Edgar Filing: CTI INDUSTRIES CORP

Unassociated Document

As filed with the U.S. Securities and Exchange Commission on July 9, 2008

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

POST EFFECTIVE AMENDMENT NO. 1

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED

Illinois	CTI INDUSTRIES CORPORATION	36-2848943
(State or Other Jurisdiction of	(Name of Registrant	(I.R.S. Employer
Incorporation or Organization)	in Our Charter)	Identification No.)

		Stephen M. Merrick
22160 North Pepper Road		22160 North Pepper Road
Barrington, Illinois 60010		Barrington, Illinois 60010
(847) 382-1000	3069	(847) 382-1000
(Address and telephone	(Primary Standard	(Name, address and
number of Principal	Industrial	telephone number of
Executive Offices and	Classification	agent for service)
Principal Place of Business)	Code Number)

With copies to:

Clayton E. Parker, Esq.	Matthew Ogurick, Esq.
Kirkpatrick & Lockhart Preston Gates Ellis LLP	Kirkpatrick & Lockhart Preston Gates Ellis LLP
200 S. Biscayne Boulevard, Suite 3900	200 S. Biscayne Boulevard, Suite 3900
Miami, Florida 33131	Miami, Florida 33131
Telephone: (305) 539-3300	Telephone: (305) 539-3300
Telecopier: (305) 358-7095	Telecopier: (305) 358-7095

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

PROSPECTUS

CTI INDUSTRIES CORPORATION

79,876 shares of Common Stock

This prospectus (this “Prospectus”) relates to the sale of up to 79,876 shares of common stock of CTI Industries Corporation (“CTI” or the “Company”) by certain persons who are shareholders of the Company, including (a) Cornell Capital Partners, L.P. (n/k/a YA Global Investments, L.P. and hereinafter referred to as “Cornell Capital”), a shareholder who intends to sell up to 76,376 shares of common stock pursuant to a Standby Equity Distribution Agreement (also referred to herein as the “SEDA”), dated June 6, 2006, by and between the Company and Cornell Capital and (b) Newbridge Securities Corporation (“Newbridge”), a shareholder who intends to sell 3,500 shares of common stock which have been issued by the Company to Newbridge pursuant to a Placement Agent Agreement in connection with the SEDA. Please refer to “Selling Shareholders” beginning on page 28. All costs associated with this registration will be borne by the Company.

The shares of common stock are being offered for sale by the selling shareholders at prices established on the NASDAQ Capital Market (NASDAQ-CM) during the term of this offering. On May 30, 2008, the last reported sale price of our common stock was $5.01 per share. Our common stock is quoted on the NASDAQ-CM under the symbol “CTIB”. These prices will fluctuate based on the demand for the shares of common stock.

Cornell Capital is an “underwriter” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), in connection with the sale of common stock under the Standby Equity Distribution Agreement.

Brokers or dealers effecting transactions in these shares should confirm that the shares are registered under the applicable state law or that an exemption from registration is available.

These securities are speculative and involve a high degree of risk.

Please refer to “Risk Factors” beginning on page 11.

With the exception of Cornell Capital, which is an “underwriter” within the meaning of the Securities Act, no other underwriter or person has been engaged to facilitate the sale of shares of common stock in this offering. This offering will terminate twenty-four (24) months after the accompanying Registration Statement is declared effective by the U.S. Securities and Exchange Commission (the “SEC”). None of the proceeds from the sale of stock by the selling shareholders will be placed in escrow, trust or any similar account.

The SEC and state securities regulators have not approved or disapproved of these securities, or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The information in this Prospectus is not complete and may be changed. Neither the selling shareholder nor we may sell these securities until the Registration Statement filed with the SEC is effective. This Prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

The date of this Prospectus is July 9, 2008.

TABLE OF CONTENTS

PROSPECTUS SUMMARY	1

Introduction	1
Overview	1
Recent Developments	2
About Us	3

THE OFFERING	4

Net Cash To The Company	5
Number Of Shares To Be Issued To Receive Gross Proceeds Of $5 Million	5
Selected Financial Data	6

SUPPLEMENTARY FINANCIAL INFORMATION	9

FORWARD-LOOKING STATEMENTS	10

RISK FACTORS	11

Industry Risks	11
Company Risks	12
Financial Risks	14
Market Risks and Risks Related to this Offering	15

DESCRIPTION OF BUSINESS	18

Business Overview	18
Business Strategies	19
Products	20
Markets	21
Marketing, Sales and Distribution	22
Production and Operations	23
Raw Materials	23
Information Technology Systems	24
Competition	24
Patents, Trademarks and Copyrights	24
Research and Development	25
Employees	25
Regulatory Matters	25
International Operations	25
Products	26
Legal Proceedings	27

SELLING SHAREHOLDERS	28

Shares Acquired In Financing Transactions With CTI	28

STANDBY EQUITY DISTRIBUTION AGREEMENT	30

Summary	30
Standby Equity Distribution Agreement Explained	30
Net Cash To The Company	31
Number Of Shares To Be Issued To Receive Gross Proceeds Of $5 Million	31

USE OF PROCEEDS	33

DILUTION	34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36

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Overview	36
Recent Developments	36
Results of Operations For the Three (3) Months Ended March 31, 2008 Compared to the Three (3) Months Ended March 31, 2007	37
Results of Operations For the Year Ended December 31, 2007 Compared with the Year Ended December 31, 2006	39
Net Sales	39
Cost of Sales	39
General and Administrative Expenses	40
Selling	40
Advertising and Marketing	40
Other Income or Expense	40
Net Income or Loss	40
Income Taxes	40
Results of Operations For the Year Ended December 31, 2006 Compared to Year Ended December 31, 2005	41
Net Sales	41
Cost of Sales	41
General and Administrative Expenses	41
Selling	41
Advertising and Marketing	41
Other Operating Expense (Income)	41
Other Expense	42
Net Income or Loss	42
Income Taxes	42
Financial Condition, Liquidity and Capital Resources	42
Seasonality	45
Critical Accounting Policies	45

MANAGEMENT	49

EXECUTIVE COMPENSATION	53

PRINCIPAL SHAREHOLDERS	62

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	64

THE 2007 STOCK INCENTIVE PLAN	65

Description of the Plan	65
Change of Control.	65
Future Amendments to the Plan.	66
Federal Income Tax Information With Respect to the Plan	66
Incentive Stock Options	66
Non-Statutory Stock Options	66
Restricted Stock Awards	67
Unrestricted Stock Awards	67
Taxation of the Company	67

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND OTHER STOCKHOLDER MATTERS	68

Market Information.	68
Dividends	68

DESCRIPTION OF SECURITIES	71

General	71
Common Stock	71
Preferred Stock	71
Warrants	71
Options	71

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Limitation Of Liability: Indemnification	71
Transfer Agent	72
Anti-Takeover Effects Of Provisions Of The Articles Of Incorporation	72

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	73

EXPERTS	74

LEGAL MATTERS	75

HOW TO GET MORE INFORMATION	76

INDEX TO FINANCIAL STATEMENTS	i

PART II INFORMATION NOT REQUIRED IN PROSPECTUS	1

SIGNATURES	8

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PROSPECTUS SUMMARY

Introduction

This offering relates to the sale of common stock by certain persons who are shareholders of the Company, including (a) Cornell Capital, who intends to sell up to 76,376 shares of the Company’s common stock under the Standby Equity Distribution Agreement, dated as of June 6, 2006, by and between the Company and Cornell Capital and (b) Newbridge, who intends to sell 3,500 shares of common stock which have been issued by the Company to Newbridge pursuant to a Placement Agent Agreement in connection with the SEDA. The shares of common stock are being offered for sale by the selling shareholders at prices established on the NASDAQ Capital Market during the term of this offering.

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 applications, and flexible containers for packaging and storage applications. We produce all of our film products for packaging and container applications at our plant in Barrington, Illinois. We produce all of our latex balloons and latex products at our facility in Guadalajara, Mexico. Substantially all of our film products for packaging applications and flexible containers for packaging and storage are sold to customers in the United States. We market and sell our novelty items - principally metalized balloons and latex balloons - in the United States, Mexico, the United Kingdom and a number of additional countries.

We develop, produce, market and sell two principal lines of products:

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

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

We focus our business and efforts on the printing, processing and converting of plastic film, and of latex, into finished products. We:

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

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

Convert printed plastic film to balloons.

Convert plastic film to flexible containers. These finished products are used to store and package food and for storage of a variety of personal items.

Convert latex to balloons and other novelty items.

We market and sell metalized and latex balloons in the United States and in several other countries. We supply coated, laminated and printed films to a number of companies who generally convert these films into containers for the packaging of food and other items. We supply flexible containers to companies who (i) use them for packaging of food or other items or (ii) market them to consumers who use them for the storage of personal items. We also market containers to and through retail outlets for use by consumers that include a resealable closure system and a valve permitting the evacuation of air from the pouch by a small pump device, which we also supply.

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In 1978, we began manufacturing metalized balloons (sometimes referred to as "foil" balloons), which are balloons made of a base material (usually nylon or polyester) having vacuum deposited aluminum and polyethylene coatings. These balloons remain buoyant when filled with helium for much longer periods than latex balloons and permit the printing of graphic designs on the surface.

In 1985, we began marketing latex balloons and, in 1988 we began manufacturing latex balloons. In 1994, we sold our latex balloon manufacturing equipment to a company in Mexico and entered into an arrangement for that company to manufacture latex balloons for us. Since 1997, we have manufactured latex balloons in Mexico through a majority-owned subsidiary.

In 1999, we acquired an extrusion coating and laminating machine and began production of coated and laminated films, which we have produced since that time.

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

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

Most of our metalized balloons contain printed characters, designs and social expression messages, such as “Happy Birthday”, “Get Well Soon” and similar items. In a number of cases, we obtain licenses for well-known characters and print those characters and messages on our balloons. Currently, we maintain licenses for Garfield^®, Odie, Face Offs-Tudes^®, Miss Spider and Sunny Patch Friends®, Andrea Mistretta and Wow Wow Wubsy®. In the United Kingdom, we maintain licenses on The Crazy Frog® and Tudes.

Balloons and novelty items accounted for 62.6% of our revenues in 2007. The remainder of our revenues is generated from the sale of laminated film products, generally intended for use in the packaging of foods, liquids and other materials. We provide laminated films, and printed films, to a number of customers who utilize the film to produce bags or pouches for the packaging of food, liquids and other items. We also produce finished products – pouches and bags – which are used for a variety of applications, including (i) as vacuumable consumer storage devices for clothing and other household items, (ii) as vacuumable pouches for household use in storage of food items, and (iii) as “dunnage” items which, when inflated, cushion products in a package or container. In 2007, our revenues from these products represented approximately 37.4% of our net revenues.

Recent Developments

On February 1, 2008, we entered into a License and Supply Agreement with S.C. Johnson & Son, Inc (“SC Johnson”). The agreement provides for the Company to manufacture and sell to SC Johnson certain home food management products to be sold under the SC Johnson ZipLoc® brand. The agreement is for a term expiring on June 30, 2011 and provides for two renewal terms of two years each at the option of SC Johnson.

On April 10, 2008, we entered into an agreement with Babe Winkelman Productions, Inc. (“BWP”). The agreement provides for BWP to provide marketing and advertising services to us in connection with our ZipVac™ brand portable food storage system. BWP will produce commercials featuring the ZipVac™ product line which are to be aired at the time of Babe Winkelman syndicated programs, will produce a Kris Winkelman segment of the Babe Winkelman shows which will feature uses of the ZipVac™ product line, and will provide other advertising and marketing services. We will receive a license to use the name, image, likeness and testimonies of Babe and Kris Winkelman in connection with the ZipVac™ product line. We will pay a royalty to BWP of 3% of net revenues from the sale of the ZipVac™ product and will issue to BWP 50,000 shares of our common stock which will be earned by BWP over a two year period. The agreement is for a term commencing on April 1, 2008 and expiring on March 31, 2011.

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On May 6, 2008, we entered into an Amendment to License Agreement with Rapak, L.L.C. which amends a License Agreement among the Company and Rapak dated April 13, 2006. Under the License Agreement, we granted to Rapak a worldwide, royalty-free license under Patent No. 6,984,278 relating to a method for texturing film and the production of a pouch utilizing such film and incorporating an evacuation tube. The license was granted for the full term of the patent and was made exclusive to Rapak for a period at least through October 31, 2008. The License Agreement also amended a Supply Agreement between the Company and Rapak for the supply of textured film extending the term of the Supply Agreement until at least October 31, 2008 and providing for Rapak to purchase from the Company at least 65% of Rapak’s requirements for the patented film through that date.

Under the Amendment to License Agreement, the License Agreement was amended to: (i) extend the period of exclusivity of the patent license to October 31, 2011, (ii) extend the term of the Supply Agreement to October 31, 2011, (iii) provide, under the Supply Agreement, for Rapak to commit to purchase not less than 75% of its requirements for textured film from the Company during the term of the Supply Agreement, (iv) adjust pricing under the Supply Agreement and (v) change the definition of the field of use for the patent license.

Rapak has been one of the top three customers of the Company for the past five years and is expected to continue to be a principal customer of the Company.

About Us

We are an Illinois corporation with our principal offices and plant at 22160 N. Pepper Road, Barrington, Illinois. Our telephone number is (847) 382-1000. The address of our website is www.ctiindustries.com. Information on our website is not part of this Prospectus.

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THE OFFERING

This offering relates to the sale of common stock by certain persons who are shareholders of the Company, including (a) Cornell Capital, who intends to sell up to 400,000 shares of common stock pursuant to the Standby Equity Distribution Agreement, dated June 6, 2006, by and between the Company and Cornell Capital (also referred to herein as the “SEDA”) and (b) Newbridge, who intends to sell 3,500 shares of common stock which have been issued pursuant to a Placement Agent Agreement in connection with the SEDA.

On June 6, 2006 (the “Closing Date”), the Company entered into the Standby Equity Distribution Agreement with Cornell Capital pursuant to which the Company may, at its discretion, periodically sell to Cornell Capital shares of its common stock, no par value per share, for a total purchase price of up to Five Million Dollars ($5,000,000). For each share of common stock purchased under the SEDA, Cornell Capital will pay to the Company one hundred percent (100%) of the lowest volume weighted average price (as quoted by Bloomberg, LP) of the Company’s common stock on the principal market (whichever is at such time the principal trading exchange or market for the common stock) during the five (5) consecutive trading days after the Advance Notice Date (as such term is defined in the SEDA). However, the Company and Cornell Capital have agreed that the Company will not sell to Cornell Capital in excess of 400,000 shares unless and until the Company shall have obtained shareholder approval for such sales.

Cornell Capital will retain five percent (5%) of each advance under the SEDA as an underwriting discount. The Company has paid to Yorkville Advisors, LLC (“Yorkville”) a structuring fee equal to Fifteen Thousand Dollars ($15,000) on the Closing Date and shall pay Five Hundred Dollars ($500) to Yorkville on each Advance Date directly out of the gross proceeds of each Advance (as such terms are defined in the SEDA). The Company also entered into that certain Placement Agent Agreement (hereinafter the “PAA”), dated as of the Closing Date, by and among the Company, Cornell Capital and Newbridge pursuant to which the Company engaged Newbridge to act as it exclusive placement agent in connection with the SEDA. Upon the execution of the PAA, the Company issued to Newbridge Three Thousand Five Hundred (3,500) shares (the “Newbridge Shares”) of the Company’s common stock. Newbridge is entitled to “piggy-back” registration rights with respect to the Newbridge Shares and such Newbridge Shares are being registered in this offering.

On January 28, 2007, the Registration Statement was declared effective. Through the date of this Post-Effective Amendment, we have received $1,492,000 in net proceeds from Cornell Capital and Cornell Capital has purchased from us an aggregate of 323,624 shares of our common stock, all of which have been sold by Cornell Capital hereunder. At an assumed offering price of $5.01 per share (the last reported sale price on May 30, 2008), as determined under the Standby Equity Distribution Agreement, CTI will be able to receive up to $382,644 in gross proceeds assuming the sale of the entire balance of 76,376 shares registered hereunder pursuant to the SEDA, and $1,874,644 in gross proceeds assuming the sale of the aggregate 400,000 shares originally offered hereunder. The Company would be required to register 598,004 additional shares to obtain the balance of $5 million available under the SEDA at an assumed offering price of $5.01. Based on the limited number of available authorized shares of common stock, CTI may need to obtain shareholder approval to increase the authorized shares of common stock to access additional amounts under the SEDA. If CTI drew down on the entire $5 million available under the Standby Equity Distribution Agreement, Cornell Capital would receive an aggregate underwriting discount equal to $250,000.

There are substantial risks to investors as a result of the issuance of shares of common stock under the SEDA. These risks include dilution of shareholders, significant decline in CTI’s stock price and our inability to draw sufficient funds when needed.

Cornell Capital will periodically purchase shares of common stock under the SEDA and will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require CTI to issue increasing numbers of shares to Cornell Capital to raise the same amount of funds, as our stock price declines. This inverse relationship is demonstrated by the following tables, which show the net cash to be received by CTI and the number of shares to be issued under the SEDA at an assumed offering price of $5.01 per share and twenty-five percent (25%), fifty percent (50%) and seventy-five percent (75%) discounts to the assumed offering prices.

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Net Cash To The Company

	Assumed Offering Price			75% of Assumed Offering Price			50% of Assumed Offering Price			25% of Assumed Offering Price
Purchase Price:	$	5.01		$	3.76		$	2.51		$	1.26
No. of Shares⁽¹⁾:		76,376			76,376			76,376			76,376
Total Outstanding⁽²⁾:		2,861,476			2,861,476			2,861,476			2,861,476
Percent Outstanding⁽³⁾:		2.67	%		2.67	%		2.67	%		2.67	%
Gross Cash to CTI:	$	382,644		$	287,174		$	191,704		$	96,234
Net Cash to CTI⁽⁴⁾:	$	203,512		$	112,815		$	22,119		$	(68,578	)

(1)	Represents the number of shares of common stock registered pursuant to the accompanying Registration Statement, which remain to be issued to Cornell Capital under the SEDA at the prices set forth in the table. Does not represent the 3,500 shares issued to Newbridge Securities pursuant to the Placement Agent Agreement in connection with the SEDA.
(2)	Represents the total number of shares of common stock outstanding at May 30, 2008 (2,785,100) plus the issuance of 76,376 shares to Cornell Capital under the SEDA.
(3)	Represents the shares of common stock to be issued as a percentage of the total number of shares outstanding at May 30, 2008 (2,785,100).
(4)	Net cash equals the gross proceeds minus the five percent (5%) underwriting discount and minus $160,000 in offering expenses.

Number Of Shares To Be Issued To Receive Gross Proceeds Of $5 Million

	Assumed Offering Price			75% of Assumed Offering Price			50% of Assumed Offering Price			25% of Assumed Offering Price
Purchase Price:	$	5.01		$	3.76		$	2.51		$	1.26
No. of Shares⁽¹⁾:		674,380			1,006,163			1,668,408			3,644,630
Total Outstanding⁽⁴⁾⁽⁵⁾:		3,459,480	⁽²⁾		3,791,263	⁽²⁾		4,453,508	⁽²⁾		6,429,730	⁽²⁾⁽³⁾
Percent Outstanding⁽⁶⁾:		19.49	%		26.54	%		37.47	%		56.68	%
Gross Proceeds to CTI⁽⁷⁾:		5,000,000			5,000,000			5,000,000			5,000,000
Net Cash to CTI⁽⁸⁾:	$	4,590,000		$	4,590,000		$	4,590,000		$	4,590,000

(1)

Represents the total number of shares of common stock which would need to be issued at the stated purchase price to receive gross proceeds of $5,000,000, minus the number of shares previously issued to Cornell Capital since the effectiveness of this offering. We registered 400,000 shares of common stock under this Prospectus pursuant to the SEDA, 76,376 of which remain available for issuance to Cornell Capital. We will need to register additional shares of common stock to obtain the entire $5 million available under the SEDA at these stated purchase prices.

(2)	The Company and Cornell Capital have agreed that the Company will not sell to Cornell Capital in excess of 400,000 shares unless the Company shall have obtained shareholder approval for such shares.
(3)	At the stated purchase price and based on the limited number of available authorized shares of common stock, CTI would need to obtain shareholder approval to increase the authorized shares of common stock to obtain the entire $5 million available under the SEDA.

(4)	Represents the total number of shares of common stock outstanding at May 30, 2008 after the issuance of the shares to Cornell Capital under the SEDA set forth in footnote (1) above.

(5)	CTI’s Certificate of Incorporation authorizes the issuance of 5,000,000 shares of common stock.

(6)	Represents the shares of common stock to be issued as a percentage of the total number shares outstanding at May 30, 2008.
(7)	If CTI drew down on the entire $5 million available under the SEDA, Cornell Capital would receive an aggregate underwriting discount equal to $250,000. As of of the date of this Prospectus, the remaining balance on the $5 million available under the SEDA is $3.42 million which is used in the calculations in the chart above.
(8)	Net cash equals the gross proceeds minus the five percent (5%) underwriting discount and minus $160,000 in offering expenses.

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The Offering Summary

Common Stock Remaining To Be Offered:	79,876 shares by the selling shareholders

Offering Price	Market price

Common Stock Outstanding Before the Offering⁽¹⁾	2,785,100 shares as of May 30, 2008

Use of Proceeds	We will not receive any proceeds of the shares offered by the selling shareholders. Any proceeds we receive from the sale of common stock under the Standby Equity Distribution Agreement will be used for general working capital purposes at the discretion of CTI. See “Use of Proceeds”.

Risk Factors	The securities offered hereby involve a high degree of risk and immediate substantial dilution. See “Risk Factors” and “Dilution”.

NASDAQ Capital Market Symbol	CTIB

(1)	Excludes up to 76,376 shares of common stock remaining to be issued pursuant to the SEDA.

Selected Financial Data

The following selected financial data are derived from the consolidated financial statements of the Company. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein.

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	Year ended December 31, (000 Omitted)
	2007			2006			2005			2004			2003
Statement of Operations Data:
Net Sales	$	36,510		$	35,428		$	29,190		$	37,193		$	36,260
Costs of Sales	$	27,826		$	26,531		$	22,726		$	30,841		$	29,627
Gross Profit	$	8,684		$	8,897		$	6,464		$	6,352		$	6,633
Operating expenses	$	7,439		$	6,275		$	5,812		$	6,402		$	6,856
Income (loss) from operations	$	1,245		$	2,622		$	652		$	(50	)	$	(223	)
Interest expense	$	1,286		$	1,691		$	1,231		$	1,350		$	1,103
Other (income) expense	$	(174	)	$	(191	)	$	(45	)	$	(208	)	$	23
Income (loss) before taxes and minority interest	$	133		$	1,122		$	(534	)	$	(1,192	)	$	(1,349	)
Income tax (benefit) expense	$	51		$	(774	)	$	(200	)	$	1,286		$	(782	)
Minority interest	$	-		$	1		$	-		$	1		$	-
Net Income (loss)	$	82		$	1,895		$	(333	)	$	(2,479	)	$	(566	)
Earnings (loss) per common share
Basic	$	0.03		$	0.91		$	(0.17	)	$	(1.28	)	$	(0.30	)
Diluted	$	0.03		$	0.85		$	(0.17	)	$	(1.28	)	$	(0.30	)
Other Financial Data:
Gross margin percentage		23.79	%		25.11	%		22.14	%		17.08	%		18.29	%
Capital Expenses	$	2,848		$	553		$	550		$	306		$	2,007
Depreciation & Amortization	$	1,299		$	1,205		$	1,463		$	1,651		$	1,619
Balance Sheet Data:
Working capital (Deficit)	$	1,318		$	1,848		$	(2,426	)	$	(2,790	)	$	(706	)
Total assets	$	29,256		$	26,645		$	23,536		$	27,888		$	30,270
Short-term obligations ⁽¹⁾	$	9,767		$	9,422		$	8,618		$	9,962		$	6,692
Long-term obligations	$	6,237		$	6,887		$	6,039		$	6,491		$	8,909
Stockholders’ Equity	$	6,591		$	5,102		$	2,726		$	2,951		$	5,212

(1)

Short term obligations consist of primarily of borrowings under bank line of credit and current portion of long-term debt.

The following table sets forth selected audited statements of operations for each quarter of fiscal 2007 and 2006:

	For the Year Ended December 31, 2007 (1)
	1st			2nd		3rd			4th
	Quarter			Quarter		Quarter			Quarter
Net sales	$	8,279,000		$	9,259,000	$	8,673,000		$	10,299,000
Gross profit	$	1,903,000		$	2,744,000	$	1,617,000		$	2,420,000
Net (loss) income	$	(52,000	)	$	423,000	$	(414,000	)	$	125,000
Earnings per common share
Basic	$	(0.02	)	$	0.18	$	(0.18	)	$	0.05
Diluted	$	(0.02	)	$	0.17	$	(0.18	)	$	0.05

(1)	Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal the annual earnings per common share

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	For the Year Ended December 31, 2006 (1)
	1st		2nd		3rd		4th
	Quarter		Quarter		Quarter		Quarter (2)
Net sales	$	8,156,000	$	8,997,000	$	8,603,000	$	9,672,000
Gross profit	$	1,953,000	$	2,197,000	$	2,253,000	$	2,494,000
Net income	$	220,000	$	206,000	$	315,000	$	1,154,000
Earnings per common share
Basic	$	0.11	$	0.10	$	0.15	$	0.54
Diluted	$	0.10	$	0.10	$	0.15	$	0.49

(1)	Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal the annual earnings per common share

(2)

During the fourth quarter 2006, management of the Company conducted an analysis of the recoverability of the deferred tax asset based on results of operations during the fourth quarter of 2005 and for the full year of 2006, expected continued achievement of and continuing improvement in operating results for the forseeable future and anticipated repatriations of profits and services income to be generated from the Company's foreign subsidiaries. As a result of such analysis, management determined that the net recorded deferred tax asset in the amount of $1,127,000 is more likely than not to be realized.

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SUPPLEMENTARY FINANCIAL INFORMATION

The following table presents the Company’s condensed operating results for each of the ten (10) fiscal quarters through the period ended March 31, 2008. The information for each of these quarters is unaudited. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present the unaudited quarterly results. This data should be read together with the Company’s consolidated financial statements and the notes thereto, the Independent Auditors Reports and Management’s Discussions and Analysis of Financial Condition and Results of Operations.

	THREE (3) MONTHS ENDED (In Thousands – except per share information)
	Mar 31		Dec 31		Sep 30			June 30		Mar 31			Dec 31		Sep 30		June 30		Mar 31		Dec 31
	2008		2007		2007			2007		2007			2006		2006		2006		2006		2005
Revenues	$	10,735,000	$	10,299,000	$	8,673,000		$	9,259,000	$	8,279,000		$	9,672,000	$	8,603,000	$	8,997,000	$	8,156,000	$	6,480,000
Net Income (loss)	$	279,000	$	125,000	$	(414,000	)	$	423,000	$	(52,000	)	$	1,154,000	$	315,000	$	206,000	$	220,000	$	52,000
Net Income (loss) per share
Basic	$	0.10	$	0.05	$	(0.18	)	$	0.18	$	(0.02	)	$	0.54	$	0.15	$	0.10	$	0.11	$	0.03
Diluted	$	0.10	$	0.05	$	(0.18	)	$	0.17	$	(0.02	)	$	0.49	$	0.15	$	0.10	$	0.10	$	0.02
Shares used in computing per share amounts:
Basic		2,662,267		2,346,126		2,339,467			2,303,371		2,156,783			2,087,145		2.055,553		2,053,311		2,036,474		1,977,235
Diluted		2,797,374		2,589,960		2,339,467			2,540,729		2,156,783			2,234,901		2,129,658		2,171,525		2,166,892		1,977,235

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FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements regarding management’s plans and objectives for future operations including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks set forth in this Prospectus include or relate to, among other things, (a) our projected sales and profitability, (b) our growth strategies, (c) anticipated trends in our industry, (d) our ability to obtain and retain sufficient capital for future operations, and (e) our anticipated needs for working capital. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business”, as well as in this Prospectus generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this Prospectus generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Prospectus will in fact occur.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that there will be no material adverse competitive or technological change in conditions in our business, that demand for our products and services will significantly increase, that our President will remain employed as such, that our forecasts accurately anticipate market demand, and that there will be no material adverse change in our operations or business or in governmental regulations affecting us or our manufacturers and/or suppliers. The foregoing assumptions are based on judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Accordingly, although we believe that the assumptions underlying the forward-looking statements are reasonable, any such assumption could prove to be inaccurate and therefore there can be no assurance that the results contemplated in forward-looking statements will be realized. In addition, as disclosed elsewhere in the “Risk Factors” section of this Prospectus, there are a number of other risks inherent in our business and operations which could cause our operating results to vary markedly and adversely from prior results or the results contemplated by the forward-looking statements. Growth in absolute and relative amounts of cost of goods sold and selling, general and administrative expenses or the occurrence of extraordinary events could cause actual results to vary materially from the results contemplated by the forward-looking statements. Management decisions, including budgeting, are subjective in many respects and periodic revisions must be made to reflect actual conditions and business developments, the impact of which may cause us to alter marketing, capital investment and other expenditures, which may also materially adversely affect our results of operations. In light of significant uncertainties inherent in the forward-looking information included in this Prospectus, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

Some of the information in this Prospectus contains forward-looking statements that involve substantial risks and uncertainties. Any statement in this Prospectus and in the documents incorporated by reference into this Prospectus that is not a statement of an historical fact constitutes a “forward-looking statement”. Further, when we use the words “may”, “expect”, “anticipate”, “plan”, “believe”, “seek”, “estimate”, “internal” and similar words, we intend to identify statements and expressions that may be forward-looking statements. We believe it is important to communicate certain of our expectations to our investors. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions that could cause our future results to differ materially from those expressed in any forward-looking statements. Many factors are beyond our ability to control or predict. You are accordingly cautioned not to place undue reliance on such forward-looking statements. Important factors that may cause our actual results to differ from such forward-looking statements include, but are not limited to, the risk factors discussed below. Before you invest in our common stock, you should be aware that the occurrence of any of the events described under “Risk Factors” below or elsewhere in this Prospectus could have a material adverse effect on our business, financial condition and results of operation. In such a case, the trading price of our common stock could decline and you could lose all or part of your investment.

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RISK FACTORS

We are subject to various risks that may materially harm our business, financial condition and results of operations. You should carefully consider the risks and uncertainties described below and the other information in this filing before deciding to purchase our common stock. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the trading price of our common stock could decline and you could lose all or part of your investment.

Industry Risks

We engage in businesses which are intensely competitive, involve strong price competition and relatively low margins.

The businesses in which we engage – supply of films for flexible packaging, supply of pouches for flexible packaging and supply of novelty balloon items – are highly competitive. We face intense competition from a number of competitors in each of these product categories, several of which have extensive production facilities, well-developed sales and marketing staffs and greater financial resources than we do. Some of these competitors maintain international production facilities enabling them to produce at low costs and to offer products at highly competitive prices. We compete on the basis of price, quality, service, delivery and differentiation of products. Most of our competitors seek to engage in product development and may develop products that have superior performance characteristics to our products. This intense competition can limit or reduce our sales or market share for the sale of our products as well as our margins. There can be no assurance that we will be able to compete successfully in the markets for our products or that we will be able to generate sufficient margins from the sale of our products to become or remain profitable.

Our business is dependent on the price and availability of raw materials.

The cost of the raw materials we purchase represents about 41.2% of our revenues. The principal raw materials we purchase are: nylon sheeting, polyester sheeting, polyethylene sheeting, polyethylene resin and latex. Much of these materials are derived from petroleum and natural gas. Prices for these materials fluctuate substantially as a result of the change in petroleum and natural gas prices, demand and the capacity of companies who produce these products to meet market needs. Instability in the world markets for petroleum and natural gas has, and may, adversely affect the prices of these raw materials and their general availability. The price of latex has also fluctuated significantly over the past three years. Our ability to achieve and maintain profitability is partially dependent upon our ability to pass through to our customers the amount of increases in raw materials cost. If prices of these materials increase and we are not able to fully pass on the increases to our customers, our results of operations and our financial condition will be adversely affected.

Changes or limitations in the price and availability of helium to our customers may adversely affect our sales of novelty products.

Many of our novelty products, including many styles of foil balloons and latex balloons, are intended to be, and are, when sold to or used by customers filled with helium for buoyancy. During recent months, the price of helium has increased. It has been reported that the supply of helium is decreasing, that demand for helium for industrial and scientific uses has been increasing and that exports of helium from the United States, which is the principal producer of helium, have increased. As a result, the increased price of helium and possible lack of availability may adversely affect sales of novelty balloon products, including sales by the Company.

The loss of a key supplier or suppliers could lead to increased costs and lower margins as well as other adverse results.

We rely on eight principal suppliers for our petroleum, natural gas and latex-based raw material suppliers. We do not maintain supply agreements with any of our suppliers for these materials. The loss of any of these suppliers would force us to purchase these materials from other suppliers or on the open market, which may require us to pay higher prices for raw materials than we do now, with the result that our margins on the sale of our products would be adversely affected. In addition, the loss of the supply of an important raw material from one of our present suppliers may not be replaceable through open market purchases or through a supply arrangement with another supplier. In the event that we were unable to obtain a raw material from another supplier, we would be unable to continue to manufacture certain of our products.

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Company Risks

We have a history of both income and losses and have experienced fluctuations of operating income, which may cause our stock to fluctuate.

We have had a history of losses and of fluctuating income from operations over the past five years. We have reported net income from operations in three of the past five years and losses in two of those years Our income or loss from operations during that time has ranged from a profit of $2,622,000 to a loss of $223,000 and has been subject to significant quarterly and annual fluctuations. These fluctuations can be caused by:

Economic conditions

Competition

Production efficiencies

Variability in raw materials prices

Seasonality

These fluctuations make it more difficult for investors to compare our operating results to corresponding prior year periods. These fluctuations also cause our stock price to fluctuate. You should not rely on our results of operations for any particular quarter or year as being indicative of our results for a full year or any other period.

We have limited financial resources that may adversely affect our ability to invest in productive assets, marketing, new products and new developments.

Our working capital is limited. As of December 31, 2007, our current assets exceeded our current liabilities by approximately $1,318,000. As of March 31, 2008, our current assets exceeded our current liabilities by approximately $2,360,041. As a result of this limited amount of working capital, we may be unable to fund capital investments, working capital needs, marketing and sales programs, research and development, patent or copyright licenses or other items which we would like to acquire or pursue in accordance with our business strategies. The inability to pursue any of these items may adversely affect our competitive position, our business, financial condition or prospects.

A high percentage of our sales are to a limited number of customers and the loss of any one or more of those customers could adversely affect our results of operation, cash flow and financial condition.

For the three months ended March 31, 2008, our sales to our top 10 customers represented 73.0% of our net sales and our sales to our top three customers represented 44.1% of our net sales. We do not have long term contracts with several of our principal customers. The loss of any of our principal customers, or a significant reduction in the amount of our sales to any of them, would have a material adverse effect on our business and financial condition.

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We rely on intellectual property in our business and the failure to develop, acquire or protect our intellectual property could adversely affect our business.

We consider patents, copyright licenses and to some degree trademarks, as being significant to our competitive position, our ability to obtain and retain customers and to achieve acceptable margin levels on the sale of our products. With respect to our film and flexible packaging/pouch business, we believe that developing, acquiring and maintaining patent rights are of significance to us for those reasons. Over the past 12 years, we have obtained nine patents related to films, pouches, zippers for pouches, the method of inserting zippers in pouches and certain valves for pouches. We have three patents pending with regard to such products With respect to our novelty balloon products, we believe that patent rights and trade secrets for product developments and copyright licenses for characters and designs are of significance to our ability to compete in the market and to obtain acceptable margins on the sale of our products. Our limited financial resources have made it more difficult for us to invest in product and patent developments and to obtain copyright licenses. If we are unable to develop, acquire, maintain or enforce some or all of our intellectual property rights, our business, financial conditions and prospects will be adversely affected.

We produce all of our products at two plants and damage to or destruction of one or both of the plants would have a serious adverse affect on our business.

We produce all of our film products and pouches at our plant in Barrington, Illinois and all of our latex balloon products at our plant in Guadalajara, Mexico. In the event of a fire, flood, or other natural disaster, or the termination of our lease in Mexico, we could lose access to one or both of our plants. Loss of, significant damage to, or destruction of, one or both of these plants would render us unable to produce our products presently produced in such plants, possibly for an extended period of time and our business, financial condition and prospects would be materially adversely affected. While we maintain business interruption insurance, the proceeds of such insurance may not be adequate to compensate us for all of our losses in such an event.

We are dependent on the management experience of our key personnel.

We are dependent on the management experience and continued services of our executive officers, including Howard W. Schwan, our President, John H. Schwan, our Chairman and Stephen M. Merrick, our Chief Financial Officer, as well as each of these other executive officers of the Company: Brent Anderson, Sam Komar, Steve Frank and Timothy Patterson. We have an existing employment agreement with Howard Schwan, dated January 1, 1997, which is automatically renewed each July 1 for another year unless terminated by either party. The agreement includes confidentiality, inventions, non-compete and other customary provisions. The loss of any of these executive officers would have an adverse effect on our business.

In addition, our continued growth depends on our ability to attract and retain experienced key employees. Competition for qualified employees is intense, and the loss of such persons, or an inability to attract, retain and motivate such skilled employees, could have a material adverse effect on our results of operations, financial condition and prospects. There can be no assurance that we will be able to retain our existing personnel or attract and retain additional qualified employees.

Our principal executive officers own a majority of our outstanding common stock, have warrants to purchase additional shares, and have significant influence and control over our business.

Howard W. Schwan (our President), John H. Schwan (our Chairman) and Stephen M. Merrick (our Chief Financial Officer) or persons affiliated to them, in combination, owned approximately 45.2% of the outstanding shares of common stock of the Company as of April 9, 2008 and then had options and warrants to purchase additional shares which, if exercised, together with the shares owned, would aggregate 48.2% of the shares then outstanding. As a result of such ownership, these executives have the ability to exert significant influence and control on the outcome of corporate transactions and other matters submitted to the Board of Directors or stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control of the Company.

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Financial Risks

We have a high level of debt relative to our equity, which reduces cash available for our business and which may adversely affect our ability to obtain additional funds, and increases our vulnerability to economic or business turndowns.

We have a substantial amount of debt in relation to our shareholders’ equity. As of December 31, 2007 and March 31, 2008, we had $22,720,000 and $23,060,000 of debt outstanding, respectively and $6,591,000 and $7,552,000 in shareholders equity, respectively. These circumstances could have important adverse consequences for our Company. For example they could:

Increase our vulnerability to general adverse economic and industry conditions

Require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby limiting our ability to fund working capital, capital expenditures and other general corporate purposes;

Limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

Place us at a competitive disadvantage compared to our competitors who may have less debt and greater financial resources; and

Limit, among other things, our ability to borrow additional funds.

On February 1, 2006, we entered into a loan agreement with RBS Citizens, N.A., previously referred to as Charter One Bank, in which, as amended, RBS Citizens, N.A. provides to us a line of credit totaling $15,300,000, including a five year mortgage loan on our principal plant and offices in Barrington, Illinois for $2,800,000, a five year term loan secured by our physical assets in Barrington, Illinois for $3,500,000 and a three year revolving line of credit secured by inventory and receivables in the maximum amount of $9,000,000. In November, 2007 RBS Citizens, N.A. also provided to us a capital lease line of credit in the aggregate amount of $1,500,000 for the acquisition of production equipment.

We will require a significant amount of cash to service our debt, to develop new business and to make capital investments and our ability to generate cash depends on many factors beyond our control.

Our ability to service our debt and to fund our operations and planned capital expenditures will depend on our financial and operating performance and our ability to borrow money or raise capital. These matters are, in part, subject to prevailing economic conditions and to financial, business and other factors beyond our control. If our cash flow from operations is insufficient to fund our debt service obligations, we may be forced to reduce or delay funding capital or working capital, marketing or other commitments or to sell assets, obtain additional equity capital or indebtedness or refinance or restructure our debt. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations, or to fund operations, initiatives or capital requirements. In the absence of cash flow from operations, or the generation of cash from such other sources sufficient to meet our debt service obligations and our other cash requirements, we could face substantial cash problems.

We are subject to a number of restrictive debt covenants that may restrict our business and financing activities.

Our credit facility contains restrictive debt covenants that, among other things, restrict our ability to:

Borrow money;

Pay dividends and make distributions;

Issue stock

Make certain investments;

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Use assets as security in other transactions;

Create liens;

Enter into affiliate transactions;

Merge or consolidate; or

Transfer and sell assets.

In addition, our credit facility also requires us to meet certain financial tests, including (i) maintaining tangible net worth in excess of $3,500,000, (ii) maintaining specified ratios of senior debt to EBITDA and (iii) maintaining a ratio of EBITDA to fixed charges. These restrictive covenants may limit our ability to expand or pursue our business strategies.

Our ability to comply with the restrictions contained in our credit facility may be affected by changes in our business condition or results of operation, adverse regulatory developments, or other events beyond our control. A failure to comply with these restrictions could result in a default under our credit facility which, in turn, could cause our debt to become immediately due and payable. If our debt were to be accelerated, we cannot assure that we would be able to repay it. In addition, a default would give our lender the right to terminate any commitment to provide us with additional funds.

Market Risks and Risks Related to this Offering

Our common stock may be affected by limited trading volume and may fluctuate significantly, which may affect shareholders’ ability to sell shares of our common stock.

There has been a limited public market for our common stock and a more active trading market for our common stock may not develop. An absence of an active trading market could adversely affect our shareholders’ ability to sell our common stock in short time periods, or possibly at all. Our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. These factors may negatively affect shareholders’ ability to sell shares of our common stock.

Our common stock may be affected by sales of short sellers, which may affect shareholders’ ability to sell shares of our common stock.

As stated, our common stock has experienced, and is likely to experience in the future, significant price and volume fluctuations. These fluctuations could cause short sellers to enter the market from time to time in the belief that we may have poor operating results in the future. The market for our common stock may not be stable or appreciate over time and the sale of our common stock may negatively impact shareholders’ ability to sell shares of our common stock.

Future Sales of Stock By Our Shareholders May Negatively Affect Our Stock Price And Our Ability To Raise Funds In New Stock Offerings

Sales of our common stock in the public market by our existing substantial shareholders, could lower the market price of our common stock. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable or at all. Of the 2,785,100 shares of common stock outstanding as of May 30, 2008, 811,182 shares of common stock are, or will be, held by our “affiliates” and 1,296,066 shares of common stock, held by existing shareholders, including the officers and directors, are “restricted securities” and may be resold in the public market only if registered or pursuant to an exemption from registration. Some of these shares may be resold under Rule 144.

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Existing Shareholders Will Experience Significant Dilution From Our Sale Of Shares Under The Standby Equity Distribution Agreement

The sale of shares pursuant to the Standby Equity Distribution Agreement will have a dilutive impact on our shareholders.

Our net income per share could decrease in future periods, and the market price of our common stock could decline. In addition, the lower our stock price, the more shares of common stock we will have to issue under the SEDA to draw down the full amount. If our stock price is lower, then our existing shareholders would experience greater dilution.

The Selling Stockholders Identified in our Registration Statement Intend To Sell Their Shares Of Common Stock In The Market, Which Sales May Cause Our Stock Price To Decline

The selling shareholders identified in our Registration Statement (Cornell Capital and Newbridge Securities) are intending to sell in the public market 79,876 shares of common stock registered in the offering. That means that up to 79,876 shares may be sold pursuant to the Registration Statement. Such sales may cause our stock price to decline. The officers and directors of CTI and those shareholders who are significant shareholders as defined by the SEC will continue to be subject to the provisions of various insider trading and Rule 144 regulations. If our stock price declines, the numbers of shares which CTI will need to issue to Cornell Capital under the Standby Equity Distribution Agreement to raise the same amount of funds will increase.

The Sale Of Our Stock Under Our Standby Equity Distribution Agreement Could Encourage Short Sales By Third Parties, Which Could Contribute To The Future Decline Of Our Stock Price

In some cases, the provision of a SEDA for companies that are traded on the NASDAQ Capital Market (“NASDAQ-CM”) has the potential to cause a significant downward pressure on the price of common stock. This is especially the case if the shares being sold into the market exceed the market’s desire to purchase the increased stock or if CTI has not performed in such a manner to show that the equity funds raised will be used to grow CTI. Such an event could place further downward pressure on the price of common stock. CTI may request numerous draw downs pursuant to the terms of the Standby Equity Distribution Agreement. Even if CTI uses the SEDA to grow its revenues and profits or invest in assets which are materially beneficial to CTI, the opportunity exists for short sellers (i.e. sellers who do not actually own our shares at the time of their sale) to contribute to the future decline of CTI’s stock price. If there are significant short sales of stock, the price decline that would result from this activity will cause the share price to decline more, which, in turn, may cause current owners of our stock to sell their shares; thereby contributing to sales of stock in the market. If there are more investors selling our stock, then there are investors desiring to purchase our stock, the market for our stock, the price will necessarily decline.

It is not possible to predict the circumstances whereby short sales could materialize or the price to which our stock price could drop.

The Price Paid by Participants In Our Registered Offering Will Fluctuate And May Be Higher Or Lower Than The Prices Paid By Other People Participating In This Offering

The price in the offering will fluctuate based on the prevailing market price of the common stock on the NASDAQ-Capital Market. Accordingly, the price paid by a purchaser in our registered offering may be higher or lower than the prices paid by other people participating in this offering.

We May Not Be Able To Access Sufficient Funds Under The Standby Equity Distribution Agreement When Needed

We anticipate that a portion of our financing needs will be funded through the SEDA. No assurances can be given that our SEDA financing will be available in sufficient amounts or at all when needed, in part, because we are limited to a maximum drawdown of $100,000 during any five trading day period. In addition, the number of shares being registered may not be sufficient to draw all funds available to us under the Standby Equity Distribution Agreement.

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We May Not Be Able To Draw Down Under The Standby Equity Distribution Agreement If The Investor Holds More Than 9.9% Of Our Common Stock

In the event Cornell Capital holds more than 9.9% of the then-outstanding common stock of CTI, we will be unable to draw down on the SEDA. Although Cornell Capital may not hold more than 9.9% of the then-outstanding common stock of CTI at any one time, this restriction does not prevent Cornell Capital from selling some of its holdings and then receiving additional shares. Therefore, Cornell Capital has, and may, sell more than these limits while never holding more than those limits. At the time of the filing of the Registration Statement, Cornell Capital had no beneficial ownership of our common stock and therefore we would be able to make limited draw downs on the Standby Equity Distribution Agreement so long as Cornell Capital’s beneficial ownership remains below 9.9%. If Cornell Capital’s beneficial ownership becomes 9.9% or more, we would be unable to draw down on the Standby Equity Distribution Agreement.

Cornell Capital May Sell Shares Of Our Common Stock During An Applicable Pricing Period Under the SEDA Which Could Contribute To The Decline Of Our Stock Price

The sale of common stock to be acquired by Cornell Capital pursuant to an advance request made by CTI under the SEDA during an applicable pricing period could cause downward pressure on the price of our common stock and, therefore, contribute to the decline of our stock price.

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DESCRIPTION OF BUSINESS

Business Overview

We develop, produce, market and sell two principal lines of products:

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

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

We focus our business and efforts on the printing, processing and converting of plastic film, and of latex, into finished products. We:

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

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

Convert printed plastic film to balloons.

Convert plastic film to flexible containers. These finished products are used to store and package food and for storage of a variety of personal items.

Convert latex to balloons and other novelty items.

In 1999, we acquired an extrusion coating and laminating machine and began production of coated and laminated films, which we have produced since that time.

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

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

Business Strategies

Our essential business strategies are as follows:

Focus on our Core Assets and Expertise. We have been engaged in the development, production and sale of film products for over 30 years and have developed assets, technology and expertise which, we believe, enable us to develop, manufacture, market and sell innovative products of high quality within our area of knowledge and expertise. We plan to focus our efforts in these areas which are our core assets and expertise – laminated films, printed films, pouches and film novelty products – to develop new products, to market and sell our products and to build our revenues.

Maintain a Focus on Margin Levels and Cost Controls in Order to Establish and Maintain Profitability. We engage in constant review and effort to control our production, and our selling, general and administrative expenses, in order to establish and enhance profitability. Over the past three years, we have improved our gross margin levels from 22.1% in 2005 to 25.1% in 2006 and 23.8% in 2007.

Develop New Products, Product Improvements and Technologies. We work constantly to develop new products, to improve existing products and to develop new technologies within our core product areas, in order to enhance our competitive position and our sales. In the novelty line, our development work includes new designs, new character licenses and new product developments. We also developed and introduced a device to amplify sound through a balloon so that voice and music can be played and amplified using our Balloon Jamz™ balloons. In our commercial line, over the past several years we have developed new pouch closure systems and valves and new film methods for liquid packaging applications. We have received nine patents for these developments and have three patent applications pending. During 2007, we introduced a line of resealable pouches with a valve and pump system for household storage and vacuum sealing of food items.

Develop New Channels of Distribution and New Sales Relationships. In order to increase sales, we endeavor to develop new channels of distribution and new sales relationships, both for existing and new products. In March 2006, we entered into a four-year agreement with Illinois Tool Works, Inc. (“ITW”) to manufacture certain pouches for them and to provide film to them for their pouch production. In April 2006, we entered into a license agreement with Rapak L.L.C. (“Rapak”) granting Rapak a license under a patent related to textured film and pouches, and extending the term of an existing supply agreement with Rapak to October 31, 2008. On February 1, 2008, we entered into a Supply and License Agreement with S.C. Johnson & Son, Inc. to manufacture and supply to SC Johnson certain home food management products to be sold under the SC Johnson ZipLoc® brand.

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Products

Metalized Balloons

We have designed, produced and sold metalized balloons since 1979 and, we believe, are the second largest manufacturer of metalized balloons in the United States. Currently, we produce over 650 balloon designs, in different shapes and sizes, including the following:

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

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

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

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

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

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

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

In addition to size and shape, a principal element of the Company's metalized balloon products is the printed design or message contained on the balloon. These designs include figures and licensed characters many of which are well known. We maintain licenses for several characters, including Garfield^®, Odie, Face Offs-Tudes, Miss Spider and Sunny Patch Friends®, Andrea Mistretta and Wow Wow Wubsy®, and in the United Kingdom, The Crazy Frog® and Tudes.

Latex Balloons. Through our majority-owned subsidiary in Guadalajara, Mexico, Flexo Universal, S.A. de C.V. (“Flexo Universal”), we manufacture latex balloons in 6 shapes and 42 colors. These balloons are marketed under the name Partyloons® and Hitex. We also manufacture toy balloon products including punch balls, water bombs and "Animal Twisties."

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

Pouches, Bags and Other Custom Film Products. We produce a variety of completed film products, generally in the form of a bag or pouch. These products include (i) valved, resealable pouches for storage of household items, (ii) vacuum sealable bags for food storage, (iii) resealable, valved bags for storage and vacuum sealing of food items in the household, (v) “dunnage” bags (inflatable pouches used to cushion products in packages. During 2007, we introduced a line of resealable, valved bags for storage and vacuum sealing of food items in the household. These storage bags function with a small hand or powered pump to evacuate air when the bag is sealed. This product line is marketed under the brand ZipVac™

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Markets

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

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

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

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

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

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

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

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

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

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

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Marketing, Sales and Distribution

Balloon Products

We market and sell our metalized balloon, latex balloon and related novelty products throughout the United States and in a number of other countries. We maintain a marketing staff, sales staff and support staff of 10 individuals and a customer service department of 3 individuals. European sales are conducted by CTI Balloons, the Company's subsidiary located in Rugby, England. Flexo Universal conducts sales and marketing activities for the sale of balloon products in Mexico, Latin America, and certain other markets. Sales in other foreign countries are made generally to distributors in those countries and are managed at the Company's principal offices.

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

Our largest customer for balloons during 2007 was Dollar Tree Stores. Sales to this chain in 2007 represented $7,419,000 or approximately 20.3% of our net sales.

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

Printed and Specialty Films. We market and sell printed and laminated films directly and through independent sales representatives throughout the United States. We sell laminated and printed films to companies that utilize these films to produce packaging for a variety of products, including food products, in both liquid and solid form, such as cola syrup, coffee, juices and other items. We seek to identify and maintain customer relationships in which we provide value-added in the form of technology or systems. Our largest customer for film products is Rapak, L.L.C. (“Rapak”) to whom we provide a patented embossed film, as well as other film products. During 2007, our sales to Rapak totaled $6,982,000, representing 19.1% of our net sales. Under our continuing agreement with Rapak, through October 31, 2008, Rapak is committed to purchase at least 65% of its requirements for embossed film from us. We anticipate that Rapak will continue to purchase film from us after this date but we have no contractual commitment from Rapak for such purchases.

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

We produce consumer storage bags for ITW Space Bag, a division of Illinois Tool Works, Inc. (“ITW”). During 2007, ITW was our largest customer for pouches. Our sales of pouches to them in 2007 were $3,771,000, representing 10.3% of our net sales. In March 2006, we entered into a four-year agreement with ITW under which we will supply all of their requirements in North America for certain of their pouches which they market under the name Space Bag® and also are to supply their requirements of film for certain of the pouches which they produce.

During 2005, we introduced a line of universal vacuumable bags for household storage of food products. These bags are designed to be used with existing vacuum and sealing devices. We market these bags through various retail channels. During 2007, we introduced a line of re-sealable pouches incorporating a valve permitting the evacuation of air from the sealed pouch by use of a hand pump supplied with the pouches. This line of products is marketed under the brand name ZipVac™. We market this line of products to various retail outlets.

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We also produce "dunnage" bags (inflatable packaging pouches) which we sell to a commercial customer.

Production and Operations

We conduct our operations at four facilities: (i) our headquarters, offices and plant at Barrington, Illinois, consisting of a total of approximately 75,000 square feet of office, production and warehouse space, (ii) a warehouse in Cary, Illinois, consisting of approximately 16,000 square feet of space, (iii) a plant, office and warehouse in Guadalajara, Mexico, consisting of approximately 43,000 square feet of office, warehouse and production space and (iv) an office and warehouse facility at Rugby, England, consisting of approximately 16,000 square feet of space.

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

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

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

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

Raw Materials

The principal raw materials we use in manufacturing our products are (i) petroleum or natural gas-based films, (ii) petroleum or natural gas-based resin, (iii) latex and (iv) printing inks. The cost of these raw materials represented 41.2% of our net revenues in 2007. Because much of the raw materials we utilize are based on petroleum or natural gas, we have experienced fluctuation in pricing, in relation to the fluctuation of availability and pricing of these source commodities. We have also experienced significant fluctuation in the cost of raw latex which we use for our latex balloon products. While we currently purchase our raw materials from a relatively limited number of sources, films, resin, inks and latex are available from numerous sources and, in the past, we have generally been able to obtain a sufficient supply of raw materials. However, during August and September 2005, the petrochemical industry suffered facility damage, production disruptions and transportation shortages due to the impact of two Gulf Coast hurricanes. As a result, both the price and availability of petroleum and natural gas-based products were affected. While we were generally able to obtain a sufficient supply of raw materials to meet our needs during this time, prices of raw materials escalated rapidly and substantially; and, the risk of shortages of raw materials supply existed. Due to the increase in the price of oil over the past several years, the cost of petroleum-based raw materials has also risen, with the result that our cost for films and resins has increased during that time as well.

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Information Technology Systems

Our corporate headquarters in Barrington, Illinois and our warehouse facility in Cary, Illinois are serviced by a PC-based local area network. We connect the facilities via a high speed T1 line that carries both voice and data communications. Access to the network is available to all appropriate employees but is secured through 4 Microsoft servers running Active Directory authentication. The network allows us to leverage printing resources, create shared file areas for cross-departmental functions and allows for a single source backup of critical business files. On the network we run Macola financial system software. Macola is a modular software system. We presently use the general ledger, order entry, inventory management, purchase order, electronic data exchange and custom report writing modules of that system and are engaged in a program to install and use additional modules including manufacturing costing and controls and inventory controls. Internal and external employee communications are handled by industry standard Microsoft Exchange email, allowing us to communicate with customers and vendors all over the world. We also provide a secure, firewall protected, load balanced and redundant T1 and cable internet connection allowing employees to use e-mail, research issues, support customers and securely move data.

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

Competition

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

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

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

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

Patents, Trademarks and Copyrights

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

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

Trademarks. We own 12 registered trademarks in the United States relating to our balloon products. Many of these trademarks are registered in foreign countries, principally in the European Union.

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

Research and Development

We maintain a product development and research department of five individuals for the development or identification of new products, product components and sources of supply. Research and development includes (i) creative product development, (ii) creative marketing, and (iii) engineering development. During each of the fiscal years ended December 31, 2007, 2006, 2005, respectively, we estimate that the total amount spent on research and development activities was approximately $350,000, $230,000 and $224,000 and, respectively.

Employees

As of the date hereof, the Company had 97 full-time employees in the United States, of whom 19 are executive or supervisory, 5 are in sales, 53 are in manufacturing or warehouse functions and 20 are clerical. As of that same date, we had 9 full-time employees in England, of whom 3 are executive or supervisory, 2 are in sales, 3 are in warehousing and one is clerical. At Flexo Universal, our Mexico subsidiary, as of December 31, 2007, we had 228 full-time employees, of whom 5 are executive or supervisory, 3 are in sales, 210 are in manufacturing and 10 are clerical. The Company is not a party to any collective bargaining agreement in the United States, has not experienced any work stoppages and believes that its relationship with its employees is satisfactory.

Regulatory Matters

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

International Operations

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

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Our domestic and international sales and assets by area over the period 2005-2007 have been as follows:

	United States			United Kingdom		Mexico			Eliminations			Consolidated
Year ended 12/31/07
Revenues	$	28,657,000		$	2,913,000	$	7,189,000		$	(2,249,000	)	$	36,510,000
Operating income	$	810,000		$	215,000	$	345,000		$	(125,000	)	$	1,245,000
Net (loss) income	$	(128,000	)	$	167,000	$	168,000		$	(125,000	)	$	82,000
Total Assets	$	27,854,000		$	2,948,000	$	5,780,000		$	(7,258,000	)	$	29,324,000

Year ended 12/31/06
Revenues	$	28,808,000		$	2,925,000	$	6,564,000		$	(2,869,000	)	$	35,428,000
Operating income	$	2,116,000		$	64,000	$	578,000		$	(25,000	)	$	2,733,000
Net income	$	1,544,000		$	93,000	$	284,000		$	(26,000	)	$	1,895,000
Total Assets	$	25,245,000		$	2,627,000	$	5,050,000		$	(6,288,000	)	$	26,634,000

Year ended 12/31/05
Revenues	$	23,564,000		$	2,573,000	$	4,536,000		$	(1,483,000	)	$	29,190,000
Operating income (loss)	$	602,000		$	290,000	$	(240,000	)				$	652,000
Net (loss) income	$	(342,000	)	$	220,000	$	(211,000	)				$	(333,000	)
Total Assets	$	21,343,000		$	2,122,000	$	4,818,000		$	(4,747,000	)	$	23,536,000

Products

Metalized Balloons. We have designed, produced and sold metalized balloons since 1979 and, we believe, are the second largest manufacturer of metalized balloons in the United States. Currently, we produce over 650 balloon designs, in different shapes and sizes, including the following:

We own our principal plant and offices located in Barrington, Illinois, approximately 45 miles northwest of Chicago, Illinois. The facility includes approximately 75,000 square feet of office, manufacturing and warehouse space. This facility is subject to a mortgage loan in the principal amount of $2,800,000, having a term of 5 years, with payments amortized over 25 years.

In September 2005, the Company entered into a lease to rent 16,306 square feet of space in Cary, Illinois. This lease has a 2-year term. In September 2006, the Company signed an extension to this lease to run through September 2009. The facility includes warehouse and office space, which is utilized principally for the warehousing of balloon inventory. In addition, as of December 2007, we entered into a month-to-month agreement to rent additional warehouse space as required.

The Company also leases approximately 15,000 square feet of office and warehouse space in Rugby, England at an annual lease cost of $51,700, expiring in 2019. This facility is utilized to warehouse balloon products and to manage and service the Company's operations in England and Europe.

In February 2008, Flexo Universal entered into a 3-year lease agreement for the lease of approximately 43,000 square feet of manufacturing, warehouse and office space in Guadalajara, Mexico at the cost of $19,200 per month.

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

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Legal Proceedings

On December 20, 2006, Pliant Corporation filed an action against the Company in the Circuit Court of Cook County, Illinois. In the action, Pliant claims that there is due from the Company to Pliant the sum of $245,000 for goods sold and delivered by Pliant to the Company as well as interest on such amount. On February 21, 2007, the Company filed an answer to the complaint and counterclaim denying liability and asserting certain claims against Pliant for damages for the sale by Pliant to the Company of defective products. Management intends to defend the claims of Pliant in this action and to pursue its counterclaims and believes that the Company has established adequate reserves regarding the claim.

In addition, the Company is also a party to certain lawsuits or claims arising in the normal course of business. The ultimate outcome of these matters is unknown, but in the opinion of management, we do not believe any of these proceedings will have, individually or in the aggregate, a material adverse effect upon our financial condition, cash flows or future results of operation.

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SELLING SHAREHOLDERS

The following table presents information regarding the selling shareholders. The selling shareholders are the entities who have assisted in or provided financing to CTI. A description of the selling shareholders’ relationship to CTI and how the selling shareholders acquired the shares to be sold in this offering is detailed in the information immediately following this table.

Selling Shareholders	Shares Beneficially Owned Before Offering			Percentage Of Outstanding Shares Beneficially Owned Before Offering⁽¹⁾		Shares To Be Acquired Under The Standby Equity Distribution Agreement		Percentage Of Outstanding Shares To Be Acquired Under The Standby Equity Distribution Agreement			Shares To Be Sold In The Offering			Percentage Of Shares Beneficially Owned After Offering⁽¹⁾
Shares Acquired in Financing Transactions with CTI

Cornell Capital Partners, LP (n/k/a YA Global Investments, L.P.)		0			*		76,376		15.74	%		76,376	⁽²⁾		0	%

Newbridge Securities Corporation		3,500	⁽³⁾		*		0		0	%		3,500			0	%

Total		3,500	⁽³⁾		*		76,376		15.74	%		79,876			0	%

*	Less than one percent (1%).

(1)

Applicable percentage of ownership is based on 2,785,100 shares of common stock outstanding as of May 30, 2008, together with securities exercisable or convertible into shares of common stock within sixty (60) days of May 30, 2008, for each shareholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently exercisable or exercisable within sixty (60) days of May 30, 2008 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Note that affiliates are subject to Rule 144 and Insider trading regulations - percentage computation is for form purposes only.

(2)	Includes the 76,376 shares that may be acquired by Cornell Capital under the SEDA.

(3)	Includes 3,500 Shares issued in connection with the SEDA.

The following information contains a description of each selling shareholder’s relationship to CTI and how each selling shareholder acquired the shares to be sold in this offering. None of the selling shareholders have held a position or office, or had any other material relationship, with CTI, except as follows:

Shares Acquired In Financing Transactions With CTI

Cornell Capital Partners, LP (n/k/a YA Global Investments, L.P.). Cornell Capital is the investor under the Standby Equity Distribution Agreement. All investment decisions of, and control of, Cornell Capital are held by its general partner, Yorkville Advisors, LLC (“Yorkville Advisors”). Mr. Mark Angelo, the managing member of Yorkville Advisors, makes the investment decisions on behalf of and controls Yorkville Advisors. Cornell Capital acquired all shares being registered in this offering in financing transactions with CTI. Those transactions are explained below:

Standby Equity Distribution Agreement. On June 6, 2006 (the “Closing Date”), the Company entered into a Standby Equity Distribution Agreement (also referred to herein as the “SEDA”) with Cornell Capital pursuant to which the Company may, at its discretion, periodically sell to Cornell Capital shares of its common stock, no par value per share for a total purchase price of up to Five Million Dollars ($5,000,000). For each share of common stock purchased under the SEDA, Cornell Capital will pay to the Company one hundred percent (100%) of the lowest volume weighted average price (as quoted by Bloomberg, LP) of the Company’s common stock on the principal market (whichever is at such time the principal trading exchange or market for the common stock) during the five (5) consecutive trading days after the Advance Notice Date (as such term is defined in the SEDA). However, the Company and Cornell Capital have agreed that the Company will not sell to Cornell Capital in excess of 400,000 shares unless and until the Company shall have obtained shareholder approval for such sales.

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Cornell will retain five percent (5%) of each advance under the SEDA. The Company paid to Yorkville Advisors a structuring fee equal to Fifteen Thousand Dollars ($15,000) on the Closing Date and shall pay Five Hundred Dollars ($500) to Yorkville Advisors on each Advance Date directly out of the gross proceeds of each Advance (as such terms are defined in the SEDA). Cornell’s obligation to purchase shares of common stock under the SEDA is subject to certain conditions, including, without limitation: (a) the Company obtaining an effective registration statement for shares of its common stock sold under the SEDA pursuant to that certain Registration Rights Agreement dated as of the Closing Date and (b) the amount for each Advance as designated by the Company in the applicable Advance Notice shall not be more than One Hundred Thousand Dollars ($100,000).

Newbridge Securities Corporation. Newbridge Securities Corporation is an unaffiliated registered broker-dealer that has been retained by us. For its services in connection with the Standby Equity Distribution Agreement, Newbridge Securities Corporation received a fee paid by the issuance of 3,500 shares of common stock of the Company. These shares are being registered in this offering. All investment decisions of Newbridge Securities Corporation are made by its President, Guy Amico.

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STANDBY EQUITY DISTRIBUTION AGREEMENT

Summary

On June 6, 2006, we entered into a Standby Equity Distribution Agreement with Cornell Capital pursuant to which we may, at our discretion, periodically sell to Cornell Capital shares of common stock for a total purchase price of up to $5 million. For each share of common stock purchased under the Standby Equity Distribution Agreement, Cornell Capital will pay one hundred percent (100%) of the lowest volume weighted average price (as quoted by Bloomberg, LP) of our common stock on the NASDAQ Capital Market or other principal market on which our common stock is traded for the five (5) days immediately following the notice date. The number of shares purchased by Cornell Capital for each advance is determined by dividing the amount of each advance by the purchase price for the shares of common stock. Furthermore, Cornell Capital will receive five percent (5%) of each advance in cash under the Standby Equity Distribution Agreement as an underwriting discount. Cornell’s obligation to purchase shares of our common stock under the Agreement is subject to certain conditions, including: (i) we shall have obtained an effective registration statement for the shares of common stock sold to Cornell under the Agreement and (ii) the amount of each advance requested by us under the Agreement shall not be more than $100,000.

Cornell Capital is a private limited partnership whose business operations are conducted through its general partner, Yorkville Advisors, LLC. In addition, we engaged Newbridge Securities Corporation, a registered broker-dealer, as our placement agent in connection with the Standby Equity Distribution Agreement. For its services, Newbridge received 3,500 shares of our common stock on or about June 6, 2006, equal to approximately $11,200 based on our stock price of $3.20 when the shares were issued on June 26, 2006. The effectiveness of the sale of the shares under the Standby Equity Distribution Agreement was conditioned upon us registering the shares of common stock with the SEC and obtaining all necessary permits or qualifying for exemptions under applicable state law. The costs associated with this registration will be borne by the Company. Except as stated above, there are no other significant closing conditions to draws under the Standby Equity Distribution Agreement.

Standby Equity Distribution Agreement Explained

Pursuant to the Standby Equity Distribution Agreement, we may periodically sell shares of common stock to Cornell Capital to raise capital to fund our working capital needs. The periodic sale of shares is known as an advance. We may request an advance every five (5) trading days. A closing will be held the first trading day after the pricing period at which time we will deliver shares of common stock and Cornell Capital will pay the advance amount. There are no closing conditions imposed on CTI for any of the draws other than that CTI has filed its periodic and other reports with the SEC, has delivered the stock for an advance the trading of CTI’s common stock has not been suspended. We may request advances under the Standby Equity Distribution Agreement until Cornell Capital has advanced $5 million or twenty-four (24) months after the effective date of this Registration Statement, whichever occurs first. It is unlikely that we will be able to draw the entire amount of $5 million before twenty-four (24) months after the effective date of this Registration Statement, given the limitations on the size and frequency with which we may request advances from Cornell Capital, unless our stock price increases significantly.

The amount of each advance is subject to a maximum amount of $100,000, and we may not submit an advance within five (5) trading days of a prior advance. The amount available under the Standby Equity Distribution Agreement is not dependent on the price or volume of our common stock. Our ability to request advances is conditioned upon us registering the shares of common stock with the SEC. In addition, we may not request advances if the shares to be issued in connection with such advances would result in Cornell Capital owning more than 9.9% of our outstanding common stock. Cornell Capital’s current beneficial ownership of CTI common stock is 0%. We would be permitted to make draws on the Standby Equity Distribution Agreement only so long as Cornell Capital’s beneficial ownership of our common stock remains lower than 9.9% and, therefore, a possibility exists that Cornell Capital may own more than 9.9% of CTI’s outstanding common stock at a time when we would otherwise plan to make an advance under the Standby Equity Distribution Agreement. We do not have any agreements with Cornell Capital regarding the distribution of such stock, although Cornell Capital has indicated that it intends to promptly sell any stock received under the Standby Equity Distribution Agreement.

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We cannot predict the actual number of shares of common stock that will be issued pursuant to the Standby Equity Distribution Agreement, in part, because the purchase price of the shares will fluctuate based on prevailing market conditions, and we have not determined the total amount of advances we intend to draw. Nonetheless, we can estimate the number of shares of our common stock that will be issued using certain assumptions. We originally registered 400,000 shares of common stock for the sale under the Standby Equity Distribution Agreement, of which 76,376 remain to be issued under the SEDA. At an assumed offering price of $5.01 per share (the last reported sale price on May 30, 2008), as determined under the SEDA, CTI will be able to receive up to $382,644 in gross proceeds assuming the sale of the entire balance of 76,376 shares registered hereunder pursuant to the SEDA, and $1,874,644 in gross proceeds assuming the sale of the entire 400,000 shares originally offered hereunder of the $3,508,000 available under the SEDA. The Company would be required to register 598,004 additional shares to obtain the balance of $5 million available under the SEDA at an assumed offering price of $5.01. In order to access the remaining funds available to us under the SEDA ($3,508,000) with the 76,376 shares being registered in this offering, the average price of shares issued under the SEDA would need to be $45.93 or an approximately 9.11 times our stock price as of May 30, 2008. Based on the limited number of available authorized shares of common stock, CTI may need to obtain shareholder approval to increase the authorized shares of common stock to access additional amounts under the SEDA. If CTI drew down on the entire $5 million available under the Standby Equity Distribution Agreement, Cornell Capital would receive an aggregate underwriting discount equal to $250,000.

Net Cash To The Company

	Assumed Offering Price			75% of Assumed Offering Price			50% of Assumed Offering Price			25% of Assumed Offering Price
Purchase Price:	$	5.01		$	3.76		$	2.51		$	1.26
No. of Shares⁽¹⁾:		76,376			76,376			76,376			76,376
Total Outstanding⁽²⁾:		2,861,476			2,861,476			2,861,476			2,861,476
Percent Outstanding⁽³⁾:		2.67	%		2.67	%		2.67	%		2.67	%
Gross Cash to CTI:	$	382,644		$	287,174		$	191,704		$	96,234
Net Cash to CTI⁽⁴⁾:	$	203,512		$	112,815		$	22,119		$	(68,578	)

(1)

Represents the number of shares of common stock registered pursuant to the accompanying Registration Statement, which remain to be issued to Cornell Capital under the SEDA at the prices set forth in the table. Does not represent the 3,500 shares issued to Newbridge Securities pursuant to the Placement Agent Agreement in connection with the SEDA.

(2)	Represents the total number of shares of common stock outstanding at May 30, 2008 (2,785,100) plus the issuance of 76,376 shares to Cornell Capital under the SEDA.

(3)	Represents the shares of common stock to be issued as a percentage of the total number of shares outstanding at May 30, 2008 (2,785,100).

(4)	Net cash equals the gross proceeds minus the five percent (5%) underwriting discount and minus $160,000 in offering expenses.

Number Of Shares To Be Issued To Receive Gross Proceeds Of $5 Million

	Assumed Offering Price			75% of Assumed Offering Price			50% of Assumed Offering Price			25% of Assumed Offering Price
Purchase Price:	$	5.01		$	3.76		$	2.51		$	1.26
No. of Shares⁽¹⁾:		674,380			1,006,163			1,668,408			3,644,630
Total Outstanding⁽⁴⁾⁽⁵⁾:		3,459,480	⁽²⁾		3,791,263	⁽²⁾		4,453,508	⁽²⁾		6,429,730	⁽²⁾⁽³⁾
Percent Outstanding⁽⁶⁾:		19.49	%		26.54	%		37.47	%		56.68	%
Gross Proceeds to CTI⁽⁷⁾:		5,000,000			5,000,000			5,000,000			5,000,000
Net Cash to CTI⁽⁸⁾:	$	4,590,000		$	4,590,000		$	4,590,000		$	4,590,000

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(1)

(2)	The Company and Cornell Capital have agreed that the Company will not sell to Cornell Capital in excess of 400,000 shares unless the Company shall have obtained shareholder approval for such shares.

(3)	At the stated purchase price and based on the limited number of available authorized shares of common stock, CTI would need to obtain shareholder approval to increase the authorized shares of common stock to obtain the entire $5 million available under the SEDA.

(4)	Represents the total number of shares of common stock outstanding at May 30, 2008 after the issuance of the shares to Cornell Capital under the SEDA set forth in footnote (1) above.

(5)	CTI’s Certificate of Incorporation authorizes the issuance of 5,000,000 shares of common stock.

(6)	Represents the shares of common stock to be issued as a percentage of the total number shares outstanding at May 30, 2008.

(7)

If CTI drew down on the entire $5 million available under the SEDA, Cornell Capital would receive an aggregate underwriting discount equal to $250,000. As of of the date of this Prospectus, the remaining balance on the $5 million available under the SEDA is $3.42 million which is used in the calculations in the chart above.

(8)	Net cash equals the gross proceeds minus the five percent (5%) underwriting discount and minus $160,000 in offering expenses.

Proceeds used under the Standby Equity Distribution Agreement will be used in the manner set forth in the “Use of Proceeds” section of this Prospectus. We cannot predict the total amount of proceeds to be raised in this transaction because we have not determined the total amount of the advances we intend to draw. Cornell Capital has the ability to permanently terminate its obligation to purchase shares of common stock from CTI under the Standby Equity Distribution Agreement if there shall occur any stop order or suspension of the effectiveness of this Registration Statement for an aggregate of fifty (50) trading days other than due to acts by Cornell Capital or if CTI fails materially to comply with certain terms of the Standby Equity Distribution Agreement, which remain uncured for thirty (30) days after notice from Cornell Capital.

All fees and expenses under the Standby Equity Distribution Agreement will be borne by CTI. We expect to incur expenses of approximately $160,000 in connection with this Registration Statement, consisting primarily of professional fees. In connection with the Standby Equity Distribution Agreement, we issued 3,500 shares of common stock to Newbridge Securities Corporation, an unaffiliated registered broker-dealer, as compensation for its services as our placement agent in connection with the Standby Equity Distribution Agreement.

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USE OF PROCEEDS

This Prospectus relates to shares of our common stock that may be offered and sold from time to time by certain selling shareholders. There will be no proceeds to us from the sale of shares of common stock in this offering. However, we may receive proceeds from the sale of shares of common stock to Cornell Capital pursuant to the Standby Equity Distribution Agreement. The purchase price of the shares purchased under the Standby Equity Distribution Agreement will be equal to one hundred percent (100%) of the lowest volume weighted average price of our common stock on the NASDAQ Capital Markets for the five (5) days immediately following the notice date. CTI will pay to Cornell Capital five percent (5%) of each advance, in cash as an underwriting discount.

Pursuant to the Standby Equity Distribution Agreement, CTI cannot draw more than $100,000 every five (5) trading days or more than $5 million over twenty-four (24) months. There is currently 76,375 available under the Standby Equity Distribution Agreement. The Company and Cornell have agreed that the Company will not sell to Cornell Capital in excess of 400,000 shares unless and until the Company shall have obtained shareholder approval for such sales.

We anticipate that the proceeds received under the Standby Equity Distribution Agreement will be utilized for general corporate purposes. For illustrative purposes only, we have set forth below our intended use of proceeds for the range of net proceeds indicated below to be received under the Standby Equity Distribution Agreement. The table assumes estimated offering expenses of $160,000, plus a five percent (5%) underwriting discount of each advance in cash payable to Cornell Capital pursuant to the Standby Equity Distribution Agreement. The figures below are estimates only, and may be changed due to various factors, including the timing of the receipt of the proceeds.

Gross proceeds	$	382,644		$	2,000,000			3,508,000	⁽¹⁾
Net proceeds⁽²⁾	$	203,512		$	1,659,200		$	3,172,600
Number of shares to be issued pursuant to the SEDA at a price of $5.01 per share (recent price at May 30 ,2008)		76,376	⁽³⁾		399,202	⁽⁴⁾		700,200	⁽⁴⁾

USE OF PROCEEDS: (NET)	AMOUNT		AMOUNT		AMOUNT
General Working Capital	$		$	1,059,200	$	1,672,600
Capital Investments	$	203,512	$	600,000	$	1,500,000
Total	$	203,512	$	1,659,200	$	3,172,600

(1)

This figure represents the remaining gross proceeds available under the SEDA as of the date of this Prospectus. CTI would need to register 598,004 additional shares of common stock to access this amount of gross proceeds under the Standby Equity Distribution Agreement at an assumed offering price of $5.01.

(2)	Net proceeds equals gross proceeds minus the five percent (5%) underwriting discount and minus $160,000 in offering expenses.

(3)	Represents the balance of shares registered hereunder that have not yet been issued to Cornell Capital.

(4)	The Company would need to register additional shares to receive the stated gross proceeds listed hereunder at a recent price of $5.01 per share.

The Standby Equity Distribution Agreement limits CTI’s use of proceeds to general corporate purposes and prohibits the use of proceeds to pay any judgment or liability incurred by any officer, director or employee of CTI, except under certain limited circumstances.

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DILUTION

The net tangible book value of CTI as of March 31, 2008 was $4,095,000 or $1.50 per share of common stock. Net tangible book value per share is determined by dividing the tangible book value of CTI (total tangible assets less total liabilities) by the number of outstanding shares of our common stock. Since this offering is being made solely by the selling shareholder and none of the proceeds will be paid to CTI, our net tangible book value will be unaffected by this offering. Our net tangible book value and our net tangible book value per share, however, will be impacted by the common stock to be issued under the Standby Equity Distribution Agreement. The amount of dilution will depend on the offering price and number of shares to be issued under the Standby Equity Distribution Agreement. The following example shows the dilution to new investors at an assumed offering price of $5.01 per share.

Although we are registering only 76,736 shares of common stock, if we assume that such shares were sold at an assumed offering price of $5.01 per share, less an underwriting discount equal to five percent (5%) and offering expenses of $160,000, our net tangible book value as of March 31, 2008 would have been $8,685,000 or $3.09 per share. Such an offering would represent an immediate increase in net tangible book value to existing shareholders of $1.59 per share and an immediate dilution to new shareholders of $1.92 per share. The following table illustrates the per share dilution:

Assumed public offering price per share			$	5.01
Net tangible book value per share before this offering	$	1.50
Increase attributable to new investors	$	1.59
Net tangible book value per share after this offering			$	3.09
Dilution per share to new shareholders			$	1.92

The offering price of our common stock is based on the then-existing market price. In order to give prospective investors an idea of the dilution per share they may experience, we have prepared the following table showing the dilution per share at various assumed offering prices:

ASSUMED OFFERING PRICE		NO. OF SHARES TO BE ISSUED⁽¹⁾		DILUTION PER SHARE TO NEW INVESTORS
$	5.01		76,376	$	1.92
$	3.76		76,376	$	0.66
$	2.51		76,376	$	(0.59	)
$	1.26		76,376	$	(1.84	)

(1)	This represents the maximum number of shares of common stock that are being registered pursuant to the Standby Equity Distribution Agreement at this time.

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PLAN OF DISTRIBUTION

The selling shareholders have advised us that the sale or distribution of our common stock owned by the selling shareholders may be effected directly to purchasers by the selling shareholders as principals or through one (1) or more underwriters, brokers, dealers or agents from time to time in one or more transactions (which may involve crosses or block transactions) (i) on the over-the-counter market or on any other market in which the price of our shares of common stock are quoted or (ii) in transactions otherwise than on the over-the-counter market or in any other market on which the price of our shares of common stock are quoted. Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at varying prices determined at the time of sale or at negotiated or fixed prices, in each case as determined by the selling shareholders or by agreement between the selling shareholders and underwriters, brokers, dealers or agents, or purchasers. If the selling shareholders effect such transactions by selling their shares of common stock to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling shareholders or commissions from purchasers of common stock for whom they may act as agent (which discounts, concessions or commissions as to particular underwriters, brokers, dealers or agents may be in excess of those customary in the types of transactions involved).

Cornell Capital is an “underwriter” within the meaning of the Securities Act in connection with the sale of common stock under the Standby Equity Distribution Agreement. Cornell Capital will pay us one hundred percent (100%) of the lowest volume weighted average price of our common stock on the NASDAQ Capital Markets or other principal trading market on which our common stock is traded for the five (5) days immediately following the advance date. In addition, Cornell Capital will receive cash equal to five percent (5%) of the proceeds received by us under the Standby Equity Distribution Agreement as an underwriting discount. If CTI drew down on the entire $5 million available under the Standby Equity Distribution Agreement, Cornell Capital would receive an aggregate underwriting discount equal to $250,000. In addition, we engaged Newbridge Securities Corporation, an unaffiliated registered broker-dealer, to act as our placement agent in connection with the Standby Equity Distribution Agreement. Newbridge Securities Corporation is not participating in the distribution of our common stock. We issued 3,500 shares of our common stock to Newbridge in connection with the Standby Equity Distribution Agreement which shares are also being registered herein.

Cornell Capital was formed in February 2000 as a Delaware limited partnership. Cornell Capital is a domestic hedge fund in the business of investing in and financing public companies. Cornell Capital does not intend to make a market in our stock or to otherwise engage in stabilizing or other transactions intended to help support the stock price. Prospective investors should take these factors into consideration before purchasing our common stock.

Under the securities laws of certain states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. The selling shareholders are advised to ensure that any underwriters, brokers, dealers or agents effecting transactions on behalf of the selling shareholders are registered to sell securities in all fifty (50) states. In addition, in certain states the shares of common stock may not be sold unless the shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

We will pay all expenses incident to the registration, offering and sale of the shares of common stock to the public hereunder other than commissions, fees and discounts of underwriters, brokers, dealers and agents. If any of these other expenses exists, CTI expects the selling shareholder to pay these expenses. We have agreed to indemnify Cornell Capital and its controlling persons against certain liabilities, including liabilities under the Securities Act. We estimate that the expenses of the offering to be borne by us will be approximately $160,000. These offering expenses are estimated to consist of: an SEC registration fee of $213, printing expenses of $4,000, accounting fees of $25,000, legal fees of $105,000 and miscellaneous expenses of $26,000. We will not receive any proceeds from the sale of any of the shares of common stock by the selling shareholder. We may, however, receive proceeds from the sale of common stock under the Standby Equity Distribution Agreement.

The selling shareholders are subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and its regulations, including, Regulation M. Under Registration M, the selling shareholders or their agents may not bid for, purchase, or attempt to induce any person to bid for or purchase, shares of our common stock while such selling shareholders are distributing shares covered by this Prospectus. Pursuant to the requirements of Item 512 of Regulation S-K and as stated in Part II of this Registration Statement, CTI must file a post-effective amendment to the accompanying Registration Statement once informed of a material change from the information set forth with respect to the Plan of Distribution.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Recent Developments

Rapak has been one of the top three customers of the Company for the past five years and is expected to continue to be a principal customer of the Company.

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Results of Operations For the Three (3) Months Ended March 31, 2008 Compared to the Three (3) Months Ended March 31, 2007

Net Sales. For the three months ended March 31, 2008, net sales were $10,735,000 compared to net sales of $8,279,000 for the same period of 2007, an increase of 29.7%. For the quarters ended March 31, 2008 and 2007, net sales by product category were as follows:

	Three Months Ended
	March 31, 2008					March 31, 2007
	$		% of			$		% of
Product Category	(000) Omitted		Net Sales			(000) Omitted		Net Sales

Metalized Balloons		4,599		43	%		3,999		48	%

Films		1,943		18	%		1,826		22	%

Pouches		2,447		23	%		665		8	%

Latex Balloons		1,502		14	%		1,516		19	%

Helium/Other		244		2	%		273		3	%

Revenues from the sale of pouches increased by 268%, from $665,000 in the first quarter of 2007 to $2,447,000 in the first quarter of 2008. This significant increase was the result of (i) initial sales of product under a new supply arrangement and (ii) increased sales levels to an existing customer.

Sales of metalized balloons in the first quarter of 2008 increased by 15% over the first quarter of 2007, from $3,999,000 to $4,599,000. Most of this increase was the result of an increase in sales to a principal balloon customer.

Revenues from the sale of commercial films increased by 6.4% over the first quarter of 2007. The increase was the result of increased sales 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, 2008 and 2007.

	Three Months Ended
	% of Net Sales
	March 31, 2008			March 31,2007

Top 3 customers		44.1	%		35.9	%

Top 10 Customers		73.0	%		64.1	%

During the three months ended March 31, 2008, there were three customers whose purchases represented more than 10% of the Company’s consolidated net sales. The sales to each of these customers for the three months ended March 31, 2008 were $1,870,000 or 17.4%, $1,762,000 or 16.4%, and $1,097,000 or 10.2% of consolidated net sales respectively. Sales to these customers in the same period of 2007 were $1,347,000 or 16.3%, and $1,625,000 or 19.6% of consolidated net sales, respectively. The third customer is new to the Company in 2008. For the quarter ended March 31, 2008, the total amount owed by these customers was $1,313,000 or 18.9%, $1,412,000 or 20.4% and $749,000, or 10.8%, of the Company’s consolidated accounts receivable. The amounts owed at March 31, 2007 were $1,144,000, or 19.1% and $1,344,000, or 22.4% of the Company’s consolidated net accounts receivable, respectively.

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Cost of Sales. Cost of sales in the first quarter of 2008 were $8,403,000 or 78.3% compared to cost of sales of $6,376,000 or 77% in the first quarter of 2007. The increase in cost of sales as a percentage of net sales is attributable to (i) increased levels of raw materials costs and (ii) revenue adjustments on certain sales which will affect principally the first quarter.

General and Administrative. For the three months ended March 31, 2008, general and administrative expenses were $1,158,000 or 10.8% of net sales, compared to $1,212,000 or 14.6% of net sales for the same period in 2007. The decline in general and administrative expenses consisted of principally from a reduction of administrative expense in our U. K. affiliate.

Selling. For the three months ended March 31, 2008, selling expenses were $187,000 or 1.7% of net sales for the quarter, compared to $206,000 or 2.5% of net sales for the same three months of 2007. There were no material changes in selling expenses in the first quarter of 2008 compared to the same period of 2007.

Advertising and Marketing. For the three months ended March 31, 2008, advertising and marketing expenses were $347,000 or 3.2% of net sales for the period, compared to $291,000 or 3.5% of net sales for the same period of 2007. The increase in advertising and marketing expense in the first quarter of 2008 is attributable to additional commissions related to our Zip-Vac product.

Other Income (Expense). During the three months ended March 31, 2008, the Company incurred net interest expense of $270,000, compared to net interest expense during the same period of 2007 in the amount of $335,000. The decrease is due to lower interest rates.

During the three months ended March 31, 2008, the Company had other income of $31,000 compared to other income of $54,000 during the first quarter of 2007. Both amounts consisted principally of foreign currency transaction gains.

Income Taxes. For the three months ended March 31, 2008, the income tax expense constituted provisions for income taxes in the United Kingdom for CTI Balloons, Ltd., the Company’s subsidiary in the United Kingdom and in Mexico for Flexo Universal S.A. de C.V. the Company’s subsidiary in Mexico. For the same period of 2007, the Company recorded an income tax benefit of $36,000, by reason of the loss incurred by the Company in the United States.

Net Income (Loss). For the three months ended March 31, 2008, the Company had net income of $279,000 or $0.10 per share (basic and diluted), compared to a loss for the same period of 2007 of $(52,000) or $(0.02) per share (basic and diluted). For the three months ended March 31, 2008, the Company had net income from operations (before interest, taxes and non-operating items) of $640,000, compared to net income from operations of $194,000 during the same period of 2007. The difference in net income between the first quarter of 2008 and 2007 is attributable principally to (i) increased sales and gross profits and (ii) reduced interest expense.

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Results of Operations For the Year Ended December 31, 2007 Compared with the Year Ended December 31, 2006

The following table sets forth selected results of our operations expressed as a percentage of net sales for the years ended December 31, 2007, 2006 and 2005. Our results of operations for the periods described below are not necessarily indicative of results of operations for future periods.

		Year ended December 31,