CTI INDUSTRIES CORP (Form: 10-Q, Received: 05/15/2013 15:54:18)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
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		(I.R.S. Employer Identification Number)
	incorporation or organization)

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

(847) 382-1000

(Registrant’s telephone number, including area code)

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 ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ 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 ¨ No þ

The number of shares outstanding of the Registrant’s common stock as of May 1, 2013 was 3,248,646.

INDEX

Part I – Financial Information

Item No. 1	Financial Statements
	Condensed Consolidated Interim Balance Sheet at March 31, 2013
	(unaudited) and December 31, 2012	3
	Condensed Consolidated Interim Statements of Comprehensive Income
	(unaudited) for the three months ended
	March 31, 2013 and March 31, 2012	4
	Condensed Consolidated Interim Statements of Cash Flows (unaudited) for
	the three months ended March 31, 2013 and March 31, 2012	5
	Condensed Consolidated Interim Earnings per Share (unaudited)
	for the three months ended March 31, 2013 and March 31, 2012	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item No. 2	Management’s Discussion and Analysis of
	Financial Condition and Results of Operations	15
Item No. 3	Quantitative and Qualitative Disclosures Regarding Market Risk	22
Item No. 4	Controls and Procedures	22

Part II – Other Information

Item No. 1	Legal Proceedings	22
Item No. 1A	Risk Factors	22
Item No. 2	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item No. 3	Defaults Upon Senior Securities	22
Item No. 4	Submission of Matters to a Vote of Security Holders	22
Item No. 5	Other Information	22
Item No. 6	Exhibits	23
	Signatures
	Exhibit 10.1
	Exhibit 10.2
	Exhibit 31.1
	Exhibit 31.2
	Exhibit 32

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

	March 31, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents (VIE $23,000 and $22,000, respectively)	$	447,932		$	351,064
Accounts receivable, (less allowance for doubtful accounts of $96,000 and $99,000, respectively)		8,398,764			7,773,332
Inventories, net		15,823,912			15,813,276
Net deferred income tax asset		861,629			846,371
Prepaid expenses		1,564,929			1,525,092
Other current assets (VIE $114,000 and $108,000)		540,639			820,619

Total current assets		27,637,805			27,129,754

Property, plant and equipment:
Machinery and equipment (VIE $741,000 and $701,000, respectively)		25,899,777			25,530,893
Building		3,360,017			3,360,017
Office furniture and equipment		3,191,033			3,137,123
Intellectual property		432,070			432,070
Land		250,000			250,000
Leasehold improvements		444,917			431,644
Fixtures and equipment at customer locations		2,784,419			2,784,419
Projects under construction		663,143			644,948
		37,025,376			36,571,114
Less : accumulated depreciation and amortization		(28,431,579	)		(27,872,044	)

Total property, plant and equipment, net		8,593,797			8,699,070

Other assets:
Deferred financing costs, net		198,382			216,292
Goodwill		1,033,077			1,033,077
Net deferred income tax asset		536,620			535,954
Other assets (due from related party $10,000 and $19,000, respectively)		141,917			132,996

Total other assets		1,909,996			1,918,319

TOTAL ASSETS	$	38,141,598		$	37,747,143

LIABILITIES AND EQUITY
Current liabilities:
Checks written in excess of bank balance	$	1,030,222		$	517,089
Trade payables (VIE $0 and $66,000, respectively)		5,203,796			5,708,271
Line of credit		6,321,151			6,254,648
Notes payable - current portion (net discount of $112,000 and $107,000, repectively) (VIE $101,000 and $101,000, respectively)		350,105			354,342
Notes payable - officers, current portion		-			1,123,742
Notes payable affiliates - current portion		8,828			8,113
Accrued liabilities (VIE $39,000 and $31,000, respectively)		3,176,794			2,997,242

Total current liabilities		16,090,896			16,963,447

Long-term liabilities:
Notes payable - affiliates		151,356			141,052
Notes payable, net of current portion (net discount of $526,000 and $555,000, repectively) (VIE $508,000 and $533,000, respectively)		7,753,919			7,839,351
Notes payable - officers, subordinated		1,098,742			-
Total long-term debt, net of current portion		9,004,017			7,980,403
Warrants Payable		837,487			721,247
Total long-term liabilities		9,841,504			8,701,650

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, 3,320,773 and 3,320,773 shares issued and 3,248,646 and 3,248,646 outstanding, respectively		13,775,994			13,775,994
Paid-in-capital		1,082,607			1,045,987
Accumulated deficit		(136,040	)		(266,372	)
Accumulated other comprehensive loss		(2,201,982	)		(2,171,582	)
Less: Treasury stock, 72,127 shares		(141,289	)		(141,289	)
Total CTI Industries Corporation stockholders' equity		12,379,290			12,242,738
Noncontrolling interest		(170,092	)		(160,692	)
Total Equity		12,209,198			12,082,046
TOTAL LIABILITIES AND EQUITY	$	38,141,598		$	37,747,143

See accompanying notes to condensed consolidated unaudited financial statements

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended March 31,
	2013			2012

Net Sales	$	13,344,766		$	13,807,144

Cost of Sales		10,370,749			10,712,073

Gross profit		2,974,017			3,095,071

Operating expenses:
General and administrative		1,553,046			1,332,294
Selling		460,203			411,569
Advertising and marketing		430,617			508,445

Total operating expenses		2,443,866			2,252,308

Income from operations		530,151			842,763

Other (expense) income:
Interest expense		(473,511	)		(186,523	)
Interest income		5,536			5,536
Foreign currency gain		144,524			2,225

Total other expense, net		(323,451	)		(178,762	)

Net income before taxes		206,700			664,001

Income tax expense		85,768			254,931

Net income		120,932			409,070

Less: Net (loss) income attributable to noncontrolling interest		(9,400	)		20,442

Net income attributable to CTI Industries Corporation	$	130,332		$	388,628

Other Comprehensive Income
Foreign currency adjustment		(30,400	)	$	158,176
Comprehensive income	$	99,932		$	546,804

Basic income per common share	$	0.04		$	0.12

Diluted income per common share	$	0.04		$	0.12

Weighted average number of shares and equivalent shares of common stock outstanding:
Basic		3,248,646			3,204,506

Diluted		3,415,911			3,244,976

See accompanying notes to condensed consolidated unaudited financial statements

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Three Months Ended March 31,
	2013			2012

Cash flows from operating activities:
Net income	$	120,932		$	409,070
Adjustment to reconcile net income to cash used in operating activities:
Depreciation and amortization		479,403			414,339
Amortization of debt discount		26,968			-
Change in value of swap agreement		(14,012	)		158,090
Stock based compensation		36,620			21,942
Provision for losses on accounts receivable		19,611			9,754
Provision for losses on inventories		57,455			180,792
Deferred income taxes		(15,924	)		181,909
Change in assets and liabilities:
Accounts receivable		(549,557	)		(269,223	)
Inventories		60,167			(122,936	)
Prepaid expenses and other assets		251,099			(13,615	)
Trade payables		(360,535	)		(808,666	)
Accrued liabilities		3,037			(25,396	)

Net cash provided by operating activities		115,264			136,060

Cash used in investing activities - purchases of property, plant and equipment		(460,170	)		(213,239	)

Cash flows from financing activities:
Change in checks written in excess of bank balance		512,706			1,051,948
Net change in revolving line of credit		57,657			(620,076	)
Proceeds from issuance of long-term debt		9,461			-
Repayment of long-term debt (related parties $29,000 and $297,000)		(145,584	)		(353,916	)

Net cash provided by financing activities		434,240			77,956

Effect of exchange rate changes on cash		7,534			26,383

Net increase in cash and cash equivalents		96,868			27,160

Cash and cash equivalents at beginning of period		351,064			338,523

Cash and cash equivalents at end of period	$	447,932		$	365,683

Supplemental disclosure of cash flow information:
Cash payments for interest	$	288,313		$	306,767

Cash payments for taxes	$	25,000		$	5,000

Supplemental Disclosure of non-cash investing and financing activity Property, Plant & Equipment acquisitions funded by liabilities	$	106,793		$	49,380

See accompanying notes to condensed consolidated unaudited financial statements

CTI Industries Corporation and Subsidiaries

Condensed Consolidated Earnings per Share (unaudited)

	For the Three Months Ended March 31,
	2013		2012
Basic
Average shares outstanding:
Weighted average number of common shares outstanding		3,248,646		3,204,506

Net income:
Net income attributable to CTI Industries Corporation	$	130,332	$	388,628

Per share amount	$	0.04	$	0.12

Diluted
Average shares outstanding:
Weighted average number of common shares outstanding		3,248,646		3,204,506

Effect of dilutive shares		167,265		40,470

Weighted average number of shares and equivalent shares of common stock outstanding		3,415,911		3,244,976

Net income:
Net income attributable to CTI Industries Corporation	$	130,332	$	388,628

Per share amount	$	0.04	$	0.12

See accompanying notes to condensed consolidated unaudited financial statements

CTI Industries Corporation and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 - Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited but in the opinion of management contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the consolidated financial position and the consolidated statements of comprehensive income and consolidated cash flows for the periods presented in conformity with generally accepted accounting principles for interim consolidated financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2013. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2012.

Principles of consolidation and nature of operations:

The condensed consolidated financial statements include the accounts of CTI Industries Corporation and its wholly-owned subsidiaries, CTI Balloons Limited, CTI Helium, Inc. and CTF International S.A. de C.V., its majority-owned subsidiaries CTI Mexico S.A. de C.V., Flexo Universal, S.A. de C.V. and CTI Europe gmbH, as well as the accounts of Venture Leasing S. A. de R. L. and Venture Leasing L.L.C (the “Company”). The last two entities have been consolidated as variable interest entities. All significant intercompany transactions and accounts have been eliminated in consolidation. The Company (i) designs, manufactures and distributes balloon products throughout the world and (ii) operates systems for the production, lamination, coating and printing of films used for food packaging and other commercial uses and for conversion of films to flexible packaging containers and other products.

Variable Interest Entities (“VIE’s”):

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 the Company is deemed to be a variable interest entity’s primary beneficiary who consolidates such entity. There are two entities that have been consolidated as variable interest entities.

Use of estimates:

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

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.

As of March 31, 2013 and 2012, shares to be issued upon the exercise of options and warrants aggregated 218,500 and 162,500, respectively. The number of anti-dilutive shares (not included in the determination of earnings on a diluted basis) for the three months ended March 31, 2013 and 2012, were 80,000 and 84,000, respectively, all of which were represented by options.

Significant Accounting Policies:

The Company’s significant accounting policies are summarized in Note 2 of the Company’s consolidated financial statements for the year ended December 31, 2012. There were no significant changes to these accounting policies during the three months ended March 31, 2013.

Note 2 - Stock-Based Compensation; Changes in Equity

The Company has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the condensed consolidated financial statements based on their grant-date fair values.

The Company has applied the Black-Scholes model to value stock-based awards and recently issued warrants related to notes. 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 our common stock. The risk-free rate of interest is the related U.S. Treasury yield curve for periods within the expected term of the option at the time of grant. The dividend yield on our common stock is estimated to be 0%, as the Company did not issue dividends during 2012 and the first quarter of 2013. The expected volatility is based on historical volatility of the Company’s common stock.

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.

The Company’s net income for the three months ended March 31, 2013 and 2012 includes approximately $37,000 and $22,000, respectively of compensation costs related to share based payments. As of March 31, 2013 there is $187,000 of unrecognized compensation expense related to non-vested stock option grants and stock grants. We expect approximately $82,000 of additional stock-based compensation expense to be recognized over the remainder of 2013, $70,000 to be recognized during 2014, $25,000 to be recognized during 2015, $8,000 to be recognized during 2016, and $2,000 to be recognized during 2017.

As of March 31, 2013, the Company had three stock-based compensation plans pursuant to which stock options were, or may be, granted. The Plans provide for the award of options, which may either be incentive stock options (“ISOs”) within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the “Code”) or non-qualified options (“NQOs”) which are not subject to special tax treatment under the Code, as well as for stock grants.

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 March 31, 2013 , options for 139,958 shares (including cancelled shares re-issued under the Plan) have been granted and were fully vested at the time of grant and options for 2,000 shares remain outstanding.

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 March 31, 2013, options for 123,430 shares have been granted and were fully vested at the time of grant and options for 27,500 shares remain outstanding.

On April 10, 2009, the Board of Directors approved for adoption, and on June 5, 2009, the shareholders of the Corporation approved, a 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 March 31, 2013, options for 191,000 shares had been granted and options for 189,000 shares remain outstanding.

A summary of the Company’s stock option activity and related information is as follows:

	Shares under Option		Weighted Average Exercise Price		Weighted Average Contractual Life		Aggregate Intrinsic Value
Balance at December 31, 2012		218,500	$	5.21
Granted		-		-
Cancelled		-		-
Exercised		-		-
Outstanding at March 31, 2013		218,500	$	5.21		3.70	$	182,405

Exercisable at March 31, 2013		49,668	$	4.13		2.80	$	92,175

On July 17, 2012, the Company entered into a Note and Warrant Purchase Agreement with BMO Equity pursuant to which (i) BMO Equity advanced to the Company the sum of $5 million and (ii) the Company issued to BMO Equity a warrant to purchase up to Four Percent (4%) of the outstanding shares of common stock of the Company on a fully-diluted basis (140,048 shares of common stock of the Company) at the price of One Cent ($0.01) per share. The term of the loan provided for in this Agreement is five and a half years. Interest is payable on the outstanding balance of the loan at the rate of 11.5% per annum.

A summary of the Company’s stock warrant activity and related information is as follows:

	Shares under Warrant		Weighted Average Exercise Price		Weighted Average Contractual Life		Aggregate Intrinsic Value
Balance at December 31, 2012		-		-
Granted		140,048	$	0.01
Cancelled		-		-
Exercised		-		-
Outstanding at March 31, 2013		140,048	$	0.01		9.30	$	837,487

Exercisable at March 31, 2013		-		-		-		-

A summary of the Company’s stock option activity by grant date as of March 31, 2013 is as follows:

	Options Outstanding								Options Vested
Options by Grant Date	Shares		Weighted Avg.		Remain. Life		Intrinsic Val		Shares		Weighted Avg.		Remain. Life		Intrinsic Val
Dec 2005		29,500	$	2.88		2.8	$	91,745		29,500	$	2.88		2.8	$	91,745
Dec 2010		72,000		6.14		2.8		1,040		17,500		5.97		2.8		350
Jan 2011		8,000		5.96		2.8		240		2,668		5.96		2.8		80
Nov 2012		109,000		5.17		4.7		89,380		-		-		-		-
TOTAL		218,500	$	5.21		3.7	$	182,405		49,668	$	4.13		2.8	$	92,175

The aggregate intrinsic value in the tables above represents the total pre-tax intrinsic value (the difference between the closing price of the Company’s common stock on the last trading day of the quarter ended March 31, 2013 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all the holders exercised their options on March 31, 2013.

Note 3 - Legal Proceedings

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

Note 4 - Other Comprehensive Income

In the three months ended March 31, 2013 the company had a comprehensive loss of $30,000, all from foreign currency translation adjustments.

The following table sets forth the accumulated balance of other comprehensive loss and each component.

	Foreign Currency Items			Accumulated Other Comprehensive (Loss)

Beginning balance as of January 1, 2013	$	(2,172,000	)	$	(2,172,000	)

Current period change, net of tax		(30,000	)		(30,000	)

Ending Balance as of March 31, 2013	$	(2,202,000	)	$	(2,202,000	)

Note 5 - Inventories, Net

	March 31, 2013			December 31, 2012
Raw materials	$	3,646,000		$	3,486,000
Work in process		1,098,000			1,388,000
Finished goods		11,773,000			11,576,000
Allowance for excess quantities		(693,000	)		(636,000	)
Total inventories	$	15,824,000		$	15,814,000

Note 6 - Geographic Segment Data

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

	Net Sales to Outside Customers
	For the Three Months Ended				Total Assets at
	March 31,				March 31,		December 31,
	2013		2012		2013		2012

United States	$	9,871,000	$	9,990,000	$	27,598,000	$	27,708,000
Europe		242,000		121,000		1,052,000		1,057,000
Mexico		2,586,000		2,963,000		8,366,000		7,849,000
United Kingdom		646,000		733,000		1,126,000		1,133,000

	$	13,345,000	$	13,807,000	$	38,142,000	$	37,747,000

Note 7 - Concentration of Credit Risk

Concentration of credit risk with respect to trade accounts receivable is generally limited due to the number of entities comprising the Company's customer base. The Company performs ongoing credit evaluations and provides an allowance for potential credit losses against the portion of accounts receivable which is estimated to be uncollectible. Such losses have historically been within management's expectations. During the three months ended March 31, 2013, there was one customer whose purchases represented more than 10% of the Company’s consolidated net sales. During the three months ended March 31, 2012, there were two customers whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to the top customers for the three months ended March 31, 2013 and 2012 are as follows:

	Three Months Ended				Three Months Ended
	March 31, 2013				March 31, 2012
Customer	Net Sales		% of Net Sales		Net Sales		% of Net Sales
Customer A	$	4,873,000		36.5%	$	3,753,000		27.2%
Customer B		N/A		N/A	$	1,634,000		11.8%

As of March 31, 2013, the total amount owed to the Company by the largest customer was $1,931,000 or 23.0% of the Company’s consolidated accounts receivables. The amounts owed at March 31, 2012 by the largest customers were $2,276,000 or 30.1% and $557,000 or 7.4% of the Company’s consolidated net accounts receivables, respectively.

Note 8 - Related Party Transactions

Stephen M. Merrick, President and Chief Financial Officer of the Company, is of counsel to the law firm of Vanasco Genelly and Miller PC which provides legal services to the Company. Legal fees paid by the Company with this firm for the three months ended March 31, 2013 and 2012, respectively, were $33,000 and $16,000.

John H. Schwan, Chief Executive Officer and Chairman of the Company, is a principal of Shamrock Specialty Packaging and affiliated companies. The Company made payments for packaging materials, rent and temporary employees supplied by Shamrock of approximately $817,000 during the three months ended March 31, 2013 and $850,000 during the three months ended March 31, 2012. At March 31, 2013 and 2012, outstanding accounts payable balances were $523,000 and $595,000, respectively.

John H. Schwan, Chief Executive Officer and Chairman of the Company, is the brother of Gary Schwan, one of the owners of Schwan Incorporated, which provides building maintenance and remodeling services to the Company. The Company made payments to Schwan Incorporated of approximately $8,000 during the three months ended March 31, 2013 and $1,000 during the three months ended March 31, 2012.

Interest payments have been made to John H. Schwan for loans made to the Company. During the three months ended March 31, 2013 and 2012 these interest payments totaled $19,000 and $25,000, respectively.

On July 1, 2011, Flexo Universal, S.A. de C.V. (“Flexo”) entered into a lease agreement with Venture Leasing S.A. de R.L. (“Venture Leasing Mexico”) for the lease of balloon production equipment financed and owned by Venture Leasing Mexico and used by Flexo for the production of latex balloons. Venture Leasing Mexico is wholly owned by entities owned by John H. Schwan, Chief Executive Officer and Chairman of the Company and Stephen M. Merrick, President and Chief Financial Officer of the Company. Venture Leasing Mexico and Venture Leasing L.L.C., also owned by entities owned by Mr. Schwan and Mr. Merrick, are deemed variable interest entities and are consolidated with the accounts of the Company. During the three months ended March 31, 2013, Flexo made lease payments to Venture Leasing Mexico totaling $36,000.

Note 9 - Derivative Instruments; Fair Value

The following table represents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of March 31, 2013, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

	Amount as of
Description	3/31/2013		Level 1		Level 2		Level 3

Interest Rate Swap	$	114,000	$	-	$	114,000	$	-
Warrant Liability		837,000		-		837,000

	$	951,000	$	-	$	951,000	$	-

	Amount as of
Description	3/31/2012			Level 1		Level 2			Level 3

Interest Rate Swap	$	(5,000	)	$	-	$	(5,000	)	$	-

	$	(5,000	)	$	-	$	(5,000	)	$	-

The Company is exposed to certain market risks including the effect of changes in interest rates. The Company uses derivative instruments to manage financial exposures that occur in the normal course of business. It does not hold or issue derivatives for speculative trading purposes. The Company is exposed to non-performance risk from the counterparties in its derivative instruments. This risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher and all counterparties are monitored on a continuous basis. The fair value of the Company’s derivatives reflects this credit risk.

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 market value of the swap agreement each quarter. The 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.

Fair Values of Derivative Instruments in the Statement of Financial Position

Liability Derivatives

As of

March 31

2013

2012

Derivatives not
designated as
hedging
instruments under
Statement 133

Balance Sheet
Location

Fair Value

Balance Sheet

Location

Fair Value

Interest Rate Contracts

Accrued Liabilities

114,000

Accrued Liabilities

(5,000

)

The Effect of Derivative Instruments on the Statement of Financial Performance

for the 3 month

period ending

September 30

2013

2012

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

(5,000

Interest Expense

(34,000

)

*Interest on fixed/variable rate variances

19,000

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

Forward Looking Statements

This quarterly 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 quarterly report on Form 10-Q. We disclaim any intent or obligation to update any forward-looking statements after the date of this quarterly report to conform such statements to actual results or to changes in our opinions or expectations.

Overview

We produce film products for novelty, packaging and container applications. These products include metalized balloons, latex balloons and related latex toy products, films for packaging and custom product applications, and flexible containers for packaging and consumer storage applications. We produce all of our film products for packaging and container applications at our plant 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 and custom product applications are sold to customers in the United States. We market and sell our novelty items and flexible containers for consumer use in the United States, Mexico, Latin America, and Europe.

Results of Operations

Net Sales . For the three months ended March 31, 2013, net sales were $13,345,000 compared to net sales of $13,807,000 for the same period of 2012, a decrease of 3.3%. For the quarters ended March 31, 2013 and 2012, net sales by product category were as follows:

	Three Months Ended
	March 31, 2013				March 31, 2012
	$		% of		$		% of
Product Category	(000) Omitted		Net Sales		(000) Omitted		Net Sales

Metalized Balloons		6,782		51%		6,951		50%

Latex Balloons		2,992		22%		2,754		20%

Pouches		1,929		15%		1,930		14%

Film Products		1,188		9%		1,661		12%

Other		454		3%		511		4%

Total		13,345		100%		13,807		100%

Metalized Balloons . During the three months ended March 31, 2013 revenues from the sale of metalized balloons decreased by 2.4% compared to the prior year period from $6,951,000 to $6,782,000. During the three months ended March 31, 2013 sales of metalized balloons sales to our largest customer increased to $4,630,000 from $3,834,000. Sales of metalized balloons to other customers were $2,152,000 compared to $3,117,000 for the same period last year. These included sales to customers in the United States, Mexico, the United Kingdom and Europe.

Latex Balloons. During the three months ended March 31, 2013 revenues from the sale of latex balloons increased by 8.6% compared to the prior year period from $2,754,000 to $2,992,000. The increase in the first quarter 2013 is attributable to increased sales in Mexico by Flexo Universal, our subsidiary there, as well as increased sales to various customers in the United States.

Vacuum Sealing Pouches and Machines . During the three months ended March 31, 2013 revenues from the sale of pouches were $1,929,000 compared to $1,930,000 for the same period in 2012. Virtually all of our pouch sales in 2013 and 2012 have been of vacuumable pouches in two categories: (i) zippered pouches and (ii) open-top pouches or rolls. For the three months ended 2013 and 2012, sales of pouch products in these categories have been as follows:

	Three Months Ended
Pouches	March 31, 2013		March 31, 2012

Zippered	$	698,000	$	897,000

Open-Top or Rolls		1,231,000		1,033,000

Total	$	1,929,000	$	1,930,000

Most of our sales of zippered pouches have been of branded products to a principal customer, although we have had limited sales of our ZipVac® pouch line as well.

During 2010, we introduced a line of open-top pouches and rolls for use with existing vacuum sealing machines which we have sold under the ZipVac® label as well as on a private label basis.

In December, 2011, we entered into a Trademark License Agreement with S.C. Johnson & Son, Inc. pursuant to which we received a license to market and sell vacuum sealing machines as well as pouches and rolls of film for use with those machines, under the Ziploc brand name. In the first quarter 2012, we introduced and began to market and sell that branded line of vacuum sealing machines and associated open-top bags and rolls. Over the course of the balance of 2012 and in the first quarter of 2013, we introduced this branded line of products for sale in retail outlets and, by March 31, 2013, the products were being offered for sale in over 2,700 retail outlets, including in several major chains. In April 2013 we commenced a further roll-out of the product line to additional retail outlets and anticipate that the product line will be offered for sale in approximately 6,000 outlets by mid-2013.

As the chart indicates, our sales of open-top pouches and rolls increased from just over $1 million in the first quarter 2012 to $1.2 million in the first quarter this year. These sales amounts for the first quarter 2013 and 2012 include sales of vacuum sealing machines as well as of the open-top pouches and rolls. While most of the sales shown for the first quarter 2013 relate to sales of our branded line, they also include some sales of our Universal or private label lines of pouches.

Films . During the three months ended March 31, 2013 revenues from the sale of laminated film products decreased by 28.5% compared to the prior year period from $1,661,000 to $1,188,000. The decrease is attributable to a decrease in sales to a principal customer. Approximately 96.8% of the sales of laminated film products during the three months ended March 31, 2013 were to a principal customer.

Sales to a limited number of customers continue to represent a large percentage of our net sales. The table below illustrates the impact on sales of our top three and ten customers for the three months ended March 31, 2013 and 2012.

	Three Months Ended
	% of Sales
	March 31, 2013		March 31, 2012

Top 3 Customers		50.8%		45.1%

Top 10 Customers		69.9%		65.3%

During the three months ended March 31, 2013, there was one customer whose purchases represented more than 10% of the Company’s consolidated net sales. Sales to this customer for the three months ended March 31, 2013 were $4,873,000 or 36.5% of consolidated net sales. Sales to the top two customers in the same period of 2012 were $3,753,000 or 27.2% and $1,634,000 or 11.8% of consolidated net sales, respectively. As of March 31, 2013, the total amount owed to the Company by our largest customer was $1,931,000 or 23.0% of the Company’s consolidated net accounts receivables. The amounts owed at March 31, 2012 by our two largest customers were $2,276,000 or 30.1% and $557,000 or 7.4% of the Company’s consolidated net accounts receivables, respectively.

Cost of Sales . During the three months ended March 31, 2013, the cost of sales represented 77.7% of net sales compared to 77.6% for the three months ended March 31, 2012.

General and Administrative . During the three months ended March 31, 2013, general and administrative expenses were $1,553,000 or 11.6% of net sales, compared to $1,332,000 or 9.6% of net sales for the same period in 2012. The increase in general and administrative expenses is attributable to (i) an increase in administrative expenses at Flexo Universal of $145,000 and (ii) an increase in administrative expenses at CTI Europe of $59,000.

Selling . During the three months ended March 31, 2013, selling expenses were $460,000 or 3.4% of net sales, compared to $412,000 or 3.0% of net sales for the same period in 2012. The increase in selling expenses is attributable principally to an increase in consulting expenses of $155,000 which was offset by (i) a decrease in salaries of $57,000, (ii) a decrease in travel expenses of $13,000, and (iii) a decrease in royalty expense of $26,000.

Advertising and Marketing . During the three months ended March 31, 2013, advertising and marketing expenses were $431,000 or 3.2% of net sales for the period, compared to $508,000 or 3.7% of net sales for the same period of 2012. The decrease in advertising and marketing expense is attributable to (i) a decrease salary expense of $42,000 and (ii) a decrease in commission expense of $50,000.

Other Income (Expense) . During the three months ended March 31, 2013, the Company incurred net interest expense of $468,000, compared to net interest expense during the same period of 2012 in the amount of $181,000. The increase in interest expense is attributable to interest on a Note and Warrant Purchase Agreement among the Company and BMO Private Equity (U.S.), Inc. (“BMO Equity”) under which BMO Equity loaned the sum of $5 million to the Company in July, 2012 and also to the cost attributed to the increase in value of warrants issued to BMO Equity in that transaction.

For the three months ended March 31, 2013, the Company had a foreign currency transaction gain of $145,000 compared to a foreign currency transaction gain of $2,000 during the same period of 2012.

Income Taxes . For the three months ended March 31, 2013, the Company reported a consolidated income tax expense of $86,000, compared to a consolidated income tax expense of $255,000 for the same period of 2012. For the three months ended March 31, 2013, this income tax provision was composed of provisions for United States income tax on the Company, income tax in Mexico of Flexo Universal, our Mexican subsidiary, income tax in the United Kingdom of CTI Balloons Limited, our United Kingdom subsidiary, and income tax in Germany of CTI Europe, our Germany subsidiary.

Net Income. For the three months ended March 31, 2013, the Company had net income of $130,000 or $0.04 per share (basic and diluted), compared to net income of $389,000 for the same period of 2012 or $0.12 per share (basic and diluted).

Financial Condition, Liquidity and Capital Resources

Cash Flow Items.

Operating Activities . During the three months ended March 31, 2013, net cash provided by operations was $115,000, compared to net cash provided by operations during the three months ended March 31, 2012 of $136,000.

Significant changes in working capital items during the three months ended March 31, 2013 consisted of (i) an increase in accounts receivable of $550,000, (ii) a decrease in inventories of $60,000, (iii) depreciation and amortization in the amount of $479,000 (iv) a decrease in trade payables of $361,000 and (v) a decrease in prepaid expenses and other assets of $251,000.

Investing Activity. During the three months ended March 31, 2013, cash used in investing activity for the purchase or improvement of equipment was $460,000, compared to $213,000 in the same period of 2012. Substantially all of this expense is related to equipment acquisition and maintenance, leasehold improvements,, tooling and related expense.

Financing Activities . During the three months ended March 31, 2013, cash provided by financing activities was $434,000 compared to cash provided by financing activities for the same period of 2012 in the amount of $78,000. During the three months ended March 31, 2013, financing activities included proceeds from issuance of short-term debt of $570,000 and payment of $146,000 on long-term debt obligations.

Liquidity and Capital Resources . At March 31, 2013, the Company had cash balances of $448,000 compared to cash balances of $366,000 for the same period in 2012 and there was $3,720,000 available to advance under the Company’s revolving line of credit.

At March 31, 2013, the Company had a working capital balance of $11,547,000 compared to a working capital balance of $10,166,000 at December 31, 2012.

The Company’s liquidity is dependent significantly on its bank financing and the Company relies on its revolving line of credit to maintain liquidity. On April 29, 2010, the Company entered into a Credit Agreement with Harris N.A. (“Harris”). Under the Credit Agreement, Harris agreed to provide loans and credits to the Company in the aggregate maximum amount of $14,417,000. The arrangement includes:

A revolving credit up to a maximum amount of $9,000,000 based upon a borrowing base of 85% of eligible receivables and 60% of eligible inventory (up to a maximum of $5,000,000);

ii.

A mortgage loan in the principal amount of $2,333,350, amortized over 25 years, the principal balance due on April 29, 2013;

iii.

A term loan in the principal amount of $583,333 maturing in monthly principal installments of $58,333; and

iv.

An equipment loan commitment in the amount of up to $2,500,000 providing for loan advances from time to time until April 29, 2012 based upon 100% of the purchase price of equipment purchased, the loans to be amortized on a five year basis commencing April 29, 2012, the balance due on April 29, 2013.

The Credit Agreement includes various representations, warranties and covenants of the Company, including various financial covenants.

In connection with the Credit Agreement, the Company executed and delivered to Harris, a Term Loan Note, a Mortgage Loan Note, an Equipment Note and a Revolving Note, as well as a form of Mortgage, Security Agreement, Pledge Agreement (pursuant to which shares of capital stock of the Registrant’s Mexico subsidiary were pledged as security for the loans), Patent Security Agreement and Trademark Security Agreement. Two officers and principal shareholders of the Company, John H. Schwan and Stephen M. Merrick each executed Limited Guaranties of the loans and also executed Subordination Agreements with respect to obligations of the Company to them.

The Credit Agreement provides that the outstanding balance of all loans under the agreement will bear interest with reference to a base rate or, at the option of the Company, with reference to an adjusted LIBOR. At March 31, 2013, the effective rate on the outstanding loan balances was 4.0%.

As of March 31, 2013, the outstanding balances on the loans with Harris were: (i) revolving line of credit, $6,144,000, (ii) mortgage loan, $2,061,000, and (iii) equipment loan, $1,071,000.

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 is designated as a cash flow hedge to hedge 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 will determine and record the fair market value of the swap agreement each quarter. This value will be recorded on the balance sheet of the Company and the amount of the unrealized gain or loss for each period will be recorded as interest income or expense.

On July 17, 2012, the Company entered into Amendment Number 3 to the Credit Agreement among the Company and BMO Harris Bank N.A. (“BMO Harris”) pursuant to which (i) the amount of the loan commitment on the revolver loan of BMO Harris was increased from $9 million to $12 million, (ii) BMO Harris consented to a transaction among the Company and BMO Private Equity (U.S.), Inc. (“BMO Equity”) and (iii) the term of credit and loans to the Company provided in the Credit Agreement and BMO Harris was extended to July 17, 2017.

Also, on July 17, 2012, the Company entered into a Note and Warrant Purchase Agreement with BMO Equity pursuant to which (i) BMO Equity advanced to the Company the sum of $5 million and (ii) the Company issued to BMO Equity a warrant to purchase up to Four Percent (4%) of the outstanding shares of common stock of the Company on a fully-diluted basis (140,048 shares of common stock of the Company) at the price of One Cent ($0.01) per share. The term of the loan provided for in this Agreement is five and a half years. Interest is payable on the outstanding balance of the loan at the rate of 11.5% per annum.

The Note and Warrant Purchase Agreement included provisions for:

(i) a closing fee of $100,000

(ii) payment of the principal amount in five and a half years with optional prepayment subject to certain prepayment premiums;

(iii) security for the note obligations in all assets of the Company junior to the security interest of BMO Harris;

(iv) various representations and warranties and covenants of the Company;

(v) financial covenants including an applicable senior leverage ratio, fixed charge coverage ratio and tangible net worth amount.

Under the terms of the Credit Agreement and the Note and Warrant Purchase Agreement, the Company is required to meet various financial covenants including a senior leverage ratio, fixed charge covenant ratio and tangible net worth. As of December 31, 2012 and March 31, 2013, the Company was not in compliance with certain of these covenants.

On April 12, 2013, the Company entered into Amendment No. 4 to the Credit Agreement among the Company and BMO Harris, and Amendment No. 1 to the Note and Warrant Purchase Agreement among the Company and BMO Equity. In these Amendments, the violations by the Company of the financial covenants as of December 31, 2012 and March 31, 2013 were waived.

Further by this Amendment to the Credit Agreement, the Credit Agreement was amended (i) to modify the Senior Leverage Ratio and Total Leverage Ratio requirements for the fiscal quarter ending June 30, 2013 and each quarter thereafter during the term of the Credit Agreement and (ii) to modify the definitions of EBITDA and Total Funded Debt in the Credit Agreement. The Amendment also provides for the Company to pay a fee of $20,000 as consideration for the waiver and the amendments to the Credit Agreement.

By the Amendment to the Note and Warrant Purchase Agreement, the Note and Warrant Purchase Agreement was amended (i) to modify the Senior Leverage Ratio and Total Leverage Ratio requirements for the fiscal quarter ending June 30, 2013 and for each fiscal quarter thereafter during the term of the Note and Warrant Purchase Agreement and (ii) to modify the definitions of EBITDA and Total Funded Debt in the Note and Warrant Purchase Agreement. The Amendment also provides for the Company to pay a fee of $12,500 as consideration for the waiver and the amendment to the Note and Warrant Purchase Agreement.

Management believes that the funds provided by this new financing arrangement as well as internally generated funds will be sufficient for the Company to meet its working capital needs for at least the next 12 months and that the Company will meet the revised financial covenants of the Credit Agreement and the Note and Warrant Purchase Agreement during this period, as well.

Seasonality

In recent years, sales in the metalized balloon product line have historically been seasonal with approximately 40% occurring in the period from December through March and 24% being generated in the period from July through October. The sales of latex balloons and laminated film products have not historically been seasonal.

Critical Accounting Policies

Please see pages 24-26 of our Annual Report on Form 10-K for the year ended December 31, 2012 for a description of policies that are critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. No material changes to such information have occurred during the three months ended March 31, 2013.

Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk

Not applicable.

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2013. Based on such review and evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective as of March 31, 2013, to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, (a) is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms and (b) is accumulated and communicated to our management, including the officers, as appropriate to allow timely decisions regarding required disclosure. There were no material changes in our internal control over financial reporting during the first quarter of 2013 that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

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

Item 6. Exhibits

The following are being filed as exhibits to this report:

Exhibit Number		Description

3.1		Third Restated Certificate of Incorporation of CTI Industries Corporation (incorporated by reference to Exhibit A contained in Registrant’s Schedule 14A Definitive Proxy Statement for solicitation of written consent of shareholders, as filed with Commission on October 25, 1999).
3.2		By-laws of CTI Industries Corporation (incorporated by reference to Exhibit 3.1 contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997).
10.1		Fourth Amendment to Loan Agreement between BMO Harris Bank, N.A. and the Company dated April 12, 2013.
10.2		First Amendment to Note and Warrant Purchase Agreement between BMO Private Equity (U.S.), Inc. and the Company dated April 12, 2013.
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).
101		Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

SIGNATURES

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

Dated: May 15, 2013	CTI INDUSTRIES CORPORATION

	By:	/s/ John H. Schwan
		John H. Schwan
		Chief Executive Officer

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

	By:	/s/ Timothy S. Patterson
		Timothy S. Patterson
		Senior Vice President Finance / Controller

Exhibit Index

Exhibit Number		Description
3.1		Third Restated Certificate of Incorporation of CTI Industries Corporation (incorporated by reference to Exhibit A contained in Registrant’s Schedule 14A Definitive Proxy Statement for solicitation of written consent of shareholders, as filed with Commission on October 25, 1999).
3.2		By-laws of CTI Industries Corporation (incorporated by reference to Exhibit 3.1 contained in Registrant’s Form SB-2 Registration Statement (File No. 333-31969) effective November 5, 1997).
10.1		Fourth Amendment to Loan Agreement between BMO Harris Bank, N.A. and the Company dated April 12, 2013.
10.2		First Amendment to Note and Warrant Purchase Agreement between BMO Private Equity (U.S.), Inc. and the Company dated April 12, 2013.
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).
101		Interactive Data Files, including the following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to Consolidated Financial Statements.

EXHIBIT 10.1

Amendment No. 4

to Credit Agreement

This Amendment No. 4 to Credit Agreement is dated as of April 12, 2013, and is between CTI Industries Corporation , an Illinois corporation (the “ Borrower ”); CTI Helium, Inc. , an Illinois corporation and a Wholly-Owned Subsidiary of the Borrower, in its capacity as a guarantor (the “ Subsidiary Guarantor ”); and BMO Harris Bank N.A. , a national banking association, successor to Harris N.A. (the “ Bank ”).

The Borrower and the Bank entered into a Credit Agreement dated as of April 29, 2010 (the “ Credit Agreement ”), under which the Bank has extended certain credit facilities to the Borrower.

In connection with the Credit Agreement, the Subsidiary Guarantor entered into a Guaranty dated as of April 29, 2010 (the “ Subsidiary Guaranty ”), under which, among other things, the Subsidiary Guarantor guarantees the prompt and complete payment and performance of the Obligations.

The parties now desire to amend the Credit Agreement in certain respects.

The parties therefore agree as follows:

1. Definitions . Defined terms used but not defined in this agreement are as defined in the Credit Agreement.

2. Limited Waiver . (a) The Borrower has informed the Bank (1) that the Borrower’s Senior Leverage Ratio as of the last day of the fiscal quarter ending December 31, 2012, and as of the last day of the fiscal quarter ending March 31, 2013, was or is expected to be, in each case, greater than 3.00 to 1.00, the maximum permitted level for that ratio set forth in section 8.23(a) of the Credit Agreement; and (2) that the Borrower’s Total Leverage Ratio as of the last day of the fiscal quarter ending December 31, 2012, and as of the last day of the fiscal quarter ending March 31, 2013, was or is expected to be, in each case, greater than 4.60 to 1.00, the maximum permitted level for that ratio set forth in section 8.23(b) of the Credit Agreement. The Borrower acknowledges that an Event of Default has occurred and is continuing or would occur as a result of each such financial-covenant violation (the “ Subject Event of Default ”). The Borrower further acknowledges that each Subject Event of Default entitles the Bank to exercise its rights and remedies under the Credit Agreement, applicable law, or otherwise. The Borrower has therefore requested that the Bank waive each Subject Event of Default. The Borrower acknowledges that but for the terms of this agreement all obligations under the Credit Agreement and each of the other Loan Documents would be immediately due and payable upon the occurrence of any Subject Event of Default . In addition, the Borrower acknowledges that the Bank has incurred reasonable attorneys’ fees in connection with the Subject Event of Default and that those costs, fees, and expenses are recoverable by the Bank under the Credit Agreement.

(b) The Bank hereby waives each Subject Event of Default and the Bank’s remedies under the Credit Agreement with respect to each Subject Event of Default. This limited waiver is to be narrowly construed. Except as provided in this agreement, this limited waiver neither extends to any other violations under, or default of, the Credit Agreement nor prejudices any rights or remedies that the Bank might have or be entitled to with respect to any such other violations or defaults.

3. Amendments to Credit Agreement . (a) The definition of “EBITDA” in section 5.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

“ “EBITDA” means, with reference to any period, (a) Net Income of the Borrower and its Subsidiaries, on a consolidated basis, for such period minus (b) amounts added in arriving at such Net Income for such period in respect of exchange-rate gains during such period plus (c) all amounts deducted in arriving at such Net Income for such period in respect of (i) Interest Expense for such period, (ii) federal, state, and local income taxes for such period, (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period, and (iv) exchange-rate losses during such period.”

(b) The definition of “Total Funded Debt” in section 5.1 of the Credit Agreement is hereby amended to read in its entirety as follows:

“ “Total Funded Debt” means, at any time the same is to be determined, the aggregate of all Indebtedness for Borrowed Money of the Borrower and its Subsidiaries, on a consolidated basis, at such time, plus all Indebtedness for Borrowed Money of any other person or entity which is directly or indirectly guaranteed by the Borrower or any of its Subsidiaries or which the Borrower or any of its Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which the Borrower or any of its Subsidiaries has otherwise assured a creditor against loss. For purposes of this Agreement, “Total Funded Debt” does not include any Excluded Flexo VIE Debt or the Subordinated Debt owing to John H. Schwan and Stephen M. Merrick described in Section 8.7(f) .”

“ (a) Senior Leverage Ratio. As of the last day of each fiscal quarter of the Borrower (commencing June 30, 2010), the Borrower shall not permit the Senior Leverage Ratio for the four fiscal quarters of the Borrower then ended to be more than the amount set forth below for such fiscal quarter:

Fiscal Quarter Ending	Level

March 31, 2010, June 30, 2010, September 30, 2010, and December 31, 2010	3.50 to 1.00

March 31, 2011, and June 30, 2011	3.25 to 1.00

September 30, 2011	3.00 to 1.00

December 31, 2011, March 31, 2012, June 30, 2012, and September 30, 2012	3.25 to 1.00

December 31, 2012, and March 31, 2013	3.00 to 1.00

June 30, 2013, and September 30, 2013	3.25 to 1.00

December 31, 2013	3.00 to 1.00

March 31, 2014	2.75 to 1.00

June 30, 2014, and each fiscal quarter thereafter	2.50 to 1.00	”

(d) Section 8.23(b) of the Credit Agreement is hereby amended to read in its entirety as follows:

“ (b) Total Leverage Ratio. As of the last day of each fiscal quarter of the Borrower (commencing June 30, 2012), the Borrower shall not permit the Total Leverage Ratio for the four fiscal quarters of the Borrower then ended to be more than the amount set forth below for such fiscal quarter:

Fiscal Quarter Ending	Level

June 30, 2012	5.25 to 1.00

September 30, 2012	4.85 to 1.00

December 31, 2012, and March 31, 2013	4.60 to 1.00

June 30, 2013, and September 30, 2013	5.00 to 1.00

December 31, 2013	4.50 to 1.00

March 31, 2014	4.25 to 1.00

June 30, 2014, and each fiscal quarter thereafter	4.10 to 1.00	”

4. Fee . As consideration for the limited waiver and the amendments to the Credit Agreement to be effected by this agreement, the Borrower shall pay to the Bank a fee in the amount of $20,000, which fee is fully earned upon the execution of this agreement by the Bank, due and payable upon the execution and delivery of this agreement by the Borrower to the Bank, and nonrefundable once paid.

5. Reaffirmation of Subsidiary Guaranty . The Subsidiary Guarantor hereby expressly does each of the following:

(1)

consents to the execution by the Borrower and the Bank of this agreement;

(2)

acknowledges that the “Indebtedness” (as defined in the Subsidiary Guaranty) includes all of the “Obligations” under and as defined in the Credit Agreement, as amended from time to time (including as amended by this agreement);

(3)

acknowledges that the Subsidiary Guarantor does not have any set-off, defense, or counterclaim to the payment or performance of any of the obligations of the Borrower under the Credit Agreement or the Subsidiary Guarantor under the Subsidiary Guaranty;

(4)

reaffirms, assumes, and binds itself in all respects to all of the obligations, liabilities, duties, covenants, terms, and conditions contained in the Subsidiary Guaranty;

(5)

agrees that all such obligations and liabilities under the Subsidiary Guaranty continue in full force and that the execution and delivery of this agreement to, and its acceptance by, the Bank will not in any manner whatsoever do any of the following:

(A)

impair or affect the liability of the Subsidiary Guarantor to the Bank under the Subsidiary Guaranty;

(B)

prejudice, waive, or be construed to impair, affect, prejudice, or waive the rights and abilities of the Bank at law, in equity, or by statute against the Subsidiary Guarantor pursuant to the Subsidiary Guaranty; or

(C)

release or discharge, or be construed to release or discharge, any of the obligations and liabilities owing to the Bank by the Subsidiary Guarantor under the Subsidiary Guaranty; and

(6)

represents and warrants that each of the representations and warranties made by the Subsidiary Guarantor in any of the documents executed in connection with the Loans remain true and correct as of the date of this agreement.

6. Representations and Warranties . To induce the Bank to enter into this agreement, the Borrower hereby represents to the Bank as follows:

(1)

that the Borrower is duly authorized to execute and deliver this agreement and is and will continue to be duly authorized to borrow monies under the Credit Agreement, as amended by this agreement, and to perform its obligations under the Credit Agreement, as amended by this agreement;

(2)

that the execution and delivery of this agreement and the performance by the Borrower of its obligations under the Credit Agreement, as amended by this agreement, do not and will not conflict with any provision of law or of the articles of organization or operating agreement of the Borrower or of any agreement binding upon the Borrower;

(3)

that the Credit Agreement, as amended by this agreement, is a legal, valid, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability might be limited by bankruptcy, insolvency, or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies;

(4)

that the representation and warranties set forth in section 6 of the Credit Agreement, as amended by this agreement, are true and correct with the same effect as if those representations and warranties had been made on the date hereof, except that all references to the financial statements mean the financial statements most recently delivered to the Bank and except for changes specifically permitted under the Credit Agreement, as amended by this agreement;

(5)

that the Borrower has complied with and is in compliance with all of the covenants set forth in the Credit Agreement, as amended by this agreement, including the covenants stated in section 8 of the Credit Agreement, other than in respect of the Subject Events of Default; and

(6)

that as of the date of this agreement no Default and no Event of Default under section 10 of the Credit Agreement, as amended by this agreement, has occurred or is continuing, other than the Subject Events of Default.

7. Conditions . The effectiveness of this agreement is subject to satisfaction of the following conditions:

(1)

that the Bank has received the following:

(A)

a copy of this agreement, duly executed by the parties;

(B)

a copy of an amendment to the BMO Mezzanine NWPA and each of the other documents required to be delivered in accordance with section 6 of that amendment, each duly executed by all applicable Persons;

(C)

a copy of an amendment and restatement of the Subordination Agreement described in clause (iv) of section 7.2(a) of the Credit Agreement, duly executed by all applicable Persons;

(D)

a copy of each replacement Subordinated Debt Document subject to the amended and restated subordination agreement described in clause (1)(C) of this section 7, each duly executed by all applicable Persons; and

(E)

all other documents, certificates, resolutions, and opinions of counsel as the Bank requests;

(2)

that the Borrower has paid, and the Bank has received, the fee described in section 4; and

(3)

that all legal matters incident to the execution and delivery of this agreement are satisfactory to the Bank and its counsel.

8. Post-Closing Matters . (a) The Borrower shall deliver to the Bank within 15 days after the date of this agreement (or any later date to which the Bank agrees in writing) a lien-waiver agreement, in form and substance satisfactory to the Bank, from the landlord of the Borrower’s leased premises at 800 N. Church Street, Lake Zurich, Illinois.

(b) The Borrower hereby acknowledges (1) that default in the observance or performance of the covenant set forth in section 8(a) will constitute an Event of Default under the Credit Agreement; and (2) that no grace or cure period will apply in respect of any such default in the observance or performance of any such covenant.

9. General . (a) This agreement and the rights and duties of the parties hereto are governed by, and are to be construed in accordance with, the internal laws of State of Illinois without regard to principles of conflicts of laws. Wherever possible each provision of the Credit Agreement and this agreement is to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Credit Agreement and this agreement is prohibited by or invalid under any such law, that provision will be deemed ineffective to the extent of that prohibition or invalidity, without invalidating the remainder of that provision or the remaining provisions of the Credit Agreement and this agreement.

(b) This agreement is a Loan Document.

(c) This agreement binds each party and their respective successors and assigns, and this agreement inures to the benefit of each party and the successors and assigns of the Bank.

(d) Except as specifically modified or amended by the terms of this agreement , the terms and provisions of the Credit Agreement, the Subsidiary Guaranty, and the other Loan Documents are incorporated by reference herein and in all respects continue in full force and effect. The Borrower, by execution of this agreement, hereby reaffirms, assumes, and binds itself to all of the obligations, duties, rights, covenants, terms, and conditions contained in the Credit Agreement and the other Loan Documents to which it is a party.

(e) Each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” or words of like import, and each reference to the Credit Agreement in any and all instruments or documents delivered in connection therewith, are deemed to refer to the Credit Agreement, as amended by this agreement.

(f) The Borrower shall pay all costs and expenses in connection with the preparation of this agreement and other related loan documents, including, without limitation, reasonable attorneys’ fees and time charges of attorneys who are employees of the Bank or any affiliate or parent of the Bank. The Borrower shall pay any and all stamp and other taxes, UCC search fees, filing fees, and other costs and expenses in connection with the execution and delivery of this agreement and the other instruments and documents to be delivered hereunder, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such costs and expenses.

(g) The Borrower hereby waives and releases any and all current existing claims, counterclaims, defenses, or set-offs of every kind and nature which it has or might have against the Bank arising out of, pursuant to, or pertaining in any way to the Credit Agreement, any and all documents and instruments in connection with or relating to the foregoing, or this agreement. The Borrower hereby further covenants and agrees not to sue the Bank or assert any claims, defenses, demands, actions, or liabilities against the Bank arising out of, pursuant to, or pertaining in any way to the Credit Agreement, any and all documents and instruments in connection with or relating to the foregoing, or this agreement.

(h) The parties may sign this agreement in several counterparts, each of which will be deemed an original but all of which together will constitute one instrument.

[ Signature pages follow ]

The parties are signing this Amendment No. 4 to Credit Agreement as of the date stated in the introductory clause.

	CTI Industries Corporation

	By:
	Name:
	Title:

	CTI Helium, Inc.

	By:
	Name:
	Title:

	BMO Harris BANK N.A.

	By:
	Name:
	Title:

Signature page to Amendment No. 4 to Credit Agreement

EXECUTION COPY

EXHIBIT 10.2

Amendment No. 1
to NOTE AND WARRANT PURCHASE Agreement

This Amendment No. 1 to Note and Warrant Purchase Agreement is dated as of April 12, 2013 (this “ Agreement ”), and is between CTI Industries Corporation, an Illinois corporation (the “ Company ”) and BMO PRIVATE EQUITY (U.S.), INC., a Delaware corporation (the “ Purchaser ”).

The Company and the Purchaser entered into a Note and Warrant Purchase Agreement dated as of July 17, 2012 (the “ Purchase Agreement ”), under which the Company has extended certain credit facilities to the Company.

In connection with the Purchase Agreement, the Company executed a Senior Secured Subordinated Promissory Note dated July 17, 2012 (the “ Note ”), under which, among other things, the Company promised to pay the Note Amount to the Purchaser on the terms and conditions therein.

The parties now desire to amend the Purchase Agreement in certain respects.

The parties therefore agree as follows:

1. Definitions . Defined terms used but not defined in this Agreement are as defined in the Purchase Agreement.

2. Limited Waiver . (a) The Company has informed the Purchaser (1) that the Company’s Senior Leverage Ratio as of the last day of the fiscal quarter ending March 31, 2013, was or is expected to be, in each case, greater than 3.40 to 1.00, the maximum permitted level for that ratio set forth in section 8.23(a) of the Purchase Agreement; and (2) that the Company’s Total Leverage Ratio as of the last day of the fiscal quarter ending December 31, 2012, and as of the last day of the fiscal quarter ending March 31, 2013, was or is expected to be, in each case, greater than 5.10 to 1.00, the maximum permitted level for that ratio set forth in section 8.23(b) of the Purchase Agreement. The Company acknowledges that an Event of Default has occurred and is continuing or would occur as a result of each such financial-covenant violation (the “ Subject Event of Default ”). The Company further acknowledges that each Subject Event of Default entitles the Purchaser to exercise its rights and remedies under the Purchase Agreement, applicable law, or otherwise. The Company has therefore requested that the Purchaser waive each Subject Event of Default. The Company acknowledges that but for the terms of this Agreement all obligations under the Purchase Agreement and each of the other Operative Documents would be immediately due and payable upon the occurrence of any Subject Event of Default. In addition, the Company acknowledges that the Purchaser has incurred reasonable attorneys’ fees in connection with the Subject Event of Default and that those costs, fees, and expenses are recoverable by the Purchaser under the Purchase Agreement.

(b) The Purchaser hereby waives each Subject Event of Default and the Purchaser’s remedies under the Purchase Agreement with respect to each Subject Event of Default. This limited waiver is to be narrowly construed. Except as provided in this Agreement, this limited waiver neither extends to any other violations under, or default of, the Purchase Agreement nor prejudices any rights or remedies that the Purchaser might have or be entitled to with respect to any such other violations or defaults.

3. Amendments to Purchase Agreement . (a) The definition of “EBITDA” in section 5.1 of the Purchase Agreement is hereby amended to read in its entirety as follows:

“ “ EBITDA ” means, with reference to any period, (a) Net Income of the Company and its Subsidiaries, on a consolidated basis, for such period minus (b) amounts added in arriving at such Net Income for such period in respect of exchange-rate gains during such period plus (c) all amounts deducted in arriving at such Net Income for such period in respect of (i) Interest Expense for such period, (ii) federal, state, and local income taxes for such period, (iii) all amounts properly charged for depreciation of fixed assets and amortization of intangible assets during such period, and (iv) exchange-rate losses during such period.”

(b) The definition of “Total Funded Debt” in section 5.1 of the Purchase Agreement is hereby amended to read in its entirety as follows:

“ “ Total Funded Debt ” means, at any time the same is to be determined, the aggregate of all Indebtedness for Borrowed Money of the Company and its Subsidiaries, on a consolidated basis, at such time, plus all Indebtedness for Borrowed Money of any other person or entity which is directly or indirectly guaranteed by the Company or any of its Subsidiaries or which the Company or any of its Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise acquire or in respect of which the Company or any of its Subsidiaries has otherwise assured a creditor against loss. For purposes of this Agreement, “Total Funded Debt” does not include any Excluded Flexo VIE Debt or the Subordinated Debt owing to John H. Schwan and Stephen M. Merrick described in Section 8.7(f) .”

“ (a) Senior Leverage Ratio . As of the last day of each fiscal quarter of the Company, the Company shall not permit the Senior Leverage Ratio for the four fiscal quarters of the Company then ended to be more than the amount set forth below for such fiscal quarter:

Fiscal Quarter Ending		Level
June 30, 2013, and September 30, 2013		3.60 to 1.00
December 31, 2013		3.30 to 1.00
March 31, 2014		3.05 to 1.00
June 30, 2014, and each fiscal quarter thereafter		2.75 to 1.00

(d) Section 8.23(b) of the Purchase Agreement is hereby amended to read in its entirety as follows:

“ (b) Total Leverage Ratio . As of the last day of each fiscal quarter of the Company, the Company shall not permit the Total Leverage Ratio for the four fiscal quarters of the Company then ended to be more than the amount set forth below for such fiscal quarter:

Fiscal Quarter Ending		Level
June 30, 2013, and September 30, 2013		5.50 to 1.00
December 31, 2013		4.95 to 1.00
March 31, 2014		4.70 to 1.00
June 30, 2014, and each fiscal quarter thereafter		4.60 to 1.00

4. Fee . As consideration for the limited waiver and the amendments to the Purchase Agreement to be effected by this Agreement, the Company shall pay to the Purchaser a fee in the amount of $12,500, which fee is fully earned upon the execution of this Agreement by the Purchaser, due and payable upon the execution and delivery of this Agreement by the Company to the Purchaser, and nonrefundable once paid.

5. Representations and Warranties . To induce the Purchaser to enter into this Agreement, the Company hereby represents to the Purchaser as follows:

(1) that the Company is duly authorized to execute and deliver this Agreement and is and will continue to be duly authorized to borrow monies under the Purchase Agreement, as amended by this Agreement, and to perform its obligations under the Purchase Agreement, as amended by this Agreement;

(2) that the execution and delivery of this Agreement and the performance by the Company of its obligations under the Purchase Agreement, as amended by this Agreement, do not and will not conflict with any provision of law or of the articles of organization or operating agreement of the Company or of any agreement binding upon the Company;

(3) that the Purchase Agreement, as amended by this Agreement, is a legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as enforceability might be limited by bankruptcy, insolvency, or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies;

(4) that the representation and warranties set forth in section 6 of the Purchase Agreement, as amended by this Agreement, are true and correct with the same effect as if those representations and warranties had been made on the date hereof, except that all references to the financial statements mean the financial statements most recently delivered to the Purchaser and except for changes specifically permitted under the Purchase Agreement, as amended by this Agreement;

(5) that the Company has complied with and is in compliance with all of the covenants set forth in the Purchase Agreement, as amended by this Agreement, including the covenants stated in section 8 of the Purchase Agreement, other than in respect of the Subject Events of Default; and

(6) that as of the date of this Agreement no Default and no Event of Default under section 10 of the Purchase Agreement, as amended by this Agreement, has occurred or is continuing, other than the Subject Events of Default.

6. Conditions . The effectiveness of this Agreement is subject to satisfaction of the following conditions:

(1) that the Purchaser has received the following:

(A) a copy of this Agreement, duly executed by the parties;

(B) a copy of the amendment to the Senior Credit Agreement and each of the other documents required to be delivered in accordance with Section 7 of that amendment, each duly executed by all applicable Persons;

(D) a copy of each replacement Subordinated Debt Document, duly executed by all applicable Persons;

(E) a copy of a reaffirmation of the Subsidiary Guaranty of CTI Helium, duly executed by all applicable Persons; and

(F) all other documents, certificates, resolutions, and opinions of counsel as the Purchaser requests;

(2) that the Company has paid, and the Purchaser has received, the fee described in section 4; and

(3) that all legal matters incident to the execution and delivery of this Agreement are satisfactory to the Purchaser and its counsel.

7. Post-Closing Matters .

(a) The Company shall deliver to the Purchaser within 15 days after the date of this Agreement (or any later date to which the Purchaser agrees in writing) a lien-waiver agreement, in form and substance satisfactory to the Purchaser, from the landlord of the Company’s leased premises at 800 N. Church Street, Lake Zurich, Illinois.

(b) The Company hereby acknowledges (1) that default in the observance or performance of the covenant set forth in Section 7(a) will constitute an Event of Default under the Purchase Agreement; and (2) that no grace or cure period will apply in respect of any such default in the observance or performance of any such covenant.

8. General . (a) This Agreement and the rights and duties of the parties hereto are governed by, and are to be construed in accordance with, the internal laws of State of Illinois without regard to principles of conflicts of laws. Wherever possible each provision of the Purchase Agreement and this Agreement is to be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Purchase Agreement and this Agreement is prohibited by or invalid under any such law, that provision will be deemed ineffective to the extent of that prohibition or invalidity, without invalidating the remainder of that provision or the remaining provisions of the Purchase Agreement and this Agreement.

(b) This Agreement is an Operative Document.

(c) This Agreement binds each party and their respective successors and assigns, and this agreement inures to the benefit of each party and the successors and assigns of the Purchaser.

(d) Except as specifically modified or amended by the terms of this Agreement, the terms and provisions of the Purchase Agreement, the Note and the other Operative Documents are incorporated by reference herein and in all respects continue in full force and effect. The Company, by execution of this Agreement, hereby reaffirms, assumes, and binds itself to all of the obligations, duties, rights, covenants, terms, and conditions contained in the Purchase Agreement and the other Operative Documents to which it is a party.

(e) Each reference in the Purchase Agreement to “this Agreement,” “hereunder,” “hereof,” or words of like import, and each reference to the Purchase Agreement in any and all instruments or documents delivered in connection therewith, are deemed to refer to the Purchase Agreement, as amended by this Agreement.

(f) The Company shall pay all costs and expenses in connection with the preparation of this Agreement and other related loan documents, including, without limitation, reasonable attorneys’ fees and time charges of attorneys who are employees of the Purchaser or any affiliate or parent of the Purchaser. The Company shall pay any and all stamp and other taxes, UCC search fees, filing fees, and other costs and expenses in connection with the execution and delivery of this Agreement and the other instruments and documents to be delivered hereunder, and agrees to save the Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such costs and expenses.

(g) The Company hereby waives and releases any and all current existing claims, counterclaims, defenses, or set-offs of every kind and nature which it has or might have against the Purchaser arising out of, pursuant to, or pertaining in any way to the Purchase Agreement, any and all documents and instruments in connection with or relating to the foregoing, or this Agreement. The Company hereby further covenants and agrees not to sue the Purchaser or assert any claims, defenses, demands, actions, or liabilities against the Purchaser arising out of, pursuant to, or pertaining in any way to the Purchase Agreement, any and all documents and instruments in connection with or relating to the foregoing, or this Agreement.

(h) The parties may sign this Agreement in several counterparts, each of which will be deemed an original but all of which together will constitute one instrument.

[ Signature pages follow ]

(Signature Page to Amendment No. 1 to Note and Warrant Purchase Agreement)

The parties are signing this Amendment No. 1 to Note and Warrant Purchase Agreement as of the date stated in the introductory clause.

	CTI INDUSTRIES CORPORATION

	By:
	Name:
	Title:

	BMO PRIVATE EQUITY (U.S.), INC.

	By:
	Name:
	Title:

EXHIBIT 31.1

CERTIFICATIONS

I, John H. Schwan, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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 the condensed consolidated 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: May 15, 2013
		/s/ John H. Schwan
		John H. Schwan,
		Chief Executive Officer

EXHIBIT 31.2

CERTIFICATIONS

I, Stephen M. Merrick, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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: May 15, 2013

		/s/ Stephen M. Merrick
		Stephen M. Merrick,
		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 Quarterly Report on Form 10-Q of CTI Industries Corporation (the “Company”) for the quarterly period ended March 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), John H. Schwan, as Chief Executive Officer of the Company, and Stephen M. Merrick, as 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/ John H. Schwan
John H. Schwan
Chief Executive Officer

Date: May 15, 2013

/s/ Stephen M. Merrick
Stephen M. Merrick
President and Chief Financial Officer

Date: May 15, 2013

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-Q 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.