth quarter 2010, the Company utilized the remainder of the reserve on its deferred tax asset. The amount of the valuation allowance realized in 2010 was $529,000.

Financial Condition, Liquidity and Capital Resources

Cash Flow Provided by Operating Activities During fiscal 2011, cash provided by operating activities amounted to $818,000, compared to cash flow provided by operating activities during fiscal 2010 of $3,216,000. Significant changes in working capital items affecting cash flow provided by operating activities were:

Depreciation and amortization of $1,804,000
An increase in net inventory of $3,300,000
A decrease in accounts receivable of $1,145,000
An increase in prepaid expenses and other assets of $753,000
A decrease in accrued liabilities of $1,151,000

We anticipate continued increases in inventory levels during 2012 as we produce and acquire inventory for our new vacuum machine and pouch project.

Cash Used in Investing Activities During fiscal 2011, cash used in investing activities amounted to $1,107,000 compared to cash used in investing activities during fiscal 2010 of $1,965,000. Cash used in investing activities was principally for maintenance expenditures and for the purchase of production equipment. Although we do not presently have any commitments for capital expenditures, we do anticipate that we will incur some level of capital expenditures in 2012 in excess of maintenance capital expenditure levels of approximately $500,000.

Cash Provided by Financing Activities During fiscal 2011, cash used in financing activities amounted to $135,000, compared to cash used in financing activities of $1,375,000 during fiscal 2010. During 2011, we repaid long-term debt of $506,000 and reduced by $208,000 the amount outstanding under our revolving line of credit.

On April 29, 2010, we entered into a Credit Agreement and associated documents with Harris N.A. (“Harris”) under which Harris agreed to extend to the Company a credit facility in the aggregate amount of $14,417,000. The facility includes (i) a Revolving Credit providing for maximum advances to the Company, and letters of credit, based upon the level of availability measured by levels of eligible receivables and inventory of the Company of $9,000,000, (ii) an Equipment Loan of up to $2,500,000 providing for loans for the purchase of equipment, (iii) a Mortgage Loan of $2,333,350, and (iv) a Term Loan in the amount of $583,333. The amount we can borrow on the Revolving Credit includes 85% of eligible accounts and 60% of eligible inventory (up to a maximum of $9,000,000). The Mortgage Loan is amortized over a term of 25 years. The maturity date of the facility is April 30, 2013.

On April 30, 2010, the loan transaction was closed and loan advances were made by Harris in the aggregate amount of $11,964,739 to pay off all loan balances and lease obligations of the Company with Charter One Bank, N.A. and RBS Asset Finance, Inc. The advances included $8,548,000 under the Revolving Credit and $500,000 under the Equipment Loan.

Certain terms of the loan agreement, as amended, include:

Restrictive Covenants : The Loan Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:

Borrow money;

Pay dividends and make distributions;

Make certain investments;

Use assets as security in other transactions;

Create liens;

Enter into affiliate transactions;

Merge or consolidate; or

Transfer and sell assets.

Financial Covenants : The Loan Agreement includes a series of financial covenants we are required to meet including:

We are required to maintain a tangible net worth (plus Subordinated Debt) in excess of $7,100,000 plus 50% of cumulative net income of the Company after January 1, 2010;

We are required to maintain specified ratios of senior debt to EBITDA on an annual basis and determined quarterly; and,

We are required to maintain a level of adjusted EBITDA to fixed charges on an annual basis determined quarterly of not less than 1.1 to 1. Adjusted EBITDA is EBITDA minus (i) taxes paid, (ii) dividends paid, (iii) payments for the purchase or redemption of stock, and (iv) unfunded capital expenditures.

As of December 31, 2011 the Company was in compliance with these financial covenants.

The loan agreement provides for interest at varying rates in excess of the prime rate, depending on the level of senior debt to EBITDA over time. The initial interest rate under the loan was 4.00% per annum. On a quarterly basis, this ratio will be measured and the interest rate changed in accordance to the table below.

When Senior Debt to EBITDA is:		The Premium to the Prime Rate is:
Greater than or equal to 3.25 to 1.00		1.25%
Greater than or equal to 2.25 to 1.00; Less than 3.25 to 1.00		0.75%
Less than or equal to 2.25 to 1.00		0.50%

At December 31, 2011 the Company was paying the premium of 0.75% over prime.

John H. Schwan and Stephen M. Merrick each, as officers, directors and principal shareholders of the Company have personally guaranteed the obligations of the Company to Harris up to $1,750,000.

On July 1, 2011, we entered into an interest rate swap agreement with BMO Capital Markets with respect to $6,780,000 of our loan balances with Harris. This swap agreement limits the Company’s exposure to interest rate fluctuations on the Company’s floating rate loans. The swap agreement has the effect of fixing the interest rate on the loan balances covered by the swap at 4.65% per annum. The swap agreement has not been designated as a hedge for accounting purposes and we determine and record the fair value of the swap agreement each quarter. This value is recorded on the balance sheet of the Company and the amount of the unrealized gain or loss for each period is recorded as interest income or expense on the statement of operations.

Current Assets. As of December 31, 2011, the total current assets of the Company were $23,301,000, compared to total current assets of $21,426,000 at December 31, 2010. The change in current assets reflects, principally, (i) an increase in net inventories of $2,970,000, (ii) a decrease in accounts receivable of $1,442,000, (iii) an increase in the net deferred income tax asset of $10,000, and (iv) an increase in prepaid expenses and other current assets of $761,000.

Current Liabilities . Total current liabilities decreased from $17,952,000 as of December 31, 2010 to $17,687,000 as of December 31, 2011. Accrued other liabilities includes $139,000 in payroll accruals. Changes in current liabilities included: (i) an increase of $2,052,000 in trade payables, (ii) a decrease of the line of credit of $928,000, and (iii) a decrease in accrued and other liabilities in the amount of $948,000.

Liquidity and Capital Resources ; Working Capital. As of December 31, 2011, our current assets exceeded our current liabilities by $5,612,000, we had cash and cash equivalents of $339,000 and there was available under our line of credit up to $2,106,000 in additional funds. While management believes that these available funds, our internally generated funds and the borrowing capacity under our revolving line of credit facility will be sufficient to meet working capital requirements for the remainder of 2012, the Company is presently negotiating for expanded credit facilities in order to support working capital requirements of anticipated sales growth and capital expenditures.

CTI Industries Corporation Stockholders’ Equity. Stockholders’ equity was $11,861,000 as of December 31, 2011 compared to $11,784,000 as of December 31, 2010.

Seasonality

In the foil product line, sales have historically been seasonal with approximately 40% occurring in the period from December through March of the succeeding year and 24% being generated in the period July through October in recent years. The sale of latex balloons, pouches and laminated film products have not historically been seasonal, and as sales in these products lines have increased as a percentage of total sales, the seasonality of the Company's total net sales has decreased.

Critical Accounting Policies

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

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

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

Inventory Valuation. Inventories are stated at the lower of cost or market. Cost is determined using standard costs which approximate costing determined on a first-in, first out basis. Standard costs are reviewed and adjusted at the time of introduction of a new product or design, periodically and at year-end based on actual direct and indirect production costs. On a periodic basis, the Company reviews its inventory levels for estimated obsolescence or unmarketable items, in reference to future demand requirements and shelf life of the products. As of December 31, 2011, the Company had established a reserve for obsolescence, marketability or excess quantities with respect to inventory in the aggregate amount of $384,000. As of December 31, 2010, the amount of the reserve was $376,000. In addition, on a periodic basis, the Company disposes of inventory deemed to be obsolete or unsaleable and, at such time, records an expense for the value of such inventory. We record freight income as a component of net sales and record freight costs as a component of cost of goods sold.

Valuation of Long-Lived Assets. We evaluate whether events or circumstances have occurred which indicate that the carrying amounts of long-lived assets (principally property and equipment and goodwill) may be impaired or not recoverable. Significant factors which may trigger an impairment review include: changes in business strategy, market conditions, the manner of use of an asset, underperformance relative to historical or expected future operating results, and negative industry or economic trends. We apply the provisions of GAAP USA under which goodwill is evaluated at least annually for impairment. We conducted a a qualitative assessment of our goodwill in our Mexico subsidiary for the year ended December 31, 2011 and 2010 and determined that, due to the substantial increase in raw materials: it is more likely than not that its fair value could be less than the carrying amount. We then performed a quantitative assessment in which we considered the assets and liabilities of the subsidiary, both recognized and unrecognized, as well as the cash flow necessary to operate the business relating to the assets and liabilities. From this quantitative assessment, we determined the fair value of the subsidiary exceeds the carrying amount initially recorded on December 31, 2006, and were therefore not impaired.

Foreign Currency Translation. All balance sheet accounts are translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts are translated using the average exchange rates for the year-to-date periods. The gains and losses resulting from the changes in exchange rates during the period have been reported in other comprehensive income or loss.

Stock-Based Compensation. We follow GAAP USA which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their grant-date fair values.

We use the Black-Scholes option pricing model to determine the fair value of stock options which requires us to estimate certain key assumptions. In accordance with the application of GAAP USA, we incurred employee stock-based compensation cost of $134,000 for the year ended December 31, 2011. At December 31, 2011, we had $197,000 of unrecognized compensation cost relating to stock options.

Income Taxes and Deferred Tax Assets. Income taxes are accounted for as prescribed in GAAP USA. Under the asset and liability method of GAAP USA, the Company recognizes the amount of income taxes currently payable. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years these temporary differences are expected to be recovered or settled.

As of December 31, 2011, the Company had a net deferred tax asset of $957,000 representing the amount the Company may recover in future years from future taxable income. As of December 31, 2010, the amount of the net deferred tax asset was $1,111,000. Each quarter and year-end, management makes a judgment to determine the extent to which the deferred tax asset will be recovered from future taxable income. Management reduced the valuation allowance related to the deferred tax asset to zero in 2010.

Fair Value Measurements

In September 2006, the FASB issued GAAP USA which defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. GAAP USA clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. GAAP USA also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based upon the best information available. In February 2008, the FASB issued guidance now codified in GAAP USA which provides for delayed application of certain guidance related to non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually).

In February 2007, the FASB issued GAAP USA which permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. GAAP USA was effective for us on January 1, 2008. We did not elect the fair value option for any assets or liabilities that were not previously carried at fair value. Accordingly, the adoption of GAAP USA had no impact on our consolidated financial statements.

In October 2008, the FASB issued clarification to GAAP USA which clarifies the application of GAAP USA in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. GAAP USA is effective for all periods presented. The adoption of GAAP USA did not have a significant impact on our consolidated financial statements.

Reclassifications and Adoption of New Accounting Pronouncements

As of January 1, 2009 we adopted a new generally accepted accounting principle related to noncontrolling interest in the consolidated financial statements that required retrospective application, in which all periods presented reflect the necessary changes.

Item No. 7A – Qualitative and Quantitative Disclosures Regarding Market Risk

Not applicable.

Item No. 8 – Financial Statements and Supplementary Data

Reference is made to the Consolidated Financial Statements contained in Part IV hereof.

Item No. 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item No. 9A – Controls and Procedures

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Exchange Act, we conducted an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011, the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated, as appropriate, to allow for timely decisions regarding required disclosure as of December 31, 2011. There were no material changes in our internal control over financial reporting during the fourth quarter of 2011 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of the management and the Board; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Company assets that could have a material effect on the financial statements.

Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operation effectiveness of controls and a conclusion on this evaluation. Although there are inherent limitations in the effectiveness of any system of internal controls over financial reporting, based on our evaluation, management has concluded our internal controls over financial reporting were effective as of December 31, 2011.

This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Item 9B – Other Information

None

PART III

Item No. 10 – Directors and Executive Officers of the Registrant

Information called for by Item 9 of Part III is incorporated by reference to the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders which is expected to be filed with the Commission within 120 days after December 31, 2011.

Item No. 11 – Executive Compensation

Information called for by Item 10 of Part III is incorporated by reference to the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders which is expected to be filed with the Commission within 120 days after December 31, 2011.

Item No. 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information called for by Item 11 of Part III is incorporated by reference to the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders which is expected to be filed with the Commission within 120 days after December 31, 2011.

Item No. 13 – Certain Relationships and Related Transactions

Information called for by Item 12 of Part III is incorporated by reference to the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders which is expected to be filed with the Commission within 120 days after December 31, 2011.

Item No. 14 – Principal Accountant Fees and Services

Information called for by Item 13 of Part III is incorporated by reference to the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders which is expected to be filed with the Commission within 120 days after December 31, 2011.

PART IV

Item No. 15 – Exhibits and Financial Statement Schedules

The Consolidated Financial Statements filed as part of this report on Form 10-K are listed on the accompanying Index to Consolidated Financial Statements and Consolidated Financial Statement Schedules.

Financial schedules required to be filed by Item 8 of this form, and by Item 15(d) below:

Schedule II Valuation and qualifying accounts

All other financial schedules are not required under the related instructions or are inapplicable and therefore have been omitted.

3. Exhibits:

Exhibit
Number	Document

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 the Commission on October 25, 1999)
3.2	By-Laws of CTI Industries Corporation (Incorporated by reference to Exhibit 3.2, contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997)
4.1	Form of CTI Industries Corporation’s common stock certificate (Incorporated by reference to Exhibit 4.1, contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997)
10.1	CTI Industries Corporation 1999 Stock Option Plan (Incorporated by reference to Appendix A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on March 26, 1999)
10.2	CTI Industries Corporation 2001 Stock Option Plan (Incorporated by reference to Appendix E contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on May 21, 2001)
10.3	CTI Industries Corporation 2002 Stock Option Plan (Incorporated by reference to Appendix A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on May 15, 2002)
10.4	CTI Industries Corporation 2007 Stock Incentive Plan (Incorporated by reference to Appendix A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on April 30, 2007)
10.5	CTI Industries Corporation 2009 Stock Incentive Plan (Incorporated by reference to Schedule A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on April 30, 2009)


10.6	Employment Agreement dated June 30, 1997, between CTI Industries Corporation and Howard W. Schwan (Incorporated by reference to Exhibit 10.9, contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997)
10.7	License Agreement between Rapak, LLC and the Company dated April 28, 2006 (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Report on Form 8-K dated May 3, 2006)
10.8	Supply and License Agreement among Registrant and S.C. Johnson & Son, Inc. dated February 1, 2008 (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Report on Form 8-K/A dated March 19, 2008)
10.9	Amendment to the License Agreement between Rapak, LLC and the Company dated May 6, 2008 (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Report on Form 8-K dated May 8, 2008)
10.10	Credit Agreement between Harris N.A. and CTI Industries Corporation dated April 29, 2010 (Incorporated by reference to Exhibit 10.2 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.11	Mortgage and Security Agreement between Harris N.A. and the Company dated April 29, 2010 (Incorporated by reference to Exhibit 10.3 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.12	Security Agreement between Harris N.A. and the Company dated April 29, 2010 (Incorporated by reference to Exhibit 10.4 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.13	Pledge Agreement between Harris N.A. and the Company dated April 29, 2010 (Incorporated by reference to Exhibit 10.5 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.14	Trademark License Agreement between S.C. Johnson & Son, Inc. and CTI Industries Corporation dated December 14, 2011.
14	Code of Ethics (Incorporated by reference to Exhibit contained in the Registrant’s Form 10-K/A Amendment No. 2, as filed with the Commission on October 8, 2004)
21	Subsidiaries (description incorporated in Form 10-K under Item No. 1)
23.1	Consent of Independent Registered Public Accounting Firm, Blackman Kallick, LLP
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith)


32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

(a)

The Exhibits listed in subparagraph (a)(3) of this Item 15 are attached hereto unless incorporated by reference to a previous filing.

(b)

The Schedule listed in subparagraph (a)(2) of this Item 15 is attached hereto.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 29, 2012.

	CTI INDUSTRIES CORPORATION
	By:	/s/ Howard W. Schwan
		Howard W. Schwan, President

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

Signatures	Title	Date

/s/ Howard W. Schwan Howard W. Schwan	President and Director	March 29, 2012

/s/ John H. Schwan John H. Schwan	Chairman and Director	March 29, 2012

/s/ Stephen M. Merrick Stephen M. Merrick	Executive Vice President, Secretary, Chief Financial Officer and Director	March 29, 2012

/s/ Timothy S. Patterson Timothy S. Patterson	Controller, Vice President of Finance Administration	March 29, 2012

/s/ Stanley M. Brown Stanley M. Brown	Director	March 29, 2012

/s/ Bret Tayne Bret Tayne	Director	March 29, 2012

/s/ John I. Collins John I. Collins	Director	March 29, 2012

/s/ Phil Roos Phil Roos	Director	March 29, 2012

EXHIBIT INDEX

Exhibit
Number	Document

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 the Commission on October 25, 1999)
3.2	By-Laws of CTI Industries Corporation (Incorporated by reference to Exhibit 3.2, contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997)
4.1	Form of CTI Industries Corporation’s common stock certificate (Incorporated by reference to Exhibit 4.1, contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997)
10.1	CTI Industries Corporation 1999 Stock Option Plan (Incorporated by reference to Appendix A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on March 26, 1999)
10.2	CTI Industries Corporation 2001 Stock Option Plan (Incorporated by reference to Appendix E contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on May 21, 2001)
10.3	CTI Industries Corporation 2002 Stock Option Plan (Incorporated by reference to Appendix A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on May 15, 2002)
10.4	CTI Industries Corporation 2007 Stock Incentive Plan (Incorporated by reference to Appendix A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on April 30, 2007)
10.5	CTI Industries Corporation 2009 Stock Incentive Plan (Incorporated by reference to Schedule A contained in Registrant’s Schedule 14A Definitive Proxy Statement, as filed with the Commission on April 30, 2009)
10.6	Employment Agreement dated June 30, 1997, between CTI Industries Corporation and Howard W. Schwan (Incorporated by reference to Exhibit 10.9, contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997)
10.7	License Agreement between Rapak, LLC and the Company dated April 28, 2006 (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Report on Form 8-K dated May 3, 2006)


10.8	Supply and License Agreement among Registrant and S.C. Johnson & Son, Inc. dated February 1, 2008 (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Report on Form 8-K/A dated March 19, 2008)
10.9	Amendment to the License Agreement between Rapak, LLC and the Company dated May 6, 2008 (Incorporated by reference to Exhibit 10.1 contained in Registrant’s Report on Form 8-K dated May 8, 2008)
10.10	Credit Agreement between Harris N.A. and CTI Industries Corporation dated April 29, 2010 (Incorporated by reference to Exhibit 10.2 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.11	Mortgage and Security Agreement between Harris N.A. and the Company dated April 29, 2010 (Incorporated by reference to Exhibit 10.3 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.12	Security Agreement between Harris N.A. and the Company dated April 29, 2010 (Incorporated by reference to Exhibit 10.4 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.13	Pledge Agreement between Harris N.A. and the Company dated April 29, 2010 (Incorporated by reference to Exhibit 10.5 contained in Registrant’s Report on Form 10-Q dated May 14, 2010)
10.14	Trademark License Agreement between S.C. Johnson & Son, Inc. and CTI Industries Corporation dated December 14, 2011.
14	Code of Ethics (Incorporated by reference to Exhibit 14 contained in the Registrant’s Form 10-K/A Amendment No. 2, as filed with the Commission on October 8, 2004)
21	Subsidiaries (description incorporated in Form 10-K under Item No. 1)
23.1	Consent of Independent Registered Public Accounting Firm, Blackman Kallick, LLP
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith)
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended (filed herewith)
32	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

CTI Industries Corporation

and Subsidiaries

Consolidated Financial Statements

Years ended December 31, 2011 and 2010

Contents

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2011 and 2010	F-2
Consolidated Statements of Income for the years ended December 31, 2011 and 2010	F-3
Consolidated Statements of Stockholders’ Equity and Comprehensive (Loss) Income for the years ended December 31, 2011 and 2010	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010	F-5
Notes to Consolidated Financial Statements for the years ended December 31, 2011 and 2010	F-6

Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts for the years ended December 31, 2011 and 2010	F-31

All other schedules for which a provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

CTI Industries Corporation

We have audited the accompanying consolidated balance sheets of CTI Industries Corporation and Subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’ equity and comprehensive (loss) income and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at item 15(a). These consolidated financial statements and consolidated schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CTI Industries Corporation and Subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ Blackman Kallick, LLP

Chicago, Illinois

March 29, 2012

F- 1

CTI Industries Corporation and Subsidiaries

Consolidated Balance Sheets

	December 31, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents (VIE $11,000 and $38,000, respectively)	$	338,523		$	761,874
Accounts receivable, (less allowance for doubtful accounts of $70,000 and $59,000 respectively)		7,091,194			8,533,626
Inventories, net		13,338,317			10,368,037
Net deferred income tax asset		760,241			750,485
Prepaid expenses (VIE $10,000 and $0, respectively)		1,345,223			582,025
Other current assets (VIE $83,000 and $0, respectively)		427,471			430,042

Total current assets		23,300,969			21,426,089

Property, plant and equipment:
Machinery and equipment		24,333,989			22,900,460
Building		3,329,174			3,260,201
Office furniture and equipment		3,022,719			2,718,425
Intellectual property		432,070			345,092
Land		250,000			250,000
Leasehold improvements		415,663			443,630
Fixtures and equipment at customer locations		2,629,902			2,629,902
Projects under construction (VIE $0 and $587,000, respectively)		502,021			1,601,682
		34,915,538			34,149,392
Less : accumulated depreciation and amortization		(26,071,629	)		(24,489,624	)

Total property, plant and equipment, net		8,843,909			9,659,768

Other assets:
Deferred financing costs, net		42,986			63,634
Goodwill		1,033,077			1,033,077
Net deferred income tax asset		197,243			360,830
Other assets (due from related party $79,000 and $213,000, respectively)		197,338			317,990

Total other assets		1,470,644			1,775,531

TOTAL ASSETS	$	33,615,522		$	32,861,388

LIABILITIES AND EQUITY
Current liabilities:
Checks written in excess of bank balance	$	154,501		$	692,141
Trade payables (VIE $0 and $58,000, respectively)		6,359,757			4,307,358
Line of credit (VIE $0 and $700,000, respectively)		7,298,363			8,225,900
Notes payable - current portion (VIE $91,000 and $0, respectively)		362,927			276,667
Notes payable - officers, current portion, net of debt discount of $0 and $5,000		1,424,923			1,410,807
Capital lease - current portion		2,559			5,117
Notes Payable Affiliates - current portion		6,718			6,754
Accrued liabilities		2,079,246			3,027,298

Total current liabilities		17,688,994			17,952,042

Long-term liabilities:
Notes Payable - Affiliates		134,919			155,648
Notes payable, net of current portion (VIE $687,000 and $0, respectively)		3,932,032			2,611,127
Capital Lease		426			2,559
Notes payable - officers, subordinated		103,656			360,351
Total long-term liabilities		4,171,033			3,129,685

Equity:
CTI Industries Corporation stockholders' equity:
Preferred Stock -- no par value 2,000,000 shares authorized
0 shares issued and outstanding		-			-
Common stock - no par value, 5,000,000 shares authorized,
3,276,633 and 3,209,475 shares issued and 3,137,348 and 2,808,720
outstanding, respectively		13,704,890			13,394,940
Paid-in-capital		950,968			817,138
Accumulated deficit		(368,122	)		(693,651	)
Accumulated other comprehensive loss		(2,285,679	)		(1,592,798	)
Less: Treasury stock, 72,127 shares		(141,289	)		(141,289	)

Total CTI Industries Corporation stockholders' equity		11,860,768			11,784,340

Noncontrolling interest		(105,273	)		(4,679	)

Total Equity		11,755,495			11,779,661

TOTAL LIABILITIES AND EQUITY	$	33,615,522		$	32,861,388

ee accompanying notes to consolidated financial statements

F- 2

CTI Industries Corporation and Subsidiaries

Consolidated Statements of Operations

	For the Year Ended December 31,
	2011			2010

Net Sales	$	47,171,498		$	47,747,611

Cost of Sales		37,965,245			37,145,439

Gross profit		9,206,253			10,602,172

Operating expenses:
General and administrative		5,278,507			4,921,457
Selling		910,882			914,698
Advertising and marketing		1,579,162			1,719,509

Total operating expenses		7,768,551			7,555,664

Income from operations		1,437,702			3,046,508

Other (expense) income:
Interest expense		(794,152	)		(936,769	)
Interest income		21,041			17,599
Foreign currency gain (loss)		38,169			(31,382	)

Total other expense, net		(734,942	)		(950,552	)

Income before taxes		702,760			2,095,956

Income tax expense		319,444			342,688

Net Income		383,316			1,753,268

Less: Net loss attributable to noncontrolling interest		(100,594	)		(74,250	)

Net income attributable to CTI Industries Corporation	$	483,910		$	1,827,518

Other Comprehensive Income
Unrealized gain on derivative instruments	$	-		$	188,615
Foreign currency adjustment		(692,881	)		22,029
Comprehensive (loss) income attributable to CTI Industries Corporation	$	(208,971	)	$	2,038,162

Basic income per common share	$	0.15		$	0.61

Diluted income per common share	$	0.15		$	0.60

Weighted average number of shares and equivalent shares
of common stock outstanding:
Basic		3,138,958			2,981,188

Diluted		3,181,102			3,039,442

See accompanying notes to consolidated financial statements

F- 3

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity and Comprehensive (Loss) Income

	CTI Industries Corporation
										Value of warrants						Accumulated
										issued in						Other			Less
	Common Stock						Paid-in			connection with			Accumulated			Comprehensive			Treasury Stock						Noncontrolling
	Shares			Amount			Capital			subordinated debt			Deficit			Loss			Shares			Amount			Interest			TOTAL
Balance, December 31, 2009		2,808,720		$	3,764,020		$	8,693,946		$	443,313		$	(2,206,728	)	$	(1,803,442	)		(70,657	)	$	(128,446	)		16,558		$	8,779,221

Adjustment to Paid-in-Capital for no-par shares				$	8,007,819		$	(8,007,819	)																			$	-

Compensation relating to Option Issuance							$	71,992																				$	71,992

Compensation relating to Stock Grants		14,250					$	59,019																				$	59,019

Options Exercised		76,989		$	215,526																							$	215,526

Stock exchanged for cashless exercise of options		(10,723	)	$	(62,730	)														(1,470	)	$	(12,843	)				$	(75,573	)

Warrants Exercised		343,030		$	1,191,999																							$	1,191,999

Stock exchanged for cashless exercise of warrants		(22,791	)	$	(165,007	)																						$	(165,007	)

Reclass value of warrants exercised in connection with subordinated debt				$	443,313					$	(443,313	)																$	-

Dividends Declared													$	(314,441	)													$	(314,441	)

Net Income													$	1,827,518											$	(74,250	)	$	1,753,268

Noncontrolling interest in subsidiary																									$	53,013		$	53,013

Other comprehensive income, net of taxes
Adjustment to accumulated balance on swap termination																$	188,615											$	188,615
Foreign currency translation																$	22,029											$	22,029
Total comprehensive income																												$	1,963,912

Balance, December 31, 2010		3,209,475		$	13,394,940		$	817,138		$	-		$	(693,651	)	$	(1,592,798	)		(72,127	)	$	(141,289	)	$	(4,679	)	$	11,779,661


Stock Purchase		63,158		$	300,000																							$	300,000

Compensation relating to Option Issuance							$	133,830																				$	133,830

Options Exercised		4,000		$	9,950																							$	9,950

Dividends Declared													$	(158,381	)													$	(158,381	)

Net Income													$	483,910											$	(100,594	)	$	383,316

Other comprehensive income, net of taxes
Foreign currency translation																$	(692,881	)										$	(692,881	)
Total comprehensive income																												$	(309,565	)

Balance, December 31, 2011		3,276,633		$	13,704,890		$	950,968		$	-		$	(368,122	)	$	(2,283,682	)		(72,127	)	$	(141,289	)	$	(105,273	)	$	11,755,495

F- 4

CTI Industries Corporation and Subsidiaries
Consolidated Statements of Cash Flows

	For the Year Ended December 31,
	2011			2010

Cash flows from operating activities:
Net income	$	383,316		$	1,753,268
Adjustment to reconcile net income to cash
provided by operating activities:
Depreciation and amortization		1,804,049			1,909,497
Amortization of debt discount		5,042			90,994
Change in value of swap agreement		158,090			-
Stock based compensation		133,830			131,010
Provision for losses on accounts receivable		20,714			8,219
Provision for losses on inventories		8,032			41,742
Deferred income taxes		153,830			(43,104	)
Change in assets and liabilities:
Accounts receivable		1,144,953			(1,092,959	)
Inventories		(3,308,400	)		(626,056	)
Prepaid expenses and other assets		(753,267	)		(336,137	)
Trade payables		2,218,733			1,099,336
Accrued liabilities		(1,150,949	)		279,854

Net cash provided by operating activities		817,973			3,215,664


Cash flows from investing activities - purchases of property, plant and equipment		(1,106,907	)		(2,007,286	)
Cash received from investment in subsidiary		-			42,299

Net cash used in investing activities		(1,106,907	)		(1,964,987	)

Cash flows from financing activities:
Change in checks written in excess of bank balance		(535,524	)		(44,012	)
Net change in revolving line of credit		(208,251	)		(72,771	)
Repayment of long-term debt (related parties $268,000 and $432,000)		(506,272	)		(1,721,084	)
Proceeds from issuance of debt		970,523			726,965
Proceeds from exercise of stock options and warrants		9,950			139,947
Proceeds from issuance of stock, net		300,000			-
Dividends paid		(158,381	)		(314,441	)
Cash paid for deferred financing fees		(7,510	)		(90,066	)

Net cash used in financing activities		(135,465	)		(1,375,462	)

Effect of exchange rate changes on cash		1,048			16,213

Net decrease in cash and cash equivalents		(423,351	)		(108,572	)

Cash and cash equivalents at beginning of year		761,874			870,446

Cash and cash equivalents at end of year	$	338,523		$	761,874


Supplemental disclosure of cash flow information:
Cash payments for interest	$	767,965		$	855,738

Cash payments for taxes	$	42,250		$	116,054

Supplemental Disclosure of non-cash investing and financing activity
Exercise of Warrants and payment of Subordinated Debt	$	-		$	1,027,000

Exercise of Options and Warrants by Surrender of Shares	$	-		$	240,579

Property, Plant & Equipment acquisitions funded by liabilities	$	49,248		$	35,020

Inventory used as investment in subsidiary	$	-		$	101,400

Reclassification of Line of Credit to Long-Term Debt	$	700,000		$	-

See accompanying notes to consolidated financial statements

F- 5

Notes to Consolidated Financial Statements Years Ended

December 31, 2011 and 2010

1. Nature of Business

Nature of Operations

CTI Industries Corporation, its United Kingdom subsidiary (CTI Balloons Limited), its Mexican subsidiaries (Flexo Universal, S.A. de C.V., CTI Mexico Corporation, S.A. de C.V. and CTF International S.A. de C.V.), its German subsidiary (CTI Europe GmbH) and CTI Helium, Inc. (collectively, the “Company”) (i) design, manufacture and distribute metalized and latex balloon products throughout the world and (ii) operate systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CTI Industries Corporation, its wholly owned subsidiaries CTI Balloons Limited, CTF International S.A. de C.V., and CTI Helium, Inc. and its majority owned subsidiaries, Flexo Universal, CTI Mexico Corporation and CTI Europe, as well as the accounts of Venture Leasing S. A. de R. L. and Venture Leasing L.L.C. The last two entities have been consolidated as variable interest entities. All significant intercompany accounts and transactions have been eliminated upon consolidation.

Variable Interest Entities

The determination of whether or not to consolidate a variable interest entity under U.S. GAAP requires a significant amount of judgment concerning the degree of control over an entity by its holders of variable interest. To make these judgments, management has conducted an analysis of the relationship of the holders of variable interest to each other, the design of the entity, the expected operations of the entity, which holder of variable interests is most “closely associated” to the entity and which holder of variable interests is the primary beneficiary required to consolidate the entity. Upon the occurrence of certain events, management reviews and reconsiders its previous conclusion regarding the status of an entity as a variable interest entity. Upon the adoption of amended accounting guidance applicable to variable interest entities on January 1, 2010, management continually reconsiders whether we are deemed to be a variable interest entity’s primary beneficiary who consolidates such entity. The Company has two entities that have been consolidated as variable interest entities.

F- 6

Foreign Currency Translation

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

Use of Estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the amounts reported of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period in the financial statements and accompanying notes. Actual results may differ from those estimates. The Company’s significant estimates include valuation allowances for doubtful accounts, lower of cost or market of inventory, deferred tax assets, and recovery value of goodwill.

Cash and Cash Equivalents

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

Accounts Receivable

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

Inventories

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

F- 7

Production costs of work in process and finished goods include material, labor and overhead. Work in process and finished goods are not recorded in excess of net realizable value.

Property, Plant and Equipment

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

Building	25 - 30 years
Machinery and equipment	3 - 15 years
Projects that prolong the life and increase efficiency of machinery	3 - 5 years
Light Machinery	5 - 10 years
Heavy Machinery	10 - 15 years
Office furniture and equipment	5 - 8 years
Leasehold improvements	5 - 8 years
Furniture and equipment at customer locations	1 - 3 years

Light machinery consists of forklifts, scissor lifts, and other warehouse machinery. Heavy machinery consists of production equipment including laminating, printing and converting equipment. Projects in process represent those costs capitalized in connection with construction of new assets and/or improvements to existing assets including a factor for interest on funds committed to projects in process of $25,000 and $17,000 for the years ended December 31, 2011 and 2010, respectively. Upon completion, these costs are reclassified to the appropriate asset class.

Stock-Based Compensation

The Company has stock-based incentive plans which may grant stock option, restricted stock, and unrestricted stock awards. The Company recognizes stock-based compensation expense based on the grant date fair value of the award and the related vesting terms. The fair value of stock-based awards is determined using the Black-Scholes model, which incorporates assumptions regarding the risk-free interest rate, expected volatility, expected option life, and dividend yield. See Note 18 for additional information.

Fair Value Measurements

GAAP USA defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements required under other accounting pronouncements. See Note 4 for further discussion .

The Company accounts for derivative instruments in accordance with GAAP USA, which requires that all derivative instruments be recognized on the balance sheet at fair value. We enter into interest rate swaps to fix the interest rate on a portion of our variable interest rate debt to reduce the potential volatility in our interest expense that would otherwise result from changes in market interest rates. Our derivative instruments are recorded at fair value and are included in accrued liabilities of our consolidated balance sheet. Our accounting policies for these instruments are based on whether they meet our criteria for designation as hedging transactions, which include the instrument’s effectiveness, risk reduction and, in most cases, a one-to-one matching of the derivative instrument to our underlying transaction. Gains and losses from changes in fair values of derivatives that are not designated as hedges for accounting purposes are recognized in the consolidated statement of operations. We have no derivative financial instruments designated as hedges. Therefore, changes in fair value for the respective periods were recognized in the consolidated statement of operations.

F- 8

Goodwill

The Company applies the provisions of GAAP USA, under which goodwill is tested at least annually for impairment. Goodwill on the accompanying balance sheets relates to the Company’s acquisition of Flexo Universal in a prior year as well as the investment in CTI Europe during the current reporting period. It is the Company’s policy to perform impairment testing for Flexo Universal annually as of December 31, or as circumstances change. An annual impairment review was completed and no impairment was noted for the years ended December 31, 2011 and 2010 (see Note 16). While the Company believes that its estimates of future cash flows are reasonable, different assumptions regarding such cash flows could materially affect these evaluations.

Valuation of Long Lived Assets

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

Deferred Financing Costs

Deferred financing costs are amortized on a straight line basis over the term of the loan. Upon a refinancing, existing unamortized deferred financing costs are expensed.

Income Taxes

The Company accounts for income taxes using the liability method. As such, deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the anticipated reversal of these differences is scheduled to occur. Deferred tax assets are reduced by a valuation allowance when, management cannot determine, in its opinion, that it is more likely than not that the Company will recover that recorded value of the deferred tax asset. The Company is subject to U.S. Federal, state and local taxes as well as foreign taxes in the United Kingdom, Germany and Mexico. U.S. income tax expense and foreign withholding taxes are provided on remittances of foreign earnings and on unremitted foreign earnings that are not indefinitely reinvested.

Unrecognized tax benefits are accounted for as required by GAAP USA which prescribes a more likely than not threshold for financial statement presentation and measurement of a tax position taken or expected to be taken in a tax return. See Note 11 for further discussion.

F- 9

Revenue Recognition

The Company recognizes revenue when title transfers upon shipment. Revenue from a transaction is not recognized until (i) a definitive arrangement exists, (ii) delivery of the product has occurred or the services have been performed and legal title and risk are transferred to the customer, (iii) the price to the buyer has been fixed or is determinable, and (iv) collectability is reasonably assured. In some cases, product is provided on consignment to customers. For these cases, revenue is recognized when the customer reports a sale of the product.

Research and Development

The Company conducts product development and research activities which include (i) creative product development and (ii) engineering. During the years ended December 31, 2011 and 2010, research and development activities totaled $728,000 and $443,000, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expenses amounted to $63,000 and $203,000 for the years ended December 31, 2011 and 2010, respectively.

3 . New Accounting Pronouncements

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 (“ASU 2011-08”) Intangibles – Goodwill and Other (Topic 350). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test. Under ASU 2011-08, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We do not expect that ASU 2011-08 will have a material impact on our financial statements or related disclosures.

In June 2011, the Financial Accounting Standards Board (FASB) issued an amendment on the presentation of other comprehensive income. Under this amendment, entities will be required to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or two separate but consecutive statements. The current option to report other comprehensive income and its components in the statement of changes in equity has been eliminated. This amendment will be effective for the Company on January 1, 2012, and retrospective application is required. The Company does not anticipate that this amendment will have a material impact on its financial statements.

4. Fair Value Disclosures; Derivative Instruments

GAAP USA clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. GAAP USA also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based upon the best information available.

F- 10

GAAP USA establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets are liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs are observable for the asset or liability, or unobservable but corroborated by market data, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of the input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following table presents information about the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2011 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

	Amount as of
Description	12/31/2011		Level 1		Level 2		Level 3

Interest Rate Swap 2011	$	141,000	$	-	$	141,000	$	-

	$	141,000			$	141,000

As of December 31, 2010, the Company did not maintain any swap agreements.

The Company’s interest rate swap agreements were valued using the counterparty’s mark-to-market statement, which were validated using modeling techniques that include market inputs such as publically available interest rate yield curves, and were designated as Level 2 within the valuation hierarchy.

GAAP USA requires an entity to recognize all derivatives as either assets or liabilities in the consolidated balance sheet and to measure those instruments at fair value. Under certain conditions, a derivative may be specifically designated as a fair value hedge or a cash flow hedge.

As a result of the use of derivative instruments, the Company was exposed to risk that the counterparty might fail to meet their contractual obligations. Recent adverse developments in the global financial and credit markets could have negatively impacted the creditworthiness of our counterparty and caused them to fail to perform as expected. To mitigate the counterparty credit risk, we only entered into contracts with a major financial institution based upon their credit ratings and other factors, and continually assessed the creditworthiness of the counterparty. The counterparty performed in accordance with their contractual obligations.

F- 11

On July 1, 2011, we entered into a swap agreement with BMO Capital Markets with respect to $6,780,000 of our loan balances with Harris. This swap agreement limits the Company’s exposure to interest rate fluctuations on the Company’s floating rate loans. The swap agreement has the effect of fixing the interest rate on the loan balances covered by the swap at 4.65% per annum. The swap agreement is a derivative financial instrument and we determine and record the fair value of the swap agreement each quarter. This value is recorded on the balance sheet of the Company and the amount of the unrealized gain or loss for each period is recorded as interest income or expense on the statement of operations, as the swap is not designated as a hedge for accounting purposes.

Fair Values of Derivative Instruments in the Consolidated Balance Sheets
		Liability Derivatives
As of	December 31	2011		2010
	Derivatives not designated as hedging instruments under Statement 133	Balance Sheet Location	Fair Value	Balance Sheet Location	Fair Value
	Interest Rate Contracts	Accrued Liabilities	$ 141,000	Accrued Liabilities	$ -

The Effect of Derivative Instruments on the Consolidated Statements of Operations
for the 12 month
period ending	December 31	2011		2010
	Derivatives not Designated as Hedging Instruments under Statement 133	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized in Income on Derivative
	Interest Rate Contracts	Interest Expense	* $ (181,000)	Interest Expense	** $(208,000)

* Includes interest of $41,000 associated with variances between fixed and variable rates.

** Designated as a cash flow hedge.

F- 12

5. Other Comprehensive (Loss) Income

The following table sets forth the tax effects of components of other comprehensive (loss) income and the accumulated balance of other comprehensive (loss) income and each component.

Tax Effects Allocated to Each Component of Other Comprehensive (Loss) Income
for the years ended December 31, 2011 and 2010

		Tax
	Before-Tax	(Expense)	Net-of-Tax
	Amount	or Benefit	Amount
2011
Foreign currency translation adjustments	$ (692,881)	$ -	$ (692,881)
Unrealized gain on derivative instruments	-	-	-
Other comprehensive loss	$ (692,881)	$ -	$ (692,881)

		Tax
	Before-Tax	(Expense)	Net-of-Tax
	Amount	or Benefit	Amount
2010
Foreign currency translation adjustments	$ 22,029	$ -	$ 22,029
Unrealized gain on derivative instruments	188,615	-	188,615
Other comprehensive income	$ 210,644	$ -	$ 210,644


Accumulated Other Comprehensive (Loss) Income Balances as of December 31, 2011
			Accumulated
	Foreign	Unrealized	Other
	Currency	Gain (Loss) on	Comprehensive
	Items	Derivatives	Income (Loss)
Beginning balance	$ (1,592,798)	$ -	$ (1,592,798)
Current period change	(692,881)	-	(692,881)
Ending balance	$ (2,285,679)	$ -	$ (2,285,679)

Accumulated Other Comprehensive (Loss) Income Balances as of December 31, 2010
			Accumulated
	Foreign	Unrealized	Other
	Currency	Gain (Loss) on	Comprehensive
	Items	Derivatives	Income (Loss)
Beginning balance	$ (1,614,827)	$ (188,615)	$ (1,803,442)
Current period change	22,029	188,615	210,644
Ending balance	$ (1,592,798)	$ -	$ (1,592,798)

F- 13

For the years ended December 31, 2011 and 2010, no tax benefit has been recorded on the foreign currency translation adjustments, as such amounts would result in a deferred tax asset and the associated long-term intercompany balances are not currently expected to be repaid in the foreseeable future.

6 . Major Customers

For the year ended December 31, 2011, the Company had three customers that accounted for approximately 28.8%, 12.2% and 9.4% of consolidated net sales. In 2010, the top three customers accounted for approximately 28.7%, 14.2% and 12.3%. At December 31, 2011, the outstanding accounts receivable balances due from these three customers were $2,390,000, $746,000 and $0, respectively. At December 31, 2010, the outstanding accounts receivable balances due from these three customers were $3,599,000, $389,000 and $224,000, respectively.

7. Inventories

Inventories are stated at the lower of cost or market. Cost is determined using standard costs which approximate costing determined on a first-in, first out basis. Standard costs are reviewed and adjusted periodically and at year end based on actual direct and indirect production costs. On a periodic basis, the Company reviews its inventory for estimated obsolescence or unmarketable items, primarily by reviewing future demand requirements and shelf life of the product.

Inventories are comprised of the following:

		December 31, 2011		December 31, 2010
Raw materials	$	3,027,000	$	2,588,000
Work in Process		1,503,000		685,000
Finished Goods		9,193,000		7,471,000
Allowance for excess quantities		(384,000)		(376,000)
Total inventories	$	13,339,000	$	10,368,000

F- 14

8.	Notes Payable and Capital Leases

Long term debt consists of:

		Dec. 31, 2011		Dec. 31, 2010

Term Loan with Barrington Bank, payable in monthly installments of $11,000 amortized over 7 years, interest at 6.25%, balance due May 2016, which uses balloon production and related equipment as collateral.	$	779,000	$	-
Term Loan with Harris, payable in monthly installments of $58,333 plus interest at prime (3.25%) plus a premium rate (based on loan covenants) of 0.50% (3.75%) at December 31, 2010 (amortized over 10 months), balance due January 31, 2011.		-		117,000
Mortgage Loan with Harris, payable in monthly installments of $7,778 plus interest at prime (3.25%) plus a premium rate (based on loan covenants) of 0.75% (4.00%) and 0.50% (3.75%) at December 31, 2011 and 2010, respectively (amortized over 25 years), balance due April 30, 2013.		2,178,000		2,271,000
Equipment Loan with Harris, payable in monthly installments of $22,323 beginning May 2012 plus interest at prime (3.25%) plus a premium rate (based on loan covenants) of 0.75% (4.00%) at December 31, 2011, (amortized over 60 months), balance due April 30, 2013. (2010) Equipment Loan with Harris, payable in monthly installments of $8,333 beginning May 2011 plus interest at prime (3.25%) plus a premium rate (based on loan covenants) of 0.50% (3.75%) at December 31, 2010, (amortized over 60 months), balance due April 30, 2013.		1,339,000		500,000
Capital Lease with Yale Financial Services, payable in monthly installments of $574 (amortized over 5 years).		3,000		8,000
Subordinated Notes (Officers) due on demand, interest at 9% (see Notes 10, 14).		33,000		33,000
Subordinated Notes (Officers) due on demand, interest at 8% (see Notes 10, 14).		795,000		795,000
Subordinated Notes (Officers) due on demand, interest at prime (3.25%) plus 2% (5.25%) at December 31, 2011 and 2010, net of debt discount of $0 and $5,000 at December 31, 2011 and 2010, respectively (See Note 10).		597,000		592,000
Subordinated Notes (Officers) due 2013, interest at 8.5% (see Note 10).		104,000		351,000
Notes Payable (Affiliates) due 2015, interest at prime (3.25%) plus 0.25% (3.50%) at December 31, 2011 and 2010.		28,000		28,000
Notes Payable (Affiliates) due 2021, interest at 11.75%.		112,000		134,000
Total long-term debt		5,968,000		4,829,000
Less current portion		(1,797,000)		(1,692,000)
Total Long-term debt, net of current portion	$	4,171,000	$	3,137,000

F- 15

On April 29, 2010, the Company entered into a Credit Agreement and associated documents with Harris N.A. (“Harris”) under which Harris agreed to extend to the Company a credit facility in the aggregate amount of $14,417,000. The facility includes (i) a Revolving Credit providing for maximum advances to the Company, and letters of credit, based upon the level of availability measured by levels of eligible receivables and inventory of the Company of $9,000,000, (ii) an Equipment Loan of up to $2,500,000 providing for loans for the purchase of equipment, (iii) a Mortgage Loan of $2,333,350, and (iv) a Term Loan in the amount of $583,333. The amount we can borrow on the Revolving Credit includes 85% of eligible accounts and 60% of eligible inventory (up to a maximum of $9,000,000). The Mortgage Loan is amortized over a term of 25 years. The maturity date of the facility is April 30, 2013. As of December 31, 2011 the balance outstanding on the Revolving Line of credit with Harris was $7,144,000, which bears interest of 4%, leaving an available balance of $2,106,000.

On April 30, 2010, the loan transaction was closed and loan advances were made by Harris in the aggregate amount of $11,964,739 to pay off all loan balances and lease obligations of the Company with RBS Citizens, N.A. and RBS Asset Finance, Inc. The advances included $8,548,000 under the Revolving Credit and $500,000 under the Equipment Loan.

Certain terms of the loan agreement, as amended, include:

Restrictive Covenants : The Loan Agreement includes several restrictive covenants under which we are prohibited from, or restricted in our ability to:

Borrow money;

Pay dividends and make distributions;

Make certain investments;

Use assets as security in other transactions;

Create liens;

Enter into affiliate transactions;

Merge or consolidate; or

Transfer and sell assets.

Financial Covenants : The Loan Agreement includes a series of financial covenants we are required to meet including:

We are required to maintain a tangible net worth (plus Subordinated Debt) in excess of $7,100,000 plus 50% of cumulative net income of the Company after January 1, 2010;

We are required to maintain specified ratios of senior debt to EBITDA on an annual basis and determined quarterly; and,

F- 16

As of December 31, 2011, the Company was in compliance with these covenants .

John H. Schwan and Stephen M. Merrick each, as officers, directors and principal shareholders of the Company have each personally guaranteed the obligations of the Company to Harris up to $1,750,000. In the agreement, the amount of the maximum liability to each decreases to $1,500,000 if the senior leverage ratio requirement is met. At December 31, 2011 and 2010, the Company had met this requirement (see Note 14).

Future minimum principal payments for amounts outstanding under these long-term debt agreements for each of the years ended December 31 are:

2012	$	1,797,000
2013		3,356,000
2014		118,000
2015		158,000
2016		396,000
Thereafter		143,000
Total	$	5,968,000

9.	Current Liabilities

As of December 31, 2011 and 2010, Accrued Liabilities include $139,000 and $137,000 in payroll accruals, respectively.

10.	Subordinated Debt

In February 2003, the Company received $1,630,000 from certain shareholders in exchange for (i) 9% subordinated notes and (ii) five year warrants to purchase 163,000 common shares at $4.87 per share. The proceeds were to (i) re-finance the bank loan of CTI Mexico in the amount of $880,000 and (ii) to provide financing for CTI Mexico and Flexo Universal. The value of the warrants was $460,000 calculated using Black-Scholes option pricing formula. The Company applied the discount against the subordinated debt. The discount wasamortized using the effective interest method to interest expense over the term of the debt. These loans are subordinated to the bank debt of the Company. On February 8, 2008 those shareholders exercised these warrants in exchange for a reduction on these notes of $794,000. The remaining balance of $33,000 is due on demand.

In February 2006, the Company received $1,000,000 from certain shareholders in exchange for (i) five year subordinated notes bearing interest at 2% over the prime rate determined on a quarterly basis and (ii) five year warrants to purchase an aggregate of 303,030 shares of common stock of the Company at the price of $3.30 per share. The proceeds were to fund capital improvements and give additional liquidity to the Company. The value of the warrants was $443,000 using the Black-Scholes option pricing formula. The Company applied the discount against the subordinated debt. The discount wasamortized using the effective interest method to interest expense over the term of the debt. These loans are subordinated to the bank debt of the Company. On May 28, 2010, these shareholders exercised all of these warrants in exchange for note indebtedness. The remaining balance of $597,000 is due on demand.

F- 17

At various times from 2003 to 2005, certain shareholders loaned an aggregate of $814,000 to the Company in exchange for notes bearing interest at an annual rate of 8%. These notes are subordinated to the bank loan of the Company. The remaining balance of $795,000 is due on demand.

At various times from 2003 to 2006, certain shareholders loaned amounts to the Company in exchange for notes bearing interest of 8.5%. These notes are subordinated to the bank loan of the Company. The remaining balance of $104,000 is due in 2013.

11.	Income Taxes

The income tax provisions are comprised of the following: :

	Dec. 31 2011		Dec. 31 2010
Current:
Federal	$	-	$	-
State		15,851		-
Foreign		149,763		385,792
	$	165,614	$	385,792

Deferred
Federal	$	228,524	$	(43,104)
State		-		-
Foreign		(74,694)		-
		153,830		(43,104)
Total Income Tax Provision	$	319,444	$	342,688

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

	2011		2010
Deferred tax assets:
Allowance for doubtful accounts	$	11,682	$	13,748
Inventory allowances		181,170		141,244
Accrued liabilities		70,765		92,095
Unicap 263A adjustment		151,625		145,035
Net operating loss carryforwards		955,717		975,327
Alternative minimum tax credit carryforwards		351,619		351,619
State investment tax credit carryforward		30,512		30,512
Foreign tax credit carryforward		298,635		298,636
Other foreign tax items		246,473		247,035
Foreign asset tax credit carryforward		-		(80,368)
Total deferred tax assets		2,298,198		2,214,883
Deferred tax liabilities:
Book over tax basis of capital assets		(1,175,615)		(943,582)
Other foreign tax items		(165,099)		(159,986)
Net deferred tax assets	$	957,484	$	1,111,315

F- 18

The Company maintained a valuation allowance with respect to deferred tax assets as a result of the uncertainty of ultimate realization as of December 31, 2009. At December 31, 2011 and 2010, the Company believes that it is more likely than not that it will utilize all of its net operating loss carry forwards and no longer requires a valuation allowance. The Company has a net operating loss carryforwards of approximately $2,730,000 expiring in various years through 2025. In addition, the Company has approximately $352,000 of alternative minimum tax credits as of December 31, 2011, which have no expiration date.

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

	Years Ended December 31,
	2011		2010
Taxes at statutory rate	$	245,966	$	733,585
State income taxes		43,395		100,983
Nondeductible expenses		57,772		55,871
Decrease in deferred tax valuation allowance		-		(528,988)
Foreign taxes and other		(27,689)		(18,763)
Income tax provision	$	319,444	$	342,688

The Company files tax returns in the U.S. federal and U.K, Germany and Mexico foreign tax jurisdictions and various state jurisdictions. The tax years 2006 through 2010 remain open to examination. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. During the twelve months ended December 31, 2011 and 2010, the Company did not recognize expense for interest or penalties, and do not have any amounts accrued at December 31, 2011 and 2010, as the Company does not believe it has taken any uncertain tax positions.

12.	Notes Payable Affiliates

Items identified as Notes Payable Affiliates in the Company's Consolidated Balance Sheet as of December 31, 2011 include loans by shareholders to Flexo Universal totaling $112,000 as well as a loan to CTI Europe totaling $27,000. The remaining balance of $1,000 represents loans from a number of various employees of Flexo Universal.

F- 19

13. Employee Benefit Plan

The Company has a defined contribution plan for substantially all employees. Profit sharing contributions may be made at the discretion of the Board of Directors. Effective January 1, 2006, the Company amended its defined contribution plan. Under the amended plan, the maximum contribution for the Company is 4% of gross wages. Employer contributions to the plan totaled $113,000 and $106,000 for the years ended December 31, 2011 and 2010, respectively.

14.	Related Party Transactions

Stephen M. Merrick is of counsel to a law firm from which we received legal services during the year. Mr. Merrick is both a director and a shareholder of the Company. Legal fees paid to this firm were $127,000 and $154,000 for the years ended December 31, 2011 and 2010, respectively.

John H. Schwan, Chairman of the Company, is a principal of Shamrock Packaging and affiliated companies. The Company made payments for of packaging materials, rent and temporary employees from Shamrock of approximately $2,019,000 and $2,076,000 during the years ended December 31, 2011 and 2010, respectively.

John H. Schwan, Chairman of the Company, is an owner of White Horse Production, Inc. The Company made payments for website services from White Horse of approximately $15,000 and $21,000 during the years ended December 31, 2011 and 2010, respectively.

John H. Schwan, Chairman of the Company, and Howard W. Schwan, President of the Company, are the brothers of Gary Schwan, an owner of Schwan Incorporated which provides building maintenance and remodeling services to the Company. The Company made payments to Schwan Incorporated of approximately $37,000 and $44,000 during the years ended December 31, 2011 and 2010, respectively.

During the period from January 2003 to the present, John H. Schwan, Chairman of the Company, and Stephen M. Merrick, Executive Vice President and Chief Financial Officer, have made loans to the Company and to Flexo which have outstanding balances, for the Company of $1,425,000 and $1,420,000 (net of discount of $0 and $5,000, respectively) and for Flexo of $104,000 and $351,000 as of December 31, 2011 and 2010, respectively.

During 2011 and 2010, interest expense to these individuals on these outstanding loans was $112,000 and $217,000, respectively (see Notes 10 and 12).

As disclosed in Note 10, on February 1, 2006, two principal officers and shareholders of the Company each loaned to our Company the sum of $500,000 in exchange for Promissory Notes and five year warrants to purchase up to 151,515 shares of common stock of the Company at the price of $3.30 per share. On May 28, 2010, each of these officer/shareholders exercised the warrants to purchase 151,515 shares each of common stock of the Company in exchange for cancellation of indebtedness of the Company to them in the amount of the purchase price for the shares.

F- 20

During 2010, two entities owned by John H. Schwan and Stephen M. Merrick provided financing for the acquisition and construction of latex balloon production and related equipment (see Note 15).

Other Assets include amounts due to the Company from its employees. As of December 31, 2011 and 2010, the balance outstanding on these amounts was $29,000 and $213,000, respectively.

15. Variable Interest Entities (“VIE”) and Transactions

During 2010, two entities owned by officers and principal shareholders of the Company (John H. Schwan and Stephen M. Merrick) provided financing for Flexo Universal, the Company’s Mexico subsidiary, for the acquisition and construction of latex balloon production and related equipment. The entities included Venture Leasing L.L.C., (“VLUS”), an Illinois limited liability company which is 100% owned by an entity owned by Mr. Schwan and Mr. Merrick, and Venture Leasing Mexico S. A. de R. L (“VLM”), a Mexico company which is also owned 100% by entities owned by Mr. Schwan and Mr. Merrick. The Company is the primary beneficiary of VLUS & VLM and accordingly consolidated the result of the entities in its financial statements.

Mr. Schwan and Mr. Merrick, through entities owned by them, arranged for a line of credit in the amount of $1,000,000 from Barrington Bank in order to loan monies to VLUS as needed. During 2010, VLUS received advances on this line totaling $700,000. VLUS loaned substantially all of these funds to VLM. VLM utilized the funds to purchase materials, parts, components and services for the acquisition and construction of balloon production and related equipment to be placed at the premises of Flexo Universal. Assembly and construction of this equipment was completed on or about December 31, 2010 and, in January 2011, the equipment has been placed in service at Flexo Universal.

Title to the equipment remains in the name of VLM. VLM leases the equipment to Flexo Universal under a three-year lease under which Flexo Universal will pay to VLM rental payments at the rate of approximately $9,000 per month and will have the right to purchase the equipment from VLM at the expiration of the lease at fair market value. The Company has not provided any guarantees related to VLUS or VLM and no creditors of the variable interest entities have recourse to the general credit of the Company as a result of including VLUS & VLM in the consolidated financial statements.

F- 21

The accounts of VLM and VLUS have been consolidated with the accounts of the Company for 2011 and 2010 and will be consolidated in the future.

	Dec. 31, 2011		Dec. 31, 2010
Current Assets	$	104,926	$	132,576
Property, plant and equipment, net		550,315		586,536
Other noncurrent assets		773,913		710,038
Total assets	$	1,429,154	$	1,429,150


Mortgages and other long-term debt payable	$	1,488,285	$	1,434,852
Total liabilities	$	1,488,285	$	1,434,852

16.

Goodwill

Under the provisions of GAAP USA, goodwill is subject to at least annual assessments for impairment by applying a fair-value based test. GAAP USA also requires that an acquired intangible asset should be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, licensed, rented or exchanged, regardless of the acquirer’s intent to do so. The Company has no acquired intangible assets other than goodwill.

As of December 31, 2011 and 2010, we determined that the fair value of the Company’s interest in goodwill related to Flexo Universal as recorded was not impaired. The carrying amount of goodwill as of December 31, 2011 and 2010 was $989,000.

During 2010, the Company purchased an additional interest of $101,000 in its German subsidiary, CTI Europe, and recorded $44,000 of goodwill in the transaction. We have determined that the fair value of the Company's interest in the goodwill related to CTI Europe was not impaired as of December 31, 2011 and 2010.

17.	Commitments

Operating Leases

The Company’s United Kingdom subsidiary maintains a lease for office and warehouse space which expires December 2014 at a cost of $5,000 per month. In August 2011, Flexo Universal entered into a 5-year lease to rent 73,000 square feet of warehouse and office space in Guadalajara, Mexico at the cost of $30,000 per month. In September 2010, the Company’s German subsidiary entered into a 3-year lease to rent approximately 3,000 square feet of office and warehouse space in Heusenstamm, Germany at a cost of $2,000 per month. The Company leases office and warehouse equipment under operating leases, which expire on various dates through September 2012. All of the Company’s lease payments are recognized on a straight-line basis as none of the leases have escalation clauses.

F- 22

The net lease expense was $683,000 and $553,000 for the years ended December 31, 2011 and 2010, respectively.

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

2012	$	866,000
2013		616,000
2014		597,000
2015		503,000
2016		269,000
Thereafter		-
Total	$	2,851,000

Licenses

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

2012	$	152,000

18.	Stockholders’ Equity

Stock Options

The Company has adopted GAAP USA which requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the consolidated financial statements based on their grant-date fair values.

F- 23

The Compensation Committee administers the stock-based plans. The exercise price for Incentive Stock Options (“ISO”) cannot be less than the fair value of the stock subject to the option on the grant date (110% of such fair value in the case of ISOs granted to a stockholder who owns more than 10% of the Company’s Common Stock). The exercise price of a Non-Qualified Stock Options (“NQSO”) shall be fixed by the Compensation Committee at whatever price the Committee may determine in good faith. Unless the Committee determines otherwise, options beginning with the 2007 Plan generally have a 4-year term with a 3-year vesting schedule. Unless the Committee provides otherwise, options terminate upon the termination of a participant’s employment, except that the participant may exercise an option to the extent it was exercisable on the date of termination for a period of time after termination. Officers, directors and employees of, and consultants to the Company, or any parent or subsidiary corporation selected by the Committee, are eligible to receive options under the Plan. Subject to certain restrictions, the Committee is authorized to designate the number of shares to be covered by each award, the terms of the award, the date on which and the rates at which options or other awards may be exercised, the method of payment, vesting and other terms.

The Company has applied the Black-Scholes model to value stock-based awards. That model incorporates various assumptions in the valuation of stock-based awards relating to the risk-free rate of interest to be applied, the estimated dividend yield and expected volatility of the Company’s Common Stock. The risk-free rate of interest is the U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The expected volatility is based on historical volatility of the Company’s Common Stock.

The valuation assumptions we have applied to determine the value of stock-based awards were as follows:

Historical stock price volatility: The Company used the weekly closing price to calculate historical annual volatility.

Risk-free interest rate: The Company bases the risk-free interest rate on the rate payable on US treasury securities in effect at the time of the grant.

Expected life: The expected life of the option represents the period of time options are expected to be outstanding. The Company uses an expected life of 2.8 years.

Dividend yield: The dividend yield is estimated to be 1.14%, based on the stock price at December 31, 2011.

Estimated forfeitures: When estimating forfeitures, the Company considers historical terminations as well as anticipated retirements.

The Company, at the discretion of the board, may issue options in excess of the total available, if options related to that stock plan are cancelled. In some cases, not all shares that are available to a stock plan are issued, as the Company is unable to issue options to a previous plan when a new plan is in place.

F- 24

The Company’s pre-tax income for the fiscal year ended December 31, 2011 and 2010 includes approximately $134,000 and $131,000, respectively, of compensation costs related to share-based payments. As of December 31, 2011, there is $197,000 of unrecognized compensation expense related to non-vested stock option grants. We expect approximately $88,000, $59,000, $41,000 and $9,000 to be recognized during 2012, 2013, 2014 and 2015, respectively.

On March 19, 1999, the Board of Directors approved for adoption, effective May 6, 1999, the 1999 Stock Option Plan (“1999 Plan”). The 1999 Plan authorizes the grant of options to purchase up to an aggregate of 158,733 shares of the Company’s Common Stock. As of December 31, 2010, 148,223 options have been granted under the 1999 Plan and were fully vested at the time of grant. During 2010, 25,786 options were exercised and no options remain outstanding as of December 31, 2010.

On April 12, 2001, the Board of Directors approved for adoption, effective December 27, 2001, the 2001 Stock Option Plan (“2001 Plan”). The 2001 Plan authorizes the grant of options to purchase up to an aggregate of 119,050 shares of the Company’s Common Stock. As of December 31, 2011, 139,958 options (including cancelled shares re-issued under the Plan) have been granted and were fully vested at the time of grant; 7,500 remain outstanding. No options were exercised during 2011.

On April 24, 2002, the Board of Directors approved for adoption, effective October 12, 2002, the 2002 Stock Option Plan (“2002 Plan”). The 2002 Plan authorizes the grant of options to purchase up to an aggregate of 142,860 shares of the Company’s Common Stock . As of December 31, 2011, 123,430 options have been granted and were fully vested at the time of grant; 27,500 remain outstanding. No options were exercised during 2011.

On June 22, 2007, the Board of Directors approved for adoption, effective October 1, 2007, the 2007 Stock Incentive Plan (“2007 Plan”). The 2007 Plan authorizes the grant of options to purchase up to an aggregate of 150,000 shares of the Company’s Common Stock . On October 1, 2007, the company issued 74,000 options under the 2007 Plan. During 2008, the company issued an additional 77,500 options under the 2007 Plan. Under this plan, 46,000 options remain outstanding all of which are fully vested. During 2011, 40,000 options expired, 3,750 options were cancelled and 4,000 options were exercised.

Also under the 2007 Plan, in January 2010, the Company granted 14,250 restricted shares. During 2010, 7,125 shares had their restriction expire and the remaining 7,125 shares will have their restriction expire during 2011, the value of these shares were determined using the market value of the Company’s shares on the day the shares were issued.

F- 25

On April 10, 2009, the Board of Directors approved for adoption, and on June 5, 2009, the shareholders of the Company approved the 2009 Stock Incentive Plan (“2009 Plan”). The 2009 Plan authorizes the issuance of up to 250,000 shares of stock or options to purchase stock of the Company. As of December 31, 2011, 82,000 options have been granted; 81,500 remain outstanding of which 5,625 are vested and 75,875 are not vested. During 2011, 500 options were cancelled and 8,000 options were granted. Of the total outstanding options, 22,500 have vesting schedule A, 29,000 have vesting schedule B, and 30,000 have vesting schedule C. Vesting schedules for the 2009 Plan are as follows:

Vesting Schedule A		Vesting Schedule B		Vesting Schedule C
25%	12 months	33%	24 months	50%	48 months
50%	24 months	67%	36 months	100%	57 months
75%	36 months	100%	48 months
100%	48 months

The following is a summary of options exercised during the years ended December 31:

	2011		2010
		Intrinsic		Intrinsic
	Shares	Value	Shares	Value

1999 Plan Options	-	$ -	25,786	$ 15,333

2001 Plan Options	-	$ -	11,953	$ 56,448

2002 Plan Options	-	$ -	1,000	$ 2,630

2007 Plan Options	4,000	$ 9,750	38,250	$ 108,215

F- 26

The following is a summary of the activity in the Company’s stock option plans and other options for the years ended December 31, 2011 and 2010, respectively:

	December 31, 2011		December 31, 2010
		Weighted Avg		Weighted Avg
	Shares	Exercise Price	Shares	Exercise Price
Exercisable, beginning of period	110,625	$3.36	180,269	$3.03
Granted	-	-	-	-
Vested	22,250	2.97	33,000	3.42
Exercised	(4,000)	2.49	(76,989)	2.80
Cancelled	(42,250)	4.78	(25,655)	2.78
Exercisable at the end of period	86,625	$2.61	110,625	$3.36

	December 31, 2011		December 31, 2010
		Weighted Avg		Weighted Avg
	Shares	Exercise Price	Shares	Exercise Price
Outstanding, beginning of period	202,750	$4.28	232,644	$3.04
Granted	8,000	5.96	74,000	6.19
Exercised	(4,000)	2.49	(76,989)	2.80
Cancelled	(44,250)	4.84	(26,905)	2.87
Outstanding at the end of period	162,500	$4.25	202,750	$4.61

At December 31, 2011, available options to grant were 87,500 under the 2009 Plan.

Significant option groups remained outstanding at December 31, 2011 and related weighted average grant date fair value, remaining life and intrinsic value information are as follows:

Options by	Options Outstanding							Options Vested
Grant Date		Shares	Wtd Avg	Remain. Life		Intrinsic Val	Shares		Wtd Avg	Remain. Life		Intrinsic Val
Dec 2005		35,000	$2.88	4.0	$	52,500	35,000	$	2.88	4.0	$	52,500
Oct 2008		2,500	$4.97	0.8	$	-	2,500	$	4.97	0.8	$	-
Nov 2008		43,500	$1.83	0.9	$	111,066	43,500	$	1.83	0.9	$	111,066
Dec 2010		73,500	$6.13	4.0	$	-	5,625	$	5.97	4.0	$	-
Jan 2011		8,000	$5.96	4.0	$	-	-	$	-	-	$	-
TOTAL		162,500	$4.25	3.1	$	163,566	86,625	$	2.61	2.3	$	163,566

Warrants

In February 2006, certain members of company management were issued warrants, which fully vested immediately, to purchase 303,030 shares of the Company’s Common Stock at an exercise price of $3.30 per share in consideration of their loaning the company $1,000,000. The fair value of the warrants granted on February 1, 2006, was $443,000 which was estimated at the date of grant using the Black-Scholes pricing model. On May 28, 2010, all of these warrants were exercised in exchange for note indebtedness.

On October 1, 2008, the Company issued warrants to purchase 20,000 shares of common stock of the Company to both John Schwan and Stephen M. Merrick exercisable at the price of $4.80 per share (the market price of the stock on the date of the warrants) in consideration for the personal guarantees by each of up to $2 million in principal amount of the bank debt of the Company. On May 28, 2010, Mssrs. Schwan and Merrick exercised these warrants in exchange for outstanding indebtedness of the Company to them.

F- 27

The following is a summary of the activity of the Company’s warrants for the years ended December 2011 and 2010:

			Weighted			Weighted
			Avg			Avg
	Dec. 31,		Exercise	Dec. 31,		Exercise
	2011		Price	2010		Price
Outstanding and Exercisable, beginning of period	-	$	-	343,030	$	3.47
Granted	-		-	-		-
Exercised	-		-	(343,030)		3.47
Cancelled	-		-	-		-
Outstanding and Exercisable at the end of period	-	$	-	-	$	-

19.	Earnings Per Share

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

For the three months ended December 31, 2011, 84,000 shares were anti-dilutive (not included in the determination of earnings on a diluted basis), all of which were represented by options. For the twelve months ended December 31, 2011, 81,500 shares were anti-dilutive, all of which were represented by options. For the three months ended December 31, 2010, there were no anti-dilutive shares. For the twelve months ended December 31, 2010, 6,228 shares were anti-dilutive, all of which were represented by options.

F- 28

Consolidated Earnings per Share

	Year Ended December 31,
	2011		2010
Basic
Average shares outstanding:
Weighted average number of shares outstanding during the period		3,138,958		2,981,188

Earnings:
Net income attributable to CTI Industries Corporation	$	483,910	$	1,827,518

Amount for per share Computation	$	483,910	$	1,827,518

Net earnings applicable to Common Shares	$	0.15	$	0.61

Diluted
Average shares outstanding:		3,138,958		2,981,188
Weighted averages shares Outstanding Common stock equivalents (options, warrants)		42,144		58,254

Weighted average number of shares outstanding during the period		3,181,102		3,039,442

Earnings:
Net income attributable to CTI Industries Corporation	$	483,910	$	1,827,518

Amount for per share computation	$	483,910	$	1,827,518

Net income applicable to Common Shares	$	0.15	$	0.60

F- 29

20.	Geographic Segment Data

The Company’s operations consist of a business segment which designs, manufactures, and distributes film products. Transfers between geographic areas were primarily at cost plus a standard markup. The Company’s subsidiaries have assets consisting primarily of trade accounts receivable, inventory and machinery and equipment. Sales and selected financial information by geographic area for the years ended December 31, 2011 and 2010, respectively, are:

	United States	United Kingdom (UK)	Europe (Excluding UK)	Mexico	Consolidated
Year ended 12/31/11
Sales to outside customers	$ 34,657,000	$ 1,838,000	$ 376,000	$ 10,300,000	$ 47,171,000
Total Assets	$ 25,302,000	$ 734,000	$ 464,000	$ 7,116,000	$ 33,616,000

	United States	United Kingdom (UK)	Europe (Excluding UK)	Mexico	Consolidated
Year ended 12/31/10
Sales to outside customers	$ 36,721,000	$ 2,387,000	$ 108,000	$ 8,532,000	$ 47,748,000
Total Assets	$ 24,711,000	$ 977,000	$ 220,000	$ 6,953,000	$ 32,861,000

21.	Contingencies

The Company is not party to any lawsuits or claims.

F- 30

Schedule II – Valuation and Qualifying Accounts:

The following is a summary of the allowance for doubtful accounts related to accounts receivable for the years ended December 31:

	2011		2010
Balance at beginning of year	$	59,000	$	57,000
Charged to expenses		21,000		8,000
Uncollectible accounts written off		(10,000)		(6,000)
Balance at end of year	$	70,000	$	59,000

The following is a summary of the allowance for excess inventory for the years ended December 31:

	2011		2010
Balance at beginning of year	$	376,000	$	342,000
Charged to expenses		8,000		42,000
Obsolete inventory written off				(8,000)
Balance at end of year	$	384,000	$	376,000

The following is a summary of property and equipment and the related accounts of accumulated depreciation for the years ended December 31:

	2011		2010
Cost Basis
Balance at beginning of year	$	33,539,000	$	32,088,000
Additions		1,377,000		2,061,000
Disposals		-		-
Balance at end of year	$	34,916,000	$	34,149,000

Accumulated depreciation
Balance at beginning of year	$	24,486,000	$	22,555,000
Depreciation		1,586,000		1,935,000
Disposals		-		-
Balance at end of year	$	26,072,000	$	24,490,000

F- 31

EXHIBIT 10.14

TRADEMARK LICENSE AGREEMENT

THIS TRADEMARK LICENSE AGREEMENT (this " Agreement ") is made and entered into as of December 9, 2011 (the " Effective Date" ) by and between S. C. Johnson & Son, Inc., a Wisconsin corporation with a business address of 1525 Howe Street, Racine, WI 53403 (hereinafter “LICENSOR”), and CTI Industries Corporation, an Illinois corporation having a principal place of business at 22160 N. Pepper Road, Lake Barrington, IL 60010 (hereinafter “LICENSEE”).

WHEREAS, LICENSOR is the owner of the Trademarks ; and

WHEREAS, LICENSEE wishes to market and sell certain products in the Distribution Channels in the Territory under the Trademarks ; and

WHEREAS, LICENSOR is willing to license and allow LICENSEE to use the Trademarks on the terms and conditions set forth in this Agreement .

Now, therefore, in consideration of the foregoing, the covenants hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

1. Certain Definitions. The following terms used in this Agreement shall have the following meanings (whether used in the singular or the plural):

“ Advertising Materials ” means all advertising, packaging, promotional, sales and other materials including, without limitation, LICENSEE’s website content that makes any use of or reference to the Licensed Products or Trademarks (or any one or more of them).

“ Affiliate ” shall mean any entity controlling, controlled by or under common control with any such named person, where control means the power to direct the management and policies of a party, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

" Change in Control " means the occurrence of any of the following events: (a) the acquisition (whether by merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, recapitalization, tender offer, exchange offer or other transaction) by any individual, entity or group of fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of LICENSEE; or (b) any sale, lease, exchange, transfer, license, acquisition or disposition of all or substantially all of the assets of LICENSEE, in each case whether in a single or series of transactions.

“ Distribution Channels ” means the kitchen appliance store section only of Mass Market Retail Stores, Grocery Stores, Drug Stores, Warehouse Club Stores, Hardware Stores, Home Improvement Stores, Specialty Stores, and Value Stores (collectively “Stores”), and such other channels (including certain online and direct marketing channels) targeted toward consumers as LICENSOR may from time to time authorize in writing. ''''''''' '''''''''''''''''''''''''' ''''''' ''''''''''''''''''' ''''''''''''''' '''''''''' '''''''' '''''''''''''''''' ''''''''' ''''''''''' '''''''''' '''''''''''''''''''' '''''''''''''''''''''' '''''''''''''''''' '''''''''''''''''''' ''''''' '''''''''''''''''''''''''''''''''''' '''''''''''''' ''''''''''''''''''''''' '''''''''' '''''''''''''''' '''''''''''''''''' '''''''''''''''' ''''' ''''''''''' ''''''''''''' ''''''''''''' '''''''''''''''' '''''''''''''' '''''''''''''''''''' '''''''' '''''''''''''''''''' '''''''''''' '''''''''''''''' '''''''''''''''''''' ''''''''''''''' ''''' '''''''''''''''''' ''''' ''''''' ''''''''''''''''

“ Earned Royalty ” means a royalty in the amount of ''''''''' '''''''''''''''' ''''''''''' on '''''''' '''''''' ''''''''''''''''' ''''''''''''''' '''''''''''''''' '''''''''''''''''''''''''''''''' of Sales of Licensed Products by LICENSEE and its sublicensees, to be increased to '''''' '''''''''''''''' '''''''''' on all Sales of Licensed Products by LICENSEE and its sublicensees in excess of that threshold amount for the remainder of the Term ; provided, however, that the Earned Royalty shall be ''''''''''''''' '''''''''''''''''' ''''''''''''''' of Sales of Licensed Products by LICENSEE and its sublicensees for all Licensed Products sold in violation of the terms of this Agreement , including (but not limited to) the provisions of Section 6 below.

" Force Majeure Event " means any event, circumstance or condition which is beyond a party's control and which has a material effect on such party's ability to perform its obligations under this Agreement , including, without limitation, war, terrorism, riot, labor strike or lock-out, fire, flood, wind, storm, Act of God, and changes in governmental regulation.

“ Guaranteed Minimum Royalty ” means the following minimum royalties to be paid by LICENSEE to LICENSOR under this Agreement:

(a) During the Term (as defined in Section 13(a) below), the Guaranteed Minimum Royalty is '''''''''''' ''''''''''''''''''' '''''''' ''''''''' '''''''''''''''''''' ''''''''''''''' ''''''''''''''''''''''''''' ' which shall be payable as follows:

(i) for Contract Period 1 (as defined in Section 13(a) below), ''''''''''''''''''''' payable in four (4) equal quarterly installments in the amount of ''''''''''''''''' each within thirty (30) days following the calendar quarter-end, in this case on or before April 30, 2012; July 30, 2012; October 30, 2012; and January 30, 2013 '''''''''' ''' '''''''''''''' ''''' '''''''''''''''''' ''''''''''''''' ''''''''''' ''''''''''''''''''''' '''''''''''''''''''''''''' ''''' ''''''''''''''''' ''''''' ''''''' ''''''''''''''''''''''''''''''''''' '''''''''''''''''''' '''' '''''''' ''''''''''''''''' '''''' ''''''''''''''''''' ''''' ''''''''''''''' ''''''''''''''' '''' ''''''''''''''' '''''''''''''''''''''''''''''''''

(ii) for Contract Period 2 (as defined in Section 13(a) below), '''''''''''''''''''' payable in four (4) equal quarterly installments in the amount of ''''''''''''''''' each within thirty (30) days following the calendar quarter-end, in this case on or before April 30, 2013; July 30, 2013; October 30, 2013; and January 30, 2014; and

(iii) for Contract Period 3 (as defined in Section 13(a) below), ''''''''''''''''''''''' payable in four (4) equal quarterly installments in the amount of ''''''''''''''''''' each within thirty (30) days following the calendar quarter-end, in this case on or before April 30, 2014; July 30, 2014; October 30, 2014; and January 30, 2015.

“ Initial Sale Date ” means July 1, 2012.

“ Licensed Products ” means products within the Licensed Product Category that bear the Trademark , including the packaging bearing the Trademark , and are specifically approved by LICENSOR in writing as a Licensed Product hereunder.

“ Licensed Product Category ” means the following food storage consumer product category: A countertop, powered food storage vacuum sealing kitchen appliance(s) (“Appliances”) and associated non-zippered plastic food storage vacuum bags (“Bags”) for use solely in connection with that appliance or similar third party appliances. The bags would either be sold with one open end to be sealed with the appliance or in plastic film rolls to be sealed at both ends, as bags of various sizes, by the appliance. This category would not include hand held manual or powered food storage vacuum sealing devices and bags associated with such devices.

“ Marketing Commitment ” means a LICENSOR approved marketing plan detailing the level of commitment LICENSEE will make to support the Sales of Licensed Products as detailed in Exhibit J hereto.

“ Safety, Health, Environment (S/H/E) " means industry standards and other standards promulgated or regulated by the US Occupational Safety and Health Administration, the US Environmental Protection Agency, state or local agencies and, if applicable, other federal, state or local agencies charged with protecting safety, health, and environment which in each case relate to employee safety, employee health and the natural or human environment.

“ Sales ” means gross invoice price of Licensed Products less actual bona fide returns for defective Licensed Products or credits given to customers for defective Licensed Products in lieu of returns, up to a maximum of five percent (5%) of the gross invoice price, which shall be supported by a credit memoranda actually issued to a customer. No other deduction or recoupment shall be allowed of any kind, including, without limitation and by way of example: (a) cash discounts; (b) early payment discounts; (c) year-end rebates; (d) costs incurred, including in manufacturing, selling, distributing, advertising (including cooperative and promotional allowances, fixturing, merchandising guides, displays or the like), and shipping and handling; (e) uncollectible accounts; (f) commissions; or (g) any other amounts. Furthermore, such deductions or recoupment shall not be netted against the sales price to arrive at the gross invoice price or any reduced gross invoice price. A sale shall be deemed to have occurred when the Licensed Products are shipped, transferred or invoiced by LICENSEE, whichever occurs first, or an Approved Sublicensee as applicable. Whenever Licensed Products are sold or transferred in whole or in part in transactions in which some or all of the consideration is non-monetary, or where the transferee is an Affiliate of LICENSEE, the invoice price shall be deemed to be LICENSEE's list price to non-affiliated buyers for Licensed Products ; provided, however, that if such an Affiliate is an authorized Approved Sublicensee under Section 16 below, the Sale shall be deemed to have occurred at the time the Licensed Products are shipped, transferred or invoiced by such Affiliate , whichever occurs first.

“ Term ” means the period this Agreement is in effect, as determined pursuant to Section 13(a) below.

" Territory ” means the following countries : the ''''''''''''''''' '''''''''''''''' '''''''''''''''''' '''''''''''''''''' ''''''''''''''' ''''''''''' and any other countries mutually agreed to in writing by the parties.

“ Trademark " means each and every trademark identified on Exhibit A hereto, including all common law rights therein and, with respect to each registered trademark on Exhibit A hereto, all renewals thereof.

2. Grant of License.

(a) Scope of License. Subject to the terms and conditions contained in this Agreement , LICENSOR hereby grants to LICENSEE a personal, non-assignable, non-transferable, sole, limited license to use the Trademark in connection with the manufacture, distribution (subject to Sections 2(c) and 4 below), marketing, and sale of Licensed Products in the Licensed Product Category within the Distribution Channels in the Territory . LICENSEE shall not individually brand or co-brand any product in the Licensed Product Category or directly or indirectly manufacture, have manufactured, license, market, or sell any similar or competitive products in the License Product Category, with a brand or house mark (private label or otherwise) other than the Trademark within the Distribution Channels in the Territory . All other rights in and to the Trademarks are reserved by LICENSOR.

(i) Notwithstanding any other provision of this Agreement:

(A) During the Term , the LICENSOR shall not appoint other licensees to use the Trademark in the Licensed Product Category for the marketing and sale of products in the Licensed Product Category within the Distribution Channels in the Territory. However, LICENSOR and its Affiliates retain the right to manufacture, have manufactured, purchase from suppliers, market, distribute and sell any and all types of products, new or existing, in the Distribution Channels , including without limitation products in the Licensed Product Category , under the Trademark or another brand(s) and, further, retains the right to appoint other licensees to manufacture product with the Trademark for marketing and sale in the Licensed Product Category within the Distribution Channels in the Territory during the Term so long as the goods are not shipped to customers prior to the end of the Term .

(B) In the event LICENSOR acquires, by any means, brands, products or rights to products that are similar to or competitive with any of the Licensed Products , then LICENSOR has the right to use such brands and to manufacture, have manufactured, purchase from suppliers, market, distribute, license and sell any and all such products, together with any new products and/or product line extensions, under those brands or other brands including the Trademark , through any and all distribution channels including the Distribution Channels.

(C) '''''''''''''''''''''''''' '''''''''''' ''''''''''' ''''''' '''''''''' ''''' '''''''''''''''''''' ''''' '''''' '''''''''''''''''' ''''''''''''''''''''''''''''''' '''''''''''' ''''''''''''' '''''''''''''''''''''''''''''''' ''''''''''''''''''' ''''''''''' ''''' ''''''' ''''''''''''' '''''''''''' ''''''''''''''' '''''' ''''''''''''''''''''''' ''''''' ''''''' ''''''''''''''''''''''''''' '''''''''''''''' ''''''''' ''''''' '''''''''''''''''''''''''''''''' '''''''''''''''' '''''''''''' '''''''''''''''''' ''''' ''''''''''''' '''''''''''''''''' ''''' ''''' ''''''' '''''''''''''' '''''''''''''' '''''''''''''' ''''' ''''''' ''''''''''''''''' ''''''''''''''' ''''''''' ''''''''''''''''''' '''''''''''''' ''''''''''' ''''''''''''''''''' ''''''''''' ''''' ''''''' '''''''''''''''''' '''''''''''''' '' '''''''''''''''''''' '''''''' '''''''''' ''''''''''''' '''''''''''''''' ''''''' ''''''' '''''''''''''''''''''''' ''''' ''''''' '''''''''''' '''''''''''''''' ''''' ''''''''''' ''''''''''' ''''''''''' ''''''''''''''''' '''''''''''''''''' '''''''''''''''''''' ''''''' '''''''''''''''''''' '''''''''''' ''''''''''''' '''''' ''''''''''''''''' ''''''''''''''''''' ''''' ''''''''''''''''' ''''' '''''''''''''' '''''''''' '''''' '''''''''''' '''''''''''''' '''''''''''' '''''''''''''''''''''' '''''''''''''''''''' ''''''''''''''' '''''''' '''''''''''''''''''''''' ''''''''''''''''''''''' ''''''''''' '''''''' ''''''''''''''''''''' '''''''''''''' '''''''''' ''''''' '''''' '''''''' ''''''''''''''''''' ''''''' ''''''''''''''''''''''' ''''''''' ''''''''' '''' ''''''''''' ''''' '''''''''''''''''''' ''''''''''' ''''''''''' ''''''''''''' '''' ''''''''''' ''''''''''''''''' '''''''''''''''' ''''''''''''''' ''''''''' ''''''''' '''''''' '''''''''''''''''' '''''''''''''''''''' '''''''''''' '''''''''' ''''''''''''' ''''' ''''''' ''''''''''''' '''''''''''' '''''''''''''''''' '''' '''''''' ''''''''' '''''''''''''''''''''''''''' ''''''''''''''' '''''''' ''''''''' '''''''''''''''''''''''''''''''' '''''''''''''''''' ''''''''''''''' ''''''' ''''' ''''''''''' '''''''' ''''' ''''' ''''''' ''''''''''''''' ''''''''''''' '''''''''''''''' ''''' ''''''' '''''''''''''''''''' '''''''''''''' ''''''''' '''''''''''''''''''' ''''''''''''''' '''''''''''' '''''''''''''''''''' ''''''''' ''''' ''''''' '''''''''''''''''''' '''''''''''''''' '' ''''''''''''''''''' '''''''''' '''''''''' '''''''''''' '''''''' ''''''' ''''''''''''''''''''''''' ''''' '''''' '''''''''''' ''''''''''''''''' '''''' ''''''''''''' '''''''''''' '''''''''' ''''''' ''''''' '''''''' '''' ''''''''''''''''''''''' '''''''''' '''''''' ''''''''''''' '''''''''''''''' ''''''''' '''''''''''''''''''' '''''''' '''''''''' '''' '''''''''''' ''''' ''''''''''''''''''' '''''''''''' '''''''''''' '''''''''''''' '''' '''''''''''' '''''''''''''''' '''''''''''''''' '''''''''''''''' '''''''' '''''''''' '''''' '''''''''''''''''' '''''''''''''''''''''' ''''''''''' '''''''''''' ''''''''''''''' ''''' ''''''' ''''''''''''' ''''''''''''' ''''''''' '''

(b) Reservation of Rights. Except for the specific rights granted to LICENSEE under this Agreement , all rights in and to the Trademark are explicitly reserved and retained by LICENSOR. LICENSEE shall not have the right to sublicense any of the rights granted to it under this Agreement, except to Approved Sublicensees in accordance with Section 16 below.

(c) Manufacture of Licensed Products outside the Territory . Notwithstanding the territorial limitations contained in Section 2(a) above, LICENSEE may, at its option, manufacture Licensed Products outside the Territory, but any such Licensed Products so manufactured must be sold only through the Distribution Channels in the Territory in accordance with this Agreement . Furthermore, if LICENSEE elects to manufacture Licensed Products outside of the Territory pursuant to this Section, LICENSEE shall be responsible for compliance with all applicable laws (and associated fees, duties and other expenses) relating to the export of such products from the country of manufacture and the import of such products into the Territory .

(d) Performance Requirements. Subject to the rights of early termination set forth in Section 13 below, the license grant under Section 2(a) of this Agreement shall remain a sole grant of rights (subject to LICENSOR’s reserved rights described in Sections 2(a) and (b) above) for the Term of this Agreement , so long as the following performance requirements are met:

Contract Period		Sales of Licensed Products in the Distribution Channels in the Territory
1		''''''''''''''''''''''''

2		'''''''''''''''''''''''

3		''''''''''''''''''''''''''''

If LICENSEE fails to achieve a performance requirement specified in the above table, then the license rights granted under this Agreement shall become non-exclusive effective at the end of the period with respect to which the performance requirement was not achieved (as set forth in the above table) and shall thereafter remain non-exclusive for the remainder of the Term .

3. Methods of Sale. LICENSEE shall sell, ship and distribute the Licensed Products only through the Distribution Channels for sale in the Territory . LICENSEE may not, without the prior written consent of LICENSOR, sell Licensed Products on approval, consignment, sale or return basis or to inventory liquidators or in job lots, closeouts or remainder sales. LICENSEE shall not use or sell Licensed Products as premiums or promotional items and shall not discriminate against the Licensed Products by granting commission or discounts to salespersons, dealers and/or distributors in favor of LICENSEE's other products; provided, however, that such restriction is not intended to prevent LICENSEE’s use of Licensed Products for incidental marketing and promotional purposes (i.e., in reasonable quantities consistent with normal industry practices).

4. Agreements with Manufacturers. Subject to LICENSOR’s written approval, LICENSEE may arrange with others to manufacture Licensed Products or components thereof for the exclusive sale, use, and distribution by LICENSEE, provided that LICENSEE first obtains any such third party’s agreement to comply with all of the terms of this Agreement by executing the document attached hereto as Exhibit B . Any breach of this provision by a manufacturer appointed by LICENSEE which is not cured within thirty (30) days following written notification by LICENSOR to LICENSEE of such breach shall be considered a breach of this Agreement by LICENSEE.

5. Royalties.

(a) Amount. LICENSEE, in addition to complying with all of the other terms and conditions of this Agreement , shall pay to LICENSOR, in consideration of the rights granted by LICENSOR to LICENSEE under Section 2 of this Agreement , royalties in an amount equal to the greater of (i) the Earned Royalty or (ii) the Guaranteed Minimum Royalty . Royalties shall be paid on a calendar-quarter basis, as more particularly described in Section 5(b) below.

(b) Payment of Royalties. Royalties owed hereunder shall be calculated and paid on a calendar-quarter basis with the amount owed for a particular calendar quarter being the greater of the Earned Royalty for such calendar quarter or the Guaranteed Minimum Royalty installment payable for such calendar quarter, as required under Section 5(a) above, within thirty (30) days following the last day of each calendar quarter. In the case of delay in payment by LICENSEE to LICENSOR of any installment of royalties owed hereunder, interest at an annual rate of three percent (3%) over the prevailing prime interest rate as fixed and published by Citibank in New York City, New York, shall be assessed as from the first day following the date such installment was due and payable to LICENSOR without special notice. No portion of the Guaranteed Minimum Royalty or Earned Royalty shall be refundable to LICENSEE upon expiration or termination of this Agreement.

(c) Deductions. There shall be no deduction from royalties for uncollectible amounts, taxes based on LICENSEE's income or sales, fees, assessments, or other expenses of any kind which may be incurred or paid by LICENSEE in connection with performance of this Agreement . No other costs incurred by LICENSEE in the manufacturing, selling, advertising, and distribution of the Licensed Products shall be deducted for purposes of determining royalties owed hereunder. Notwithstanding the foregoing, the royalty payable by LICENSEE to LICENSOR may be reduced by any applicable foreign withholding taxes imposed on the LICENSEE’s royalty payments; provided that LICENSEE promptly provides LICENSOR with documentation (i.e. tax forms) showing proof of payment of the applicable withholding tax. The documentation to be provided by LICENSEE must be sufficient to enable LICENSOR to receive a credit against its United States tax liability related to its royalty income under this Agreement .

(d) Reports. LICENSEE shall provide LICENSOR with a report of transactions relating to Licensed Products on which royalties have accrued, in the form attached hereto as Exhibit C (each a “ Royalty Report ”), for each calendar quarter during the Term . LICENSEE shall forward each Royalty Report to the LICENSOR contact person at the applicable address listed on Exhibit D attached hereto. LICENSEE shall furnish to LICENSOR a full and complete report, duly certified by an officer of LICENSEE to be true and accurate, showing the number of each type of such Licensed Product sold in the Territory during the calendar quarter in question, and the total Sales for each such Licensed Product , together with any other information requested by LICENSOR. In the event there have not been any transactions relating to such Licensed Products during a particular calendar quarter, LICENSEE shall provide LICENSOR with a report confirming such inactivity. Royalty Reports shall be due thirty (30) days after the end of each calendar quarter.

(e) Retention of Records; Audits. During the Term and for a period of three (3) years thereafter, LICENSEE shall keep full and accurate books of account and copies of all documents and other materials relating to this Agreement at LICENSEE's principal office. Upon reasonable advance written notice, LICENSOR, its agents or representatives, shall have the right to audit such books, documents, and other materials as may be necessary to verify LICENSEE’s compliance with the terms of this Agreement (including, without limitation, verification of the accuracy of royalties paid), shall have access thereto during ordinary business hours, and shall be allowed to make copies of such books, documents, and other materials. Unless LICENSEE fails to properly account to and pay royalties owed to LICENSOR, or LICENSOR has reasonable cause to believe such, there shall be no more than two (2) audits conducted during any Contract Period . At LICENSOR's request, LICENSEE shall make one (1) of its employees available to assist in the examination of LICENSEE's records. If any audit of LICENSEE's books and records reveals that LICENSEE has failed to properly account to and pay royalties owed to LICENSOR, and the amount of royalties due for any quarterly or annual period exceeds the amount actually paid by five percent (5%) or more, LICENSEE shall, in addition to paying LICENSOR such past due royalties, reimburse LICENSOR for its expenses incurred in conducting the audit together with interest on the overdue royalty amount at an annual rate of three percent (3%) over the prevailing prime interest rate as fixed and published by Citibank in New York City, New York and in effect as of the date on which such overdue royalty amount should have been paid to LICENSOR.

(f) Currency. All royalties payable hereunder shall be paid in United States Dollars. For purposes of converting Sales in denominations other than United States Dollars to United States Dollars, LICENSEE shall use the applicable conversion rate set forth in the Wall Street Journal on the date the royalty is due or the date such payment is made, whichever occurs first.

6. Product Quality.

(a) Quality Standards.

(i) LICENSEE acknowledges that the quality of Licensed Products must be the highest in order to preserve and maintain LICENSOR's reputation and the goodwill inherent in the Trademarks , and agrees that failure to adhere to LICENSOR's quality standards as set forth on Exhibit E hereto (" Standards ") will impair the value and goodwill associated with the Trademarks . LICENSEE therefore agrees that prior to the sale of a Licensed Product , it shall follow the material submission procedures as provided on Exhibit F hereto and utilize the submission form as set forth on Exhibit G hereto. LICENSEE shall submit three (3) samples of the Licensed Product , together with a copy of the Licensed Product specifications (“ Specifications ”), to LICENSOR for written approval, as provided on Exhibit F hereto. LICENSOR shall use reasonable efforts to provide written approval or disapproval of any Licensed Products within fifteen (15) business days after receipt thereof. LICENSOR’s failure to approve or disapprove within such period shall be deemed disapproval, unless LICENSOR subsequently notifies LICENSEE of its written approval. LICENSOR shall have the right, in its sole discretion, to approve or disapprove any Licensed Products . Once LICENSOR's final review and approval has been obtained, LICENSEE agrees that it shall not deviate from the approved samples and Specifications without LICENSOR’s written approval. If LICENSOR determines that the Licensed Product does not conform to the approved samples and Specifications , LICENSEE shall immediately stop the manufacture, distribution and sale of the nonconforming Licensed Product . Failure to follow the procedures as provided on Exhibit F hereto shall deem all materials unapproved and subject to immediate recall. LICENSOR reserves the right to change the material submission procedures and form . LICENSEE further agrees to comply with LICENSOR's Quality Requirements as they relate to Acceptable Quality Levels (AQLs) for product quality.

(ii) '''''''''''' '''' ''''''''''''''''''''''''''''''''' ''''''''''''''''''''''''''' ''''''''''''''''''''''''''''''' ''''' '''''' ''''''''''''' '''''''''''''' ''''''''''''''''''' '''' '''''''' '''''''''''''''' '' ''''''''''''''''''''''''''' '''''''''''' '''''''''''''''''' '''''''''''''''''''''''''''' '''''''''' '''''' ''''''''''''''''''''''''''' ''''''''''''''''' ''''''''''''''' '''''''''''''''''''' ''''''''''''' '''' ''''''''''''''''' ''''''''''''''''''''''''''''' '''''''''''''''''''''''''''''' ''''''''''''''''''' ''''''' '''''''''''''''''''''''''''' ''''''''''' ''''''''''''''''''''''''''''''' ''''''''''''''' ''''''''''''''''''''' ''''''''''''''''''' '''''''' ''''''''''''''' ''''''''''''''' '''''''''''''''''''''''''' ''''''''''''''''' '''''''''''''''''''''''' If LICENSOR determines that LICENSEE’s manufacturing facilities do not comply with such standards, LICENSOR shall provide notice to LICENSEE of such determination and shall specify in such notice the manner in which LICENSEE’S manufacturing facilities do not comply with such standards. If LICENSEE’S manufacturing facilities do not comply within thirty (30) days of receipt of notice, either party may terminate this Agreement upon written notice to the other party within twenty five (25) days after expiration of the relevant cure period as stated herein; provided, however, that if compliance is capable of being achieved, albeit not within the thirty (30) day cure period, and LICENSEE is diligently working to comply, then the period described in this Section shall be extended to forty-five (45) days from receipt of notice. Any such termination of this Agreement shall relieve LICENSEE of any further obligation to make payment of Guaranteed Minimum Royalties that accrue and are payable after the date of termination of this Agreement .

(iii) ''''''''''''''''''''''''' ''''''''''''''' ''''''' ''''' ''''''''''''''' '''''''' ''''''''''''''' ''''''''''''''' ''''''''' ''''''''''''''''' ''''''''' ''''' '''''''''''''''''''''''''''''' ''''''''''''''''''' ''''''' ''''''''''''''''''''' ''''''''''''''''' ''''''''' '''''''''''''' '''' '''''''''''''''' '''''''''' ''''''''''''''''''''''''''''''''''' '''''''''''''''''''' '''''''''''''''''''''''' ''''''''''''''''' ''''''''' '''''''''''''''''''' '''''' '''''''''''''''''''' '''''' '''''''''''''''' '''''' ''''''''''''''''''''''''''' '''''''''''' '''''''''' '''' ''''''''' ''''''''''' ''''''''''''''' ''''' ''''''''''''''''''''''''''''''''' ''''''''''' ''''''''''''''''''''' '''''''''''''''''''''''''' '''' '''''''''' '''''''''''''''''''''''''' ''''''' '''''''''''' ''''''''''''''''''''''''' '''''''''''' ''''''''''''''''' '''''''''''''''''''''' ''''' '''''''''''''''''''''''''''''' ''''''''''''''''''' '''''''''''''''''''''''''' '''''''''''''''' '''' '''''''''''''''''''''''''''''''' ''''''''''''''''' ''''''''''''' '''''''''''''''''''''''''' '''''''''''''''''''''''''' '''''''''''''''' '''''''''''''''''''''''''''''' ''''''' '''''''''''''''''''''''' '''''''''''''''' '''''''''''''' '''''''''''''''''''''''''' '''''''' '''''''''''''''' '''''''''''''''''''''''''''''''''' ''''''''''''' '''''''' ''''''''''''''''''' ''''''''''''''''' '''''''''''''' ''''''''' ''''''''''''''''''''''''' ''''''''' '''''''''' ''''''''''''''''''' '''''''''' '''''''''''''''' '''''''''''''''' '''' ''''''''''''''''''''''''''' '''''''''' '''''''' '''''''''''''''''''''''' ''''''' ''''''''''' '''''' '''''''''''''''''' ''''' '''''''''''''''' . In the event none of the Licensed Products meet all of LICENSOR’s testing standards, this Agreement may be terminated by either party upon written notice without further obligation on the part of LICENSEE to make payment of Guaranteed Minimum Royalties that first accrue and are payable after the date of termination of this Agreement .

(b) Provision of Samples. LICENSEE shall furnish free of charge to LICENSOR twenty-four (24) samples of each Licensed Product finished good, including packaging, from the first production run. LICENSOR may request an additional twelve (12) samples of each Licensed Product finished good, including packaging, per year, and if such a request is made, LICENSEE shall furnish the additional samples.

(i) Independent Product Audit. LICENSOR reserves the right to institute an independent inspection program for Licensed Products produced at LICENSEE's facility. This inspection may either be conducted by LICENSOR or an independent third-party service selected by LICENSOR.

(ii) System Audits. Upon reasonable notice from LICENSOR, LICENSEE shall permit representatives of LICENSOR to enter LICENSEE's premises and plant(s) during normal business hours for the purpose of inspecting LICENSEE's plant(s), equipment, records, operation and supplies that relate to the manufacture, distribution and sale of the Licensed Products . LICENSEE further agrees to cooperate with LICENSOR and strive to achieve a 4.0 on the Supplier Quality Audit as outlined on Exhibit E hereto.

(d) Changes in Standards. LICENSOR shall have the right from time to time to change, withdraw or supplement the Standards set forth in Exhibit E attached hereto or its approval of Licensed Products previously authorized for use and sale by LICENSEE. LICENSOR’s right to change, withdraw or supplement a prior approval of a Licensed Product shall include, but not be limited to, the right to require, from time to time and at any time, that a Licensed Product be reformulated or removed from the definition of Licensed Products due to the presence of a chemical on LICENSOR’s proprietary brown list of raw materials. LICENSEE shall have a reasonable period of time, not to exceed six (6) months without prior written approval, to reformulate the Licensed Product and/or to cease sale of such Licensed Product and, thereafter, to dispose of its existing inventory of Licensed Products , at LICENSEE’s cost, by a means approved of by LICENSOR. If the changes to the Standards or approved samples result from a decision not made in LICENSOR's sole discretion, then LICENSEE shall implement all changes immediately at its own expense. If LICENSEE reformulates a Licensed Product under this Section 6(d) , then LICENSEE shall requalify the Licensed Product pursuant to the terms of this Agreement . In the event LICENSEE determines reformulation is not commercially reasonable or it is determined that the reformulated Licensed Products do not meet all of LICENSOR’S revised Standards, this Agreement may be terminated by either party upon written notice to be given to the other party within sixty (60) days of such a determination, without further obligation on the part of LICENSEE to make payment of Guaranteed Minimum Royalties that first accrue and are payable after the date of termination of this Agreement .

(e) Licensed Product Warranty. LICENSEE represents and warrants that the Licensed Products will be manufactured in compliance with the Specifications, be of good quality, free from defects in design, material, and workmanship and will be merchantable and suitable for their intended purpose; that no injurious, deleterious, or toxic substances will be used in or on the Licensed Products ; that the Licensed Products will not cause harm when used in a foreseeable manner; and that LICENSEE will, at its own expense, comply with all laws, regulations and industry standards, including those relating to the operation of LICENSEE's plants, the manufacture, sale and distribution of the Licensed Products , including the labeling thereof and including safety standards and testing of the Licensed Products . LICENSEE further represents and warrants that the Licensed Products will be suitable for food contact applications as defined by the U.S. FDA and the equivalent standards in Territories outside of the United States.

(f) Product Safety.

(i) Each party shall promptly notify the other when and if either has reason to believe that any Licensed Product poses or may pose a health or safety risk, or is not or may not comply with any laws or regulations. In addition, LICENSEE shall promptly notify LICENSOR of any claims, lawsuits, reports or allegations of adverse effects related to the Licensed Products which could give rise to a reporting obligation under federal and/or state laws. LICENSEE shall also give LICENSOR prompt notice of all product liability claims involving any Licensed Product . LICENSEE shall have, subject to prior consultation with LICENSOR, the right to take any action it reasonably determines to be appropriate with respect to a Licensed Product, including but not limited to, withdrawing or recalling the affected Licensed Product , provided that, unless LICENSEE has been advised by independent outside counsel reasonably acceptable to LICENSOR that such action is required by applicable law, LICENSOR shall have the right to approve in advance any proposed Licensed Product recall, retrieval or withdrawal, public announcement or other response if LICENSOR believes in good faith that such action would have a material adverse effect on LICENSOR’s business. In the event LICENSEE is deciding whether to withdraw or recall a Licensed Product , LICENSEE (A) shall promptly provide LICENSOR with details of the events that gave or are giving rise to the consideration of a possible recall, (B) shall keep LICENSOR promptly advised of decisions concerning the recall, and (C) shall show LICENSOR any draft announcements concerning the affected Licensed Product before making such announcement, and give LICENSOR the opportunity to collaborate with LICENSEE on them. LICENSEE shall provide LICENSOR with this information by live telephone discussions with the Quality Control Representatives listed on Exhibit D hereto, and not merely by leaving voice mail messages if LICENSOR’s contact persons are unavailable. LICENSEE shall reimburse LICENSOR for its costs for any recall.

(ii) Notwithstanding Section 6(f)(i) above, if LICENSEE elects not to recall, retrieve or withdraw the Licensed Product or to notify any governmental or regulatory authority, and LICENSOR continues to have a reasonable and good faith belief that (A) the misbranding, adulteration, or other health or safety risk associated with the Licensed Product is reasonably likely to give rise to significant personal injury or property damage, (B) the Licensed Product contains a material defect or otherwise constitutes a defective product which is reasonably likely to give rise to significant personal injury or property damage, (C) the manufacturing, promoting, using, selling or distributing of the Licensed Product constitutes a material violation of applicable laws or regulations, or (D) the continuance of the sale or distribution of such Licensed Product would have a material adverse effect on LICENSOR’s business, LICENSOR may demand by notice that LICENSEE shall conduct a recall, retrieval or withdrawal of the Licensed Product and/or notify the appropriate governmental or regulatory authorities. In the event of such a remedial demand by LICENSOR, LICENSEE shall promptly take appropriate steps to effect a recall, retrieval or withdrawal of such Licensed Product in the manner contemplated by the remedial demand. The costs and expenses of any recall, retrieval or withdrawal shall be paid by LICENSEE.

(g) Consumer Complaints. All consumer complaints shall be handled by, and directed to, LICENSEE; provided, however, that LICENSEE shall immediately forward to LICENSOR all consumer complaints regarding the Licensed Products which may affect the reputation, products, marks or business of LICENSOR. LICENSOR and LICENSEE shall confer on how to handle or respond to such complaints; provided, however, that LICENSOR shall have the right to respond to all such material consumer complaints or inquiries concerning the Licensed Products or Advertising Materials . LICENSEE agrees to provide a telephone number for consumer inquiries and complaints. LICENSEE agrees to handle all complaints in a timely and professional manner and use its best efforts to satisfy customers. LICENSEE agrees to log all consumer complaints, along with contact information, into a database for tracking purposes. LICENSEE shall submit a summarized report of complaints received thirty (30) days after the end of each calendar quarter along with the Royalty Report . Additionally, from time to time, LICENSOR may request a report of complaints received and LICENSEE must provide the report within ten (10) working days of the request.

(h) Manufacturing Standards. LICENSEE shall ensure that the production and/or manufacture of Licensed Products and/or Advertising Materials , whether by LICENSEE or by third party manufacturers or suppliers selected by LICENSEE with LICENSOR’s approval (individually, a " Manufacturer " and collectively, the “ Manufacturers ”), complies with the following requirements set forth in this Section. LICENSEE shall ensure such compliance by Manufacturers before they contribute to production of Licensed Products and at all times during such production.

(i) LICENSEE and the Manufacturers shall not use child labor (not including child actors or models) in the manufacturing, packaging, marketing, advertising, or distribution of the Licensed Products .

(ii) LICENSEE and the Manufacturers shall only employ persons whose presence is voluntary. LICENSEE and the Manufacturers shall not use any forced or involuntary labor.

(iii) LICENSEE and the Manufacturers shall treat each employee with dignity and respect, and shall not use corporal punishment, threats of violence, abuse, or other forms of physical, sexual, psychological, or verbal harassment.

(iv) LICENSEE and the Manufacturers shall not unlawfully discriminate in any hiring or employment practices.

(v) LICENSEE and the Manufacturers shall comply with all applicable wage and hour laws, rules, regulations, and industry standards. Where local industry standards are higher than applicable legal requirements, LICENSEE and the Manufacturers shall meet the higher local standards.

(vi) LICENSEE and the Manufacturers shall comply with all applicable workplace laws, rules, regulations, and industry standards, ensuring, at a minimum, fire safety, adequate lighting and ventilation, and reasonable access to potable water and sanitary facilities.

(vii) LICENSEE and the Manufacturers shall respect the rights of employees to associate, organize, and bargain collectively in a lawful and peaceful manner, without penalty or interference.

(viii) LICENSEE and the Manufacturers shall comply with all applicable environmental laws, rules, regulations, and industry standards.

LICENSOR and its designated agents (including third parties) may engage in monitoring activities to confirm compliance with this Section. LICENSEE shall promptly reimburse LICENSOR for the actual costs of inspections performed pursuant to this Section if any of LICENSEE’s manufacturing facilities or those of any Manufacturer are determined by LICENSOR or its agents to have failed to comply with the terms of this Section; provided, however, that LICENSOR shall notify LICENSEE in writing of the nature of any such failure and LICENSEE or Manufacturer shall have thirty (30) days to cure any such failure. If LICENSEE becomes aware that any Manufacturer has used or is using Trademarks for any unauthorized purpose, LICENSEE shall immediately notify LICENSOR and, if so instructed by LICENSOR, shall cause such Manufacturer to cease such use immediately. LICENSEE shall supply LICENSOR with the addresses of its proprietary manufacturing facilities for the Licensed Products , as well as those of its permitted sub-manufacturers, if any, before any such facilities contribute to production of Licensed Products .

7. Advertising Materials.

(a) Approval of Advertising Materials. LICENSEE shall electronically submit one (1) draft copy or otherwise send three (3) draft copies of all Advertising Materials to LICENSOR for its review and written approval before printing, producing or using such Advertising Materials . LICENSEE shall follow the material submission procedures as provided on Exhibit F hereto and utilize the submission form as set forth on Exhibit G hereto. Failure to follow the procedures as provided on Exhibit F hereto shall deem all materials unapproved and such materials shall not be distributed. LICENSOR reserves the right to change the material submission procedures and form.

(b) Time for Approval. LICENSOR shall use reasonable efforts to provide written approval or disapproval for any Advertising Materials within ten (10) business days after receipt thereof. LICENSOR’s failure to approve or disapprove within such period shall be deemed disapproval, unless LICENSOR subsequently notifies LICENSEE of its written approval. LICENSOR shall have the right, in its sole discretion, to approve or disapprove any Advertising Materials .

8. Sale of Licensed Products.

(a) Initial Approval and Sale. If by the Initial Sale Date LICENSEE has not received and accepted one or more purchase orders from a national or regional customer account for Licensed Products providing for shipment of such Licensed Products in each country of the Territory no later than August 31, 2012, LICENSOR shall have the right to terminate the license granted herein for such Territory immediately by giving notice of termination to LICENSEE in relation to that Territory or Territories ; provided, however, that if the subject Territory is the United States, then LICENSOR shall have the right to terminate this Agreement in its entirety.

(b) Exploitation of Rights. LICENSEE agrees that during the Term , it shall diligently and continuously distribute, ship and sell all of the Licensed Products in the Territory and that it shall use its best efforts to manufacture the Licensed Products in sufficient quantities to meet the reasonably anticipated demand in the Territory . LICENSOR shall have the right to terminate this Agreement if LICENSEE, for any reason, after the commencement of sale, shipment and distribution of Licensed Products , fails for a period in excess of sixty (60) days to continue to sell, ship and distribute such Licensed Products in the Territory . LICENSEE shall use commercially reasonable efforts to promote the Licensed Products throughout the Territory consistent with its normal business practices.

(c) Sale to LICENSOR. LICENSEE agrees to sell to LICENSOR, on request, reasonable quantities of each Licensed Product at LICENSEE's cost thereof. No royalties shall be due on sales to LICENSOR. LICENSOR shall have the right to resell any such Licensed Product in LICENSOR’s company stores (and such sales shall not be considered a violation of this Agreement ).

9. Protection of the Trademarks.

(a) Registrations. LICENSOR shall have the right, in its sole discretion, to file trademark, trade dress, copyright, logos, graphical designs, or other applications in the Territory or elsewhere, relating to the use or proposed use by LICENSEE of the Trademark and to record this Agreement . Such filings shall be made in the name of LICENSOR or in the name of any third party selected by LICENSOR. LICENSEE shall assist LICENSOR at LICENSOR’s expense, to the extent necessary in LICENSOR’s opinion, in procuring, protecting and defending any of LICENSOR’s rights in the Trademark , in the filing and prosecution of any trademark application, copyright application or other applications for the Trademark , the recording or canceling of this Agreement , and the publication of any notices or the doing of any other act or acts with respect to the Trademark , including the prevention of the use thereof by an unauthorized person, firm or corporation, that in the judgment of LICENSOR may be necessary or desirable. For these purposes, LICENSEE shall supply to LICENSOR, free of cost to LICENSOR, such samples, containers, labels and similar materials as may reasonably be required in connection with any such actions. LICENSEE shall not file any applications for the Trademark or for trademarks LICENSOR deems confusingly similar to the Trademark , without the express written consent of LICENSOR.

(b) Prohibited Uses of the Trademarks . LICENSEE shall not use the Trademark in combination with any other trademark, word, symbol, letter or design, or as part of its company name or in connection with any product other than the Licensed Products . Further, LICENSEE agrees not to adopt any trademark, trade dress, trade name, design, logo or symbol which is similar to or likely to be confused with any of the Trademarks or Licensed Product packaging during the Term of this Agreement or thereafter. LICENSEE shall not, directly or indirectly, in any way dispute or impugn the validity of the Trademarks , or LICENSOR's sole ownership and right to use and control the use of the Trademarks during the Term of this Agreement and thereafter. LICENSEE shall not do or permit to be done any action or thing which shall in any way impair LICENSOR's rights in and to the Trademarks . LICENSEE acknowledges that its use of the Trademarks shall not create in it any right, title or interest therein and agrees that all use thereof shall be for the benefit of LICENSOR.

(c) Copyright Protection. LICENSEE recognizes the importance to LICENSOR of preserving copyright protection and registrations therefore on all copyrightable works embodied in any graphics, logos, or other artistic elements embodied in or in connection with the Trademark and on all copyrightable works relating to the Trademark , including without limitation Advertising Materials, trade dress and packaging graphics, and new works and derivative works related thereto (" Copyrights "), and the importance of securing copyright protection for the Copyrights for copyright law purposes, and for all materials which include representations of the Trademarks which appear on or in connection with Licensed Products or on or in connection with the Advertising Materials . Therefore, LICENSEE shall place a copyright notice(s) in the name(s) specified by LICENSOR on all Licensed Products and Advertising Materials . The copyright notice shall be placed near the trademark notice described in Section 9(f) , and shall be in such a format as LICENSOR shall reasonably specify. LICENSEE agrees that it shall not affix to the Licensed Products or the Advertising Materials a copyright notice in its name or the name of any other person, firm, or corporation, except as requested or approved by LICENSOR. LICENSEE agrees that proper copyright notices must be affixed to all Licensed Products and Advertising Materials bearing copyrightable matter in a manner that is sufficient in size, legibility, form, location, and permanency to comply with both the United States copyright laws and also the copyright notice requirement of the Universal Copyright Convention.

(d) Intentionally Left Blank.

(e) Assignment by LICENSEE. All uses of the Trademark by LICENSEE shall inure to the benefit of LICENSOR, which shall own all Trademarks , trademark rights, copyrights and other intellectual property rights created by such uses. To the extent LICENSEE acquires any rights to any of the Copyrights or Trademarks , LICENSEE hereby assigns and transfers to LICENSOR all such rights, together with the goodwill of the business in connection therewith, and agrees to execute any documentation relating to such assignment. LICENSEE hereby assigns and transfers to LICENSOR its entire worldwide right, title, and interest in and to all "new works,” "derivative works" and/or “joint works” heretofore or hereafter created using all or any portion of the Trademarks including, but not limited to, the Copyrights and renewal copyrights thereon. If parties who are not employees of LICENSEE living in the United States make or have made any contribution to the creation of a work, so that such parties might be deemed to be "authors" as that term is used in present or future United States copyright statutes, LICENSEE agrees to obtain from such parties a full assignment of rights so that the foregoing assignment by LICENSEE shall vest in LICENSOR full rights in the work, free of any claims, interests, or rights of other parties. LICENSEE shall not permit any of its employees to obtain or reserve any rights as "authors" of such works and agrees to furnish LICENSOR with full information concerning the creation of new works and/or derivative works and with copies of assignments of rights obtained from other parties, and to execute, without charge, any documents requested by LICENSOR for such purposes. In each circumstance, in addition to all other steps as may be necessary, LICENSEE shall have its contractors sign the form attached hereto as Exhibit I .

(f) Trademark Notice. LICENSEE shall affix or cause its authorized manufacturing sources to affix to the packaging for the Licensed Products , the Licensed Products and Advertising Materials the following notice (and such other notices as may be requested from time to time by LICENSOR in relation to LICENSOR's trademark, copyright, patent or other protection), as applicable; (i) “[Trademark®] is a registered trademark of S.C. Johnson & Son, Inc. used under license”; or (ii) “[Trademark] is a trademark of S.C. Johnson & Son, Inc. used under license.”

10. Infringements . If LICENSEE learns that a third party may be infringing the Trademark , LICENSEE shall promptly provide LICENSOR with written notice providing any details it knows about the use. LICENSOR shall decide what, if any, action to take, but shall have no obligation to take any action. LICENSEE shall cooperate with LICENSOR, at LICENSOR’s expense, in any action it takes to stop infringements. LICENSOR may settle any dispute relating to the use of the Trademarks without notice or compensation to LICENSEE, and shall retain the proceeds of any settlement or proceeding.

11. Indemnification.

(a) LICENSEE's Indemnification Obligations. LICENSEE agrees to indemnify and hold LICENSOR harmless, from any and all claims, liabilities, judgments, penalties, losses, costs, damages, and expenses resulting therefrom, including reasonable attorneys' fees, arising out of any of the following: ''''''''''''' ''''''''''''''''''''''''''' ''''''''''''''''''''''''''' '''''''''''''''''''''''' '''''''''' ''''''''' ''''''''' ''''' ''''''''' '''''''''''''' ''''''''''''''' '' '''''''''''''''''''' ''''''''''''''''''' ''''''''''''''''''''''''' ''''''''' ''''''''''''' '''''''''''''''''''''''''' '''''''''''''''''' ''''''''''''''''''''' ''''''''''''' '''''''''''''''' ''''' '''''''''''''''''''' ''''''''''''''' '''''''''''''''''' '''''''''''''''''' '''''''''''''' ''''''''''''''' ''''''''''''' '''''' ''''''''' '''''''''' '''''''''''' ''''''''''''''''''''''''''''''''''''' ''''''' '''''' ''''''' ''''''''''''''''''''''''' ''''''''''' '''''''''''' ''''' ''''''''''''''''''''''' ''''''''''''''''''' ''''''''''' ''''''''''' '''''''' '''''''''''''''''' '' '''''''' ''''''''''''''''''' '''''''''''''''''''' '''''' '''''''''''''''''''''''''''' ''''' ''''' '''''''''''''''''''''''' '''''''''''''' ''''''''''''' ''''''''''''''''''' '''''''''''''''''''' '''''''''''' ''''' ''' ''''''''''''' ''''' ''''''''' ''''' '''''''''''''''''''''' ''''' '''''''''' '''''''''''''''' ''''''''''''''''''''''' '''''' '''''''''''''''''''''''''''' '''' ''''''''''''''''''''''''''' ''''''''''''''' '''''''''''''''' '' ''''''''''''''' ''''''''''''' '''''''''''' '''''''''''' ''''''' ''''''''' ''''' ''''''' ''''''''''''''''' ''''' '''''''''''''''''''''''' ''''' ''' '''''''''''''''''' '''''''''''''' ''''''' '''''''''''' '''''''''''''''''''''''' '''''''''''''''''''''' '''''' '''''''''''''''''''''''''''' ''''' '''''''''''' '''''''''''''''''''''''''''' ''''''''''' ''''''' '''''''''''' ''''' ''''''''' ''''''''''''''''''' '''''' ''''''''''''''''''' ''''''''''''''''''''''' '''''''''''' ''''''''''''''''''''''''''''''' '''''''''''''''''''''' ''''' '''''''''''''''''''''''''''' The right to be indemnified and held harmless under this Section shall not be exclusive, but shall be in addition to any and all other rights and remedies to which LICENSOR may be entitled under this Agreement or otherwise.

(b) Claims Procedures. With respect to the foregoing indemnification obligations: (i) LICENSEE agrees promptly to notify and keep LICENSOR fully advised with respect to such claims and the progress of any suits in which the LICENSOR is not participating; (ii) LICENSOR shall have the right to assume, at its sole expense, the defense of a claim or suit made or filed against the LICENSEE; (iii) intentionally omitted; (iv) LICENSEE shall not settle such claim or suit without the prior written approval of the LICENSOR, which shall not be unreasonably withheld.

12. Insurance.

(a) Insurance Required. LICENSEE agrees to obtain, at its own cost, from an insurance company with a rating by A.M. Best of A- or better, and class VIII or better, the insurance described in Sections 12(b) and 12(c) below, and to maintain that insurance during the Term and until the later to occur of the following: (i) Licensed Products are no longer offered for sale to end users, or (ii) two (2) years have elapsed after the termination or expiration date. Before the sale of any Licensed Products , LICENSEE shall furnish LICENSOR with a certificate of insurance evidencing the insurance coverages required herein and confirming that LICENSOR has been named as an additional insured on such policies, and that such insurance shall not be cancelled, non-renewed, or materially modified without thirty (30) days prior written notice to LICENSOR. The policy certificates shall be delivered to the applicable individual listed on Exhibit D hereto.

(b) Commercial General Liability Insurance. LICENSEE's Commercial General Liability Insurance shall specifically provide coverage for products liability, completed operations, advertising liability and contractual liability covering any and all losses, claims, demands, causes of action and settlements, including attorneys’ fees, with a minimum limit of ''''''''''' '''''''''''''''''' '''''''''''''''''' ''''''''''''''''''''''''''''' per occurrence and '''''''''' ''''''''''''''''' ''''''''''''''''' ''''''''''''''''''''''''''''''' in the aggregate, with a self-insured retention not in excess of ''''''''''' ''''''''''''''''''''' '''''''''''''''''''''' ''''''''''''''''' ''''''''''''''''''''''''''' , unless a higher retention is approved in writing in advance by LICENSOR.

(c) Umbrella Liability Insurance Coverage. LICENSEE may provide (during the period described in Section 12(a) above) an umbrella liability policy as evidence of additional limits to meet the general liability insurance requirement in Section 12(b).

(d) Primary Insurance. LICENSEE’s policies shall be primary and non-contributory as to any other valid and collectible insurance policy available to LICENSOR.

13. Term and Termination.

(a) Term . Subject to early termination as provided in this Section, the Term of this Agreement shall begin on the Effective Date and run as follows:

Term
Contract Period 1:		Effective Date – December 31, 2012
Contract Period 2:		January 1, 2013 – December 31, 2013
Contract Period 3:		January 1, 2014 – December 31, 2014

(b) LICENSOR’s Immediate Right of Termination. LICENSOR shall have the right to terminate this Agreement upon notice to LICENSEE if:

(i) LICENSEE fails to make timely payment of royalties or fails to make timely submission of royalty statements as provided in Section 5 above and such failure is not cured within five (5) days after notice of nonpayment/nonsubmission is given by LICENSOR to LICENSEE, but if LICENSEE fails to make royalty payments or submit royalty statements on a timely basis more than two (2) times in any twelve (12) month period, then LICENSOR may, at its option, terminate this Agreement immediately upon notice to LICENSEE upon the next such failure to timely pay royalties or timely submit royalty statements;

(ii) LICENSEE assigns or transfers this Agreement without LICENSOR’s consent as required herein, or LICENSEE acts in any way which effects or constitutes a sublicense to any party other than an Affiliate Approved Sublicensee in accordance with Section 16 below;

(iii) LICENSEE or any Approved Sublicensee becomes insolvent, or a petition in bankruptcy or for reorganization is filed by or against it, or any insolvency proceedings are instituted by or against it, or LICENSEE or any Approved Sublicensee makes an assignment for the benefit of its creditors, is placed in the hands of a receiver, or liquidates its business, it being understood that if LICENSOR terminates this Agreement as authorized herein, LICENSEE and any Approved Sublicensee, its and their receivers, trustees, assignees, or other representatives shall have no right to sell, exploit, or in any way deal with the Licensed Products , Trademark or the Advertising Materials , except with the express written consent of LICENSOR;

(iv) in LICENSOR’s sole discretion, LICENSOR determines that any acts or omissions of LICENSEE (or any Approved Sublicensee ) and/or any acts or omissions of a Manufacturer , without regard to any cure period under this Agreement applicable to such Manufacturer acts or omissions) in connection with its use of the Trademark (which shall include, without limitation, the sale of defective products or products which create health or safety hazards) has damaged or otherwise impaired the Trademark ;

(v) it appears to LICENSOR that the use of the Trademark in association with the Licensed Products is likely to, or may reasonably be taken to, violate the intellectual property rights of another person;

(vi) LICENSEE or any Approved Sublicensee makes, sells, offers for sale, distributes or uses any Licensed Product or item of Advertising Material without having the prior written approval of the LICENSOR or agent, as required by Sections 6 and 7 above, it being understood that LICENSEE’s payment of a higher Earned Royalty for any Licensed Products sold without LICENSOR’s prior approval shall not preclude LICENSOR’s ability to enforce any other provision of this Agreement , including its immediate right of termination under this Section 13 ; or

(vii) LICENSEE or any Affiliate sublicensee undergoes a Change in Control; the LICENSEE (or any Affiliate sublicensee ), John H. Schwan or Stephen Merrick or any member of their immediate families or any Affiliate of any such person, or any officer of LICENSEE or any Approved Sublicensee sells or otherwise transfers any of its or his/her equity interests to a competitor of LICENSOR; or any competitor of LICENSOR has the right to elect or appoint a person to the Board of Directors of LICENSEE, or any officer, director or other designee of a competitor is elected or appointed to the Board of Directors of LICENSEE.

(c) LICENSEE’s Immediate Right of Termination. LICENSEE shall have the right to terminate this Agreement upon notice to LICENSOR if LICENSOR becomes insolvent, or a petition in bankruptcy or for reorganization is filed by or against it, or any insolvency proceedings are instituted by or against it, or LICENSOR makes an assignment for the benefit of its creditors, is placed in the hands of a receiver, or liquidates its business.

(d) Other Grounds to Terminate for Breach. If LICENSEE or any Approved Sublicensee breaches any of the terms of this Agreement other than those specified in Section 13(b) above and fails to cure the breach within thirty (30) days after receiving written notice thereof, this Agreement shall terminate at the end of the thirty (30) day period; provided, however, that if the breach is capable of being cured, albeit not within thirty (30) days, and LICENSEE or the applicable Approved Sublicensee is diligently working to cure the breach, then the cure period described in this Section shall be extended to forty-five (45) days.

(e) Effect of Termination. If this Agreement is terminated by LICENSOR pursuant to Section 13(b)(iv) above, then LICENSEE shall pay to LICENSOR, within thirty (30) days after the termination date (i) all royalties owed hereunder for calendar quarters prior to the calendar quarter in which the termination occurs, (ii) with respect to the calendar quarter in which termination occurs, the greater of the Guaranteed Minimum Royalty installment owed for such calendar quarter or all Earned Royalties owed with respect to such calendar quarter which are unpaid at the termination date, and (iii) the Guaranteed Minimum Royalty installments owed for the next three (3) calendar quarters following the calendar quarter in which the termination occurs. If this Agreement is terminated by LICENSOR pursuant to Section 13(d) or 13(b ) other than pursuant to subpart (b)(iv) above, then LICENSEE shall pay to LICENSOR, within thirty (30) days after the termination date, an amount calculated as follows: (A) the aggregate amount of the Guaranteed Minimum Royalty for the entire Term including, if renewed, any Renewal Term plus (B) the excess of Earned Royalties over the Guaranteed Minimum Royalty for all calendar quarters prior to the date of termination, minus (C) the aggregate amount of royalties paid by LICENSEE to LICENSOR under this Agreement through the termination date. If this Agreement is terminated by LICENSEE pursuant to Section 13(c) above for any reason, then LICENSEE shall pay to LICENSOR within thirty (30) days after the termination date (1) all royalties owed hereunder for calendar quarters prior to the calendar quarter in which the termination occurs, and (2) with respect to the calendar quarter in which termination occurs, the greater of the Guaranteed Minimum Royalty installment owed for such calendar quarter or all Earned Royalties owed with respect to such calendar quarter which are unpaid at the termination date. Termination or expiration of this Agreement shall be without prejudice to any rights or claims which LICENSOR may otherwise have against LICENSEE or any Approved Sublicensee.

(f) Discontinuance of Use of the Trademark . Subject to the provisions of Section 13(g) below, upon the expiration or termination of this Agreement , LICENSEE and all Approved Sublicensees shall immediately discontinue manufacturing, selling, advertising, distributing, and using the Licensed Products and Advertising Materials and terminate all agreements with manufacturers, distributors, and others which relate to the manufacture, sale, distribution, and use of the Licensed Products .

(g) Disposition of Inventory Upon Expiration. Notwithstanding the provisions of Section 13(f) above, if this Agreement expires in accordance with its terms or is terminated by LICENSEE in accordance with Section 13(c) above, LICENSEE shall have the right to sell the Licensed Products on hand as of the date of such expiration or termination, for a period of ninety (90) days immediately following such expiration or termination, subject to payment of royalties to LICENSOR on any such sales and compliance with all the terms of this Agreement . The sell-off right granted to LICENSEE is expressly conditioned on LICENSEE's providing LICENSOR, within ten (10) days of the expiration or termination of this Agreement, with an accurate inventory of all Licensed Products on hand at the time of expiration or termination. Following the sell-off period, at LICENSOR’s option and at LICENSEE’s expense, LICENSEE shall either: (i) deliver to LICENSOR all packages, labels, signage, stationery and other materials bearing the Trademark which are in LICENSEE’s possession or control, or (ii) remove from all items in LICENSEE’s possession or control, and destroy, all packages, labels, signage, stationery and other materials bearing the Trademark .

14. Manufacturing, Sales and Marketing Practices. The policy of sale, distribution, marketing and exploitation of the Licensed Products by LICENSEE shall be of high standard and shall in no manner reflect adversely upon the good name and reputation of LICENSOR or any of its programs, products, properties or the Trademark . Without limiting the generality of the foregoing, LICENSEE represents and warrants that:

(a) LICENSEE will at a minimum comply with the legal requirements and standards of its industry under the national laws of the countries in which the LICENSEE does business;

(b) LICENSEE will fairly compensate its employees by providing wages and benefits that are in compliance with the national laws and prevailing local standards in the countries in which LICENSEE is doing business;

(c) LICENSEE will maintain reasonable employee work hours in compliance with the local standards and applicable national laws of the countries in which LICENSEE is doing business;

(d) LICENSEE will furnish employees with safe and healthy working conditions;

(e) LICENSEE will protect the environment in its manufacturing process; and

(f) LICENSEE will not employ children or forced labor in any action taken under this Agreement.

LICENSOR may inspect any facility where LICENSEE makes Licensed Products to determine LICENSEE’s compliance with the Standards and the Specifications .

15. Confidentiality.

(a) Obligations of the Parties. Each party shall regard as confidential and proprietary all of the information communicated to it by the other in connection with this Agreement (which information shall at all times be the property of the disclosing party) (" Confidential Information "). The other party shall not, without the disclosing party’s prior written consent, at any time (i) use such information for any purpose other than in connection with the performance of its obligations under this Agreement or (ii) disclose any portion of such information to third parties, excluding agents or subcontractors which are directly performing services for or in connection with this Agreement . Upon the expiration or earlier termination of this Agreement , each party shall promptly return to the other, without retaining copies thereof, all such information. The parties shall cause each of their employees, agents and subcontractors who have access to such information to comply with the terms of this Section 15 in the same manner as the parties are bound hereby, with each party remaining responsible for the actions and disclosures of its employees, agents and subcontractors. The parties agree that any breach of this Section 15 by a party or its employees, agents or subcontractors could cause irreparable injury for which the disclosing party may be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach.

(b) Exceptions. Notwithstanding the foregoing, the parties’ obligations pursuant to Section 15(a) above shall not apply to (i) information that, at the time of disclosure, is, or after disclosure becomes part of, the public domain other than as a consequence of any breach hereof, (ii) information that was known or otherwise available to a party prior to its disclosure, (iii) information disclosed by a third party, if such third party's disclosure neither violates any obligation of the third party to the disclosing party nor is a consequence of any breach hereof, or (iv) information that the disclosing party authorizes, in writing, for release.

16. Sublicenses.

(a) Grant of Sublicense. LICENSEE shall have the right to grant sublicenses of its rights under this Agreement to its controlled subsidiaries (only for so long as such subsidiaries remain controlled by LICENSEE), subject to LICENSOR’S written approval and as set forth on Schedule 16(a) .

(b) Approved Sublicensees. Schedule 16(a) lists all of LICENSEE’S approved sublicensees (“ Approved Sublicensees ”).

(c) Sublicensee Territory. LICENSEE shall authorize each sublicensee to sell only in its licensed territory and shall prohibit sublicensees from soliciting sales outside its licensed territory, subject to applicable law.

(d) Guarantee. LICENSEE hereby guarantees the proper performance of the terms and conditions of each such sublicense by its Approved Sublicensees .

(e) Notice of Sublicense. LICENSEE shall give LICENSOR prompt written notice of the execution of any sublicense agreement and, at the same time, give LICENSOR a copy of the complete, signed agreement. LICENSEE shall record such sublicenses at its own expense in those countries where doing so is necessary or desirable to protect the sublicensed trademark rights; provided , that in the event LICENSEE does not do so, LICENSOR retains the right to record the sublicenses at LICENSEE’s expense.

(f) Form of Sublicense. The agreed form of sublicense is attached hereto as Schedule 16(b). In the event either LICENSEE or LICENSOR determines that a particular jurisdiction requires a modified form of sublicensee, LICENSEE and LICENSOR shall use their reasonable best efforts to negotiate in good faith the terms of the modified form of sublicense agreement. In the event such sublicense agreement has to be modified to conform to any local law, LICENSEE may submit to LICENSOR for approval a form of sublicense (on a country-by-country basis) that as closely as possible conforms to Schedule 16(b) and being consistent with local law along with an explanation as to why such changes are required by local law. To the extent permitted by local law, each such sublicense shall be retroactively effective as of the date of their creation.

(g) Third Party Beneficiary. The parties acknowledge that LICENSOR is a direct third party beneficiary of LICENSEE’s sublicenses with respect to the Licensed Products . LICENSOR shall have the right, independent of LICENSEE, to require performance by any Approved Sublicensee of the terms and conditions of the sublicense agreement and to bring all causes of action that result from breach of those terms and conditions by the Approved Sublicensee .

17. General Provisions.

(a) Force Majeure. The performance by either party of any of its obligations under this Agreement (excluding obligations to make payments due and owing hereunder) may be suspended by it, in whole or in part, if a Force Majeure Event prevents such performance. Upon the occurrence of a Force Majeure Event , the party whose performance is affected shall notify the other party as soon as is reasonably practicable giving the full relevant particulars and shall use its reasonable efforts to remedy the situation as soon as practicable.

(b) Notice. Any notice required or permitted by this Agreement shall be in writing and shall be sent by (i) means that provides documentary evidence of receipt, including facsimile, recognized commercial overnight courier, United States registered or certified mail, addressed to the other party at the address shown on the cover page of this Agreement or to such other address as may be provided in writing by either party hereunder. Any notice or other communication shall be effective only if given in writing, and shall be effective as of the date evidenced by a delivery receipt if personally delivered or sent by facsimile, overnight courier, or certified or registered mail.

(c) Governing Law and Jurisdiction. The construction and performance of this Agreement shall be governed by the internal, substantive laws of the State of Wisconsin without regard to its choice of law rules and each party submits to and agrees to bring all claims under this Agreement in the exclusive jurisdiction of the Federal or State Courts of Wisconsin.

(d) Export Control. LICENSEE acknowledges that it is familiar with, and shall in connection with its operations under this Agreement comply in all respects with U.S. laws, regulations and administrative requirements applicable to this Agreement concerning the export or re-export of any Confidential Information , or any United States origin product, software, or technology, or the direct product thereof, including, but not limited to, the International Traffic in Arms Regulations, the Export Administration Regulations, and the regulations and orders issued and/or administered by the U.S. Department of the Treasury, Office of Foreign Assets Control in relation to export control, anti-boycott and trade sanctions matters. LICENSEE shall be responsible for obtaining any required United States government authorizations, as applicable, including, but not limited to, export licenses or exemption authorizations, applicable to its operations under this Agreement .

(e) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.

(f) Intentionally Omitted.

(g) Assignment. This Agreemen t, and the license granted hereunder by LICENSOR, is indivisible, non-severable and strictly personal to LICENSEE. LICENSOR has entered into this Agreement on the terms and conditions set forth herein based on an expectation of personal performance by LICENSEE. As a result, the parties agree that LICENSEE shall not, directly or indirectly including by operation of law, assign, delegate or otherwise transfer this Agreement , in whole or in part, or any rights, privileges, duties and obligations hereunder without the prior written consent of LICENSOR, which consent may be withheld at LICENSOR’s sole discretion. Any attempted assignment, delegation or transfer in violation of this Section shall be null and void and of no force or effect and shall give LICENSOR the right to terminate this Agreement immediately on written notice to LICENSEE. LICENSEE shall not have the right to use this Agreement or the Trademark(s) as collateral or other security and any attempt to do so in violation of this Section shall be null and void and of no force or effect and shall give LICENSOR the right to terminate this Agreement immediately on written notice to LICENSEE. LICENSOR may assign this Agreement (and all of its rights and obligations hereunder) to any entity with or into which it merges or reorganizes, to any purchaser of the business relating to the Trademarks or to any current or future LICENSOR parent, subsidiary or affiliate. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their permitted assigns.

(h) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement .

(i) Merger/Amendment. This Agreement and any documents incorporated by reference herein constitutes the entire agreement and understanding between the parties regarding the subject matter hereof, and supersedes and merges all prior discussions and agreements between them relating thereto. No waiver, modification or amendment to this Agreement shall be valid unless in writing, signed by the parties hereto. No usage of trade or course of dealing between or among any persons having any interest in this Agreement shall be deemed effective to modify, amend, or discharge any part of this Agreement or any rights or obligations of any party hereunder.

(j) Independent Contractors. Nothing contained herein shall be deemed or construed to create any partnership or joint venture between LICENSOR and LICENSEE. All activities by LICENSEE or its subcontractors under the terms of this Agreement shall be carried on by LICENSEE or its subcontractors, as an independent contractor and not as an agent for or employee of LICENSOR. Under no circumstances shall any employee of LICENSEE or employee of its subcontractors be deemed or construed to be an employee of LICENSOR. LICENSOR shall not be liable for any injuries or damages incurred by LICENSEE, or its subcontractors, as a result of its activities in the performance of this Agreement .

(k) No Public Disclosure. The parties acknowledge that LICENSEE is a publicly-held entity and, as such, is legally required to make disclosure of the existence of this Agreement and certain material facts relating to this Agreement, LICENSEE’S performance thereunder, and the Licensed Products . LICENSEE represents that such public disclosure includes, (i) the filing with the Securities and Exchange Commission of required reports and exhibits thereto, (ii) the issuance of press releases disclosing material information and (iii) the disclosure of material information in presentations, reports, and annual reports to analysts, investors and the investment community; but that such disclosures will be limited to (A) the date on which the Agreement was entered into or amended or terminated, the identity of the parties to the Agreement or amendment, and a brief description of any material relationship between the Licensee or its Affiliates and the LICENSOR other than in respect of the Agreement or amendment; (B) a brief description of the terms and conditions of the Agreement or amendment that are material to the LICENSEE, (C) Licensed Product descriptions and related customer and sales information, and (D) if so required, a redacted version of the Agreement . In each such instance, LICENSEE agrees to provide to LICENSOR, five (5) business days (unless an earlier response is required by SEC rules and regulations) in advance of the release or issuance thereof, any and of all such filings, presentations, press releases, reports, statements, redacted form of Agreement and all other public disclosures for the advance review and approval of LICENSOR, which approval shall not be unreasonably withheld. None of such items shall be deemed to be Advertising Materials hereunder.

With respect to all other public disclosures not covered in the preceding paragraph, neither party shall make any press release or other public statement or announcement concerning the existence of this Agreement or its terms, the business relationship between the parties or the transactions contemplated hereby, without the prior written approval of the other party. In that regard each and all of the following (unless governed by the preceding paragraph) shall be subject to LICENSOR’S prior review and written approval: (i) all written statements, responses and other correspondence directed by LICENSEE to any third party (including, without limitation, governmental agencies and non-governmental organizations) pertaining to LICENSOR and/or any Licensed Product or Trademark ; (ii) all materials prepared by LICENSEE in connection with media interviews, newsletters, trade show presentations and other external presentations pertaining to any Licensed Product, Trademark and/or the transactions contemplated by this Agreement (as well as, in the case of interviews and presentations, the decision as to who will engage in the interview or conduct the presentation). LICENSEE acknowledges that LICENSOR may, in the exercise of its approval rights under this paragraph, prohibit a particular statement or the use of particular materials altogether.

(l) Waiver. The failure or delay of either party to insist upon the other party's strict performance of the provisions in this Agreement or to exercise in any respect any right, power or remedy provided for under this Agreement shall not operate as a waiver or relinquishment thereof, nor shall any single or partial exercise of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy; provided, however, that the obligations and duties of either party with respect to the performance of any term or condition in this Agreement shall continue in full force and effect.

(m) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute the entire agreement.

(n) Survival. The provisions of Sections 2(b), 5(d), 5(e), 6(e), 6(f), 6(g), 9(b), 11, 12, 13(c), 13(d), 13(e), 13(f), 13(g), 15, 16, 17(b), 17(c), 17(e), 17(f), 17(g), 17(h), 17(i), 17(k), 17(l), 17(n), and 18 herein shall survive any termination or expiration of this Agreement .

(o) Agency Representation. LICENSEE acknowledges that International Marketing Concepts, LLC (" IMC "), a Kentucky limited liability company with its principal place of business in Louisville, Kentucky, represents LICENSOR with respect to this Agreement .

(p) Safety/Health/Environment. LICENSEE shall comply with, and shall cause each of the Manufacturers to comply with, all applicable workplace Safety, Health, Environmental laws, rules, regulations, and industry standards. LICENSEE shall allow, and shall cause each of the Manufacturers to allow, LICENSOR to conduct an S/H/E audit and agree to take action on the results of such audit.

[Signature Page to follow]

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date .

S. C. JOHNSON & SON, INC.			CTI INDUSTRIES CORPORATION

By:			By:

Name:			Name:

Title:			Title:

SCJ Matter No.:

EXHIBIT A

TRADEMARKS

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EXHIBIT B

MANUFACTURER LETTER AGREEMENT

[insert mailing date]

Manufacturer
<Address>

RE: Approval for Third-Party Manufacturer

Gentlemen/Ladies:

This letter shall serve as notice to you that, pursuant to Section 4 of the Trademark License Agreement (the “Agreement”) dated __________________, 200___, between ____________________ (“Licensor”) and ________________________ (“Licensee”), we have been engaged by Licensee as the manufacturer of the following Licensed Products: [insert relevant Licensed Products]. We represent that we have received and reviewed a redacted copy of the Agreement and shall comply with the obligations set forth in the Agreement that are applicable to “Manufacturers” of Licensed Products (including, but not limited to, those set forth in Section 6(h) of the Agreement). We further agree that our use of any Licensor trademarks, service marks, other corporate indicia, or other intellectual property is strictly limited to and governed by the terms of the Agreement.

We agree that our engagement by Licensee as the Manufacturer of the Licensed Products identified above is subject to your written approval. We request, therefore, that you sign in the space below, thereby consenting to such engagement.

	Sincerely,



	On behalf of: [insert Manufacturer name]
	Address:

AGREED TO AND ACCEPTED:

Licensor:

By:
Name:
Title:
Date:

EXHIBIT C

ROYALTY REPORT

(See attached)

EXHIBIT D

CONTACTS

Matter Type	Contact Person

General Matters Notices	'''''''''' ''''''''''''''''''''' ''''''''''''''''''''''
Renewal/ Termination Inquiries Samples	''''''''''' ''''''''''''''''''''''' '''''''' ''''''''''' ''''''''''''''' ''''''''''''''''''''''' ''''''''' '''''''''''''' '''''''' '''''''''''''''''''''''''''''''''' '''''''''''' ''''''''''''''''''''''''''''''' '''''''''' ''''''''''''''''''''''''''''''''''' '''''''''''''''' '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''	''''''''''''' ''' ''''''''''' '''''' ''''''''''''''''' '''' '''''''''''''''' ''''''''''''''''''''' ''' '''''''''''''' ''''''''''''' '''''''''''''''''''''' ''''''''' '''''''''''''''''' ' '''''''''' '''''''''' '''''''''' ''''''''''''' '''''''''''' '''''''''''''''''' ''''''' '''''''''''''' ''''''''''' ''''''''''''''''''''''''''''''' ''''''''''' ''''''''''''''''''''''''''''''' '''''''''' '''''''''''''''''''''''''''''' '''''''''''''''''''''''''''''''''''''

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Quality Control Recalls and Material Submissions	'''''''''''' ''''''''''''' '''''''''''''''''' ''''''''''''''''''' ''''''''''''''''''''' ''''''''''''' '''''''''''''''''' ''''''''''''''''''' ''''''''' ''''''''''''''''''' ' ''''''''' '''''''''' '''''''''''' ''''''''''''' '''''''''''''' '''''''''''''''''' ''''''''' '''''''''''''''' ''''''''''' ''''''''''''''''''''''''''''''''''' '''''''''' '''''''''''''''''''''''''''''''''' '''''''''''''''''''''''''''''''''''''''	'''''''''''' '''' '''''''''''' '''''' ''''''''''''''' '''''''''''''''''''''''''' '''''''''''''''' ''''''''''''''''''' ''''''''''' '''''''''''''''''''''' '''''''' ''''''''''' ''''''''''''' ''''''''''''''''''''''''''' ''''''''' ''''''''''''' '''''''''' '''''''''''''''''''''''''''''''' ''''''''''' ''''''''''''''''''''''''''''''' ''''''''''' ''''''''''''''''''''''''''''' '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
	Reminder: Licensee must notify Licensor immediately of any serious quality defect, consumer complaint regarding injury or illness, product recall or regulatory compliance issues regarding the licensed product.

Royalty and Royalty Reports	Royalties to: Make checks payable to IMC Licensing with an electronic confirmation & royalty report to: '''''''''' ''''''''''''''''''''' ''''''''''' '''''''''''''''''''''''' '''''''''''''''''''''' ''''''''' '''''''''''' ''''''''''''' ''''''''''''''''''''''''' '''''''' ''''''''''''''' '''''''''' '''''''''''''''''''''''''''''' ''''''''''' ''''''''''''''''''''''''''''' '''''''''''''''' '''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

EXHIBIT E

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EXHIBIT F

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EXHIBIT G

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EXHIBIT H

''''''''''''''''''''''''

EXHIBIT I

ARTWORK ASSIGNMENT AGREEMENT

IN CONSIDERATION OF One Dollar ($1.00) and other good and valuable consideration paid or to be paid to ___________________________________ (the "Contractor") by ________________________________ ("Company"), the parties hereto agree as follows:

(a)

Contractor represents and warrants that Contractor shall create all _____________ to be submitted by Contractor hereafter to Company, including, without limitation, all _______________________ and _____________________ done and to be done in connection with a property of ______________________________ known as ________________________. (All such materials created by Contractor and all drafts, outlines, and other preparatory materials shall collectively be called the "Work" herein). Contractor warrants and represents that the Work shall be original with Contractor and shall not infringe the rights of any third parties; and that has the exclusive right forever and throughout the universe to exploit the Work and the results and proceeds of Contractor's services rendered in connection therewith.

(b)

The Work is and shall be considered a work made for hire for ___________________ and _______________ owns and shall own all right, title and interest in and to the Work and the results and proceeds of Contractor's services rendered in connection therewith, including, without limitation, all copyrights and renewals and extensions of copyright therein.

(c)

To the extent that any such ownership in such Work does not vest in __________________ by reason of Contractor's status as an employee for hire: Contractor hereby assigns and transfers in whole to _______________, all right, title, and interest in and to such Work and the results and proceeds thereof to the extent that Contractor has, had, or shall have any interest therein, including without limitation, all copyrights and renewals and extensions of copyright therein.

(d)

The Work may be registered for copyright in the name of _________________________, and shall own and possess all physical material in which or on which the Work is embodied or reproduced, by or on behalf of Contractor.

_________________ shall have the exclusive right forever throughout the universe to change, adapt, modify, use, combine with other material, and otherwise exploit the Work in all media and by all means, whether now known or hereafter invented or developed. Contractor hereby waives any and all claims that Contractor may have now or may hereafter have in any jurisdiction to so-called "moral rights" or "droit moral" with respect to the Work, and to the results and proceeds thereof.

(e)

Any further compensation paid or to be paid to Contractor for services rendered in connection with the Work shall be described in a separate writing or writings. This Agreement shall constitute the entire understanding between the parties. This Agreement may not be altered, modified or changed in any way without the express written consent of both parties and shall be construed in accordance with the laws of the State of Wisconsin applicable to agreements executed and wholly performed therein.

(f)

When requested by Company, Contractor shall perform all such acts and things and sign all documents and certificates which the Company may reasonably request in order to carry out the intent and purpose of this Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement.

COMPANY:			CONTRACTOR:

By:			By:

Its:			Its:

Date:			Date:

[to be notarized]

EXHIBIT J

MARKETING PLAN

LICENSEE will commit to the following marketing support for the Licensed Products :

Contract Year 1 : LICENSEE will spend '''''''''''''''''''' to market the Licensed Products .

Contract Years 2-3 : LICENSEE will commit to spending at least '''''''' of projected Sales to market the Licensed Products .

Marketing to include one or more of the following: in-store promotions, POP, trade marketing, FSI, internet/social media, consumer research, possible joint advertising efforts, broadcast commercial/infomercial, and development of a website that will provide consumer education, special promotions and potential DTC sales.

SCHEDULE 16(a)

APPROVED SUBLICENSEES

Flexo Universal S.A. de C.V.

SCHEDULE 16(b)

FORM OF SUBLICENSE

SUBLICENSE AGREEMENT

This Sublicense Agreement is entered into as of this ______ day of _________, 2011 between CTI Industries Corporation (“CTI”) and __________________ (“ Sublicensee ”).

WHEREAS, CTI and S. C. Johnson & Son, Inc. have entered into that certain Trademark License Agreement effective as of December 9, 2011 (the “ Master Agreement ”, a copy of which is attached hereto as Exhibit A ), pursuant to which CTI is licensed a certain “Trademark” related to “Licensed Products” (as both terms are defined in the Master Agreement);

WHEREAS, CTI has the right to grant to certain parties sublicenses of the Trademark, subject to all restrictions and obligations set forth in the Master Agreement;

WHEREAS, one of the sublicense restrictions in the Master Agreement is the requirement that all sublicensees agree to be bound by the terms of the Master Agreement; and

WHEREAS, the parties hereto each desire that Sublicensee become an “Approved Sublicensee” as defined in the Master Agreement of the Trademark pursuant to Section 16 of the Master Agreement.

NOW, THEREFORE, CTI and Sublicensee agree as follows:

1. CTI hereby grants to Sublicensee a sublicense under the Trademark granted to CTI under the Master Agreement during the term thereof, solely as necessary in connection with the manufacturing, marketing, promoting, distribution and sale of Licensed Products set forth in Exhibit B hereto, and solely within the territory set forth in Exhibit B hereto.

2. Sublicensee, in its capacity as an “Approved Sublicensee” (as defined in the Master Agreement), hereby acknowledges that it has read the Master Agreement set forth in Exhibit A and agrees to abide and be bound by all of the covenants, obligations and restrictions and legal governance terms therein that specifically bind Sublicensees and also those terms that bind CTI. Sublicensee hereby agrees to assume, perform and abide by all of the covenants, obligations and restrictions of CTI and of Approved Sublicensees under the Master Agreement as direct obligations to CTI and also to S. C. Johnson & Son, Inc., including but not limited to all license restrictions, non-competition and other covenants, and all royalty or other payments required in connection with the Licensed Products set forth in Exhibit B .

3. Sublicensee may not assign or otherwise transfer (including by operation of law) this Agreement or its rights hereunder in whole or in part, or delegate any of its obligations hereunder, to any third person or entity.

4. Sublicensee shall not disclose to any third person or entity any terms and conditions of the Master Agreement or of this Sublicense Agreement without prior written consent of CTI. Sublicensee agrees that CTI may provide a copy of this Sublicense Agreement to S. C. Johnson & Son, Inc.

5. CTI and Sublicensee acknowledge and agree that S. C. Johnson & Son, Inc. is and shall be considered an intended third party beneficiary of all of CTI’s rights under this Sublicense Agreement with the right to enforce the same directly against Sublicensee.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Sublicense Agreement as of the date first set forth above.

CTI INDUSTRIES CORPORATION

[_________________________________________]

By:			By:

Name:			Name:

Title:			Title:

Date:			Date:

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Forms S-8 (Nos. 333-76006, 333-76008 and 333-169442) of our report dated March 29, 2012 relating to our audit of the consolidated financial statements and the related consolidated financial statement schedule of CTI Industries Corporation and Subsidiaries included in the 2011 annual report on Form 10-K.

/s/ Blackman Kallick, LLP

Chicago, Illinois

March 29, 2012

Exhibit 31.1

CERTIFICATION

I, Howard W. Schwan, certify that:

1. I have reviewed this annual report on Form 10-K 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

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;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and 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

Disclosed in this report any change in the registrant's internal control over financial reporting 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; and

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):

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

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: March 29, 2012

/s/ Howard W. Schwan

Howard W. Schwan, President

Exhibit 31.2

CERTIFICATION

I, Stephen M. Merrick, certify that:

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

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: March 29, 2012

/s/ Stephen M. Merrick

Stephen M. Merrick, Executive

Vice-President and Chief Financial Officer

Exhibit 32

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 Annual Report on Form 10-K of CTI Industries Corporation (the “Company”) for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Howard W. Schwan, as President of the Company, and Stephen M. Merrick, as Executive Vice-President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 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 results of operations of the Company.

/s/ Howard W. Schwan

Howard W. Schwan

President

Date: March 29, 2012

/s/ Stephen M. Merrick

Stephen M. Merrick

Executive Vice-President and Chief Financial Officer

Date: March 29, 2012

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is not being “filed” as part of the Form 10-K or as a separate disclosure document for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act except to the extent that this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.