|UNITED
      STATESSECURITIES AND EXCHANGE
      COMMISSIONWashington, D.C. 20549______________________________FORM
10-QSB
|--------------------------------------------------------------------------------------------------------------------------

(Mark one)x  QUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period
ended

November 30, 2007

o 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the transition period from
________________ to __________________.

Commission file number
1-11038____________________NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION(Name of small business issuer in its charter)

|Delaware                                                             | 41-0857886                                
|-------------------------------------------------------------------- | ------------------------------------------
|(State or other jurisdiction of
      incorporation or organization) | (I.R.S. Employer Identification
      No.)
|                                                                    
|4201 Woodland
      Rd                                               |                                           
|Circle Pines,
      Minnesota                                        | 55014                                     
|(Address of principal executive
      offices)                       | (Zip
Code)                                

(763) 225-6600 (Issuers telephone
number, including area code)

Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the
issuer was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.Yes
x**** No o****

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

State the number of shares outstanding
of each of the issuers classes of common equity, as of the latest practicable
date.

|Class                               | Outstanding as of
      January 11, 2008
|----------------------------------- | ----------------------------------------
|Common Stock, $0.02 par
      value | 3,720,522                               

|Transitional Small Business
      Disclosure Format (check one): Yes o**** No x
|-------------------------------------------------------------------------------

---

NORTHERN TECHNOLOGIES INTERNATIONAL
CORPORATIONFORM 10-QSBNovember 30,
2007

TABLE OF CONTENTS

|**Description**                     |  |                                                                                          | Page
|----------------------------------- |  | ---------------------------------------------------------------------------------------- | ----
|PART I. FINANCIAL
      INFORMATION |  |                                                                                         
|                                    |  |                                                                                          |     
|Item 1.                             |  | Financial Statements                                                                     |     
|                                    |  |                                                                                          |     
|                                    |  | Consolidated Balance Sheets as of November 30, 2007
      (unaudited) and                |     
|                                    |  | August 31, 2007 (audited)                                                                |     
|                                    |  |                                                                                          |     
|                                    |  | Consolidated Statements of Operations (unaudited) for the
      Three Months Ended       |     
|                                    |  | November 30, 2007 and 2006                                                               |     
|                                    |  |                                                                                          |     
|                                    |  | Consolidated Statements of Cash Flows (unaudited) for the
      Three Months Ended       |     
|                                    |  | November 30, 2007 and 2006                                                               |     
|                                    |  |                                                                                          |     
|                                    |  | Notes to Consolidated Financial Statements                                               |     
|                                    |  |                                                                                          |     
|Item 2.                             |  | Managements Discussion and Analysis or Plan of
      Operation                          |     
|                                    |  |                                                                                          |     
|Item 3.                             |  | Controls and Procedures                                                                  |     
|                                    |  |                                                                                          |     
|PART II. OTHER INFORMATION          |  |                                                                                         
|                                    |  |                                                                                          |     
|Item 1.                             |  | Legal Proceedings                                                                        |     
|                                    |  |                                                                                          |     
|Item 2.                             |  | Unregistered Sales of Equity Securities, Use of Proceeds and
      Small Business Issuer |     
|                                    |  | Purchases of Equity
      Securities                                                     |     
|                                    |  |                                                                                          |     
|Item 5.                             |  | Other Information                                                                        |     
|                                    |  |                                                                                          |     
|Item 6.                             |  | Exhibits                                                                                 |     
|                                    |  |                                                                                          |     
|SIGNATURE PAGE                      |  | 38                                                                                      
|                                    |  |                                                                                         
|EXHIBIT INDEX                       |  | 39                                                                                      

____________________

This Quarterly Report on Form 10-QSB
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor created by
those sections. For more information, see Part I. Financial Information  Item
2. Managements Discussion and Analysis or Plan of Operation  Forward-Looking
Statements.

As used in this report, references to NTIC, the Company, we, our or us,
unless the context otherwise requires, refer to Northern Technologies
International Corporation, its wholly owned subsidiaries  NTI Facilities, Inc.
and Northern Technologies Holding Company, LLC, and its majority-owned
subsidiary  React-NTI, LLC, all of which are consolidated on NTICs financial
statements.

All trademarks, trade names or
service marks referred to in this report are the property of their respective
owners.

2

---

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL
STATEMENTS

|NORTHERN TECHNOLOGIES
      INTERNATIONAL CORPORATION AND SUBSIDIARIES  CONSOLIDATED BALANCE SHEETS as ofNovember 30, 2007 (Unaudited)
      and August 31, 2007 (Audited)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                           |  | November 30, |  | August 31, 
|------------------------------------------------------------------------------------------ |  | ------------ |  | -----------
|                                                                                           |  | 2007         |  | 2007       
|ASSETS                                                                                     |  |              |  |            
|CURRENT ASSETS:                                                                            |  |              |  |            
|Cash
      and cash equivalents                                                            |  | $125,630     |  | $244,499   
|Receivables:                                                                               |  |              |  |            
|Trade excluding corporate joint ventures, less allowance for
      doubtful                |  |              |  |            
|accounts of $20,000 & $30,000 at November 30, 2007 and August 31,
      2007               |  | 1,841,290    |  | 1,622,420  
|Trade corporate joint ventures                                                             |  | 527,751      |  | 642,518    
|Technical and other services, corporate joint ventures                                     |  | 1,750,235    |  | 1,514,139  
|Income taxes                                                                               |  | 13,765       |  | 29,755     
|Inventories                                                                                |  | 1,587,360    |  | 1,636,073  
|Prepaid expenses                                                                           |  | 383,424      |  | 184,407    
|Deferred income taxes                                                                      |  | 562,000      |  | 562,000    
|Total current assets                                                                       |  | 6,791,455    |  | 6,435,811  
|                                                                                          
|PROPERTY AND EQUIPMENT, net                                                                |  | 3,784,700    |  | 3,792,461  
|                                                                                          
|OTHER ASSETS:                                                                              |  |              |  |            
|Investments in corporate joint ventures:                                                   |  |              |  |            
|Industrial chemical                                                                        |  | 14,855,299   |  | 13,180,576 
|Industrial non-chemical                                                                    |  | 435,675      |  | 422,266    
|Deferred income taxes                                                                      |  | 779,500      |  | 779,500    
|Notes
      receivable                                                                     |  | 140,000      |  | -          
|Note
      from employee                                                                   |  | -            |  | 32,187     
|Industrial patents and trademarks, net                                                     |  | 1,003,240    |  | 983,206    
|Goodwill                                                                                   |  | 304,000      |  | 304,000    
|Other                                                                                      |  | 404,253      |  | 366,749    
|                                                                                           |  | 17,921,967   |  | 16,068,484 
|                                                                                           |  | $28,498,122  |  | $26,296,756
|                                                                                          
|LIABILITIES AND STOCKHOLDERS EQUITY                                                       |  |              |  |            
|CURRENT LIABILITIES:                                                                       |  |              |  |            
|Bank
      overdrafts                                                                      |  | $94,637      |  | $-         
|Borrowings made on line of credit                                                          |  | 693,000      |  | -          
|Current portion of note payable                                                            |  | 29,392       |  | 29,319     
|Accounts payable                                                                           |  | 1,260,244    |  | 1,337,443  
|Accrued liabilities:                                                                       |  |              |  |            
|Payroll and related benefits                                                               |  | 520,221      |  | 1,025,858  
|Deferred joint venture royalties                                                           |  | 216,000      |  | 192,000    
|Other                                                                                      |  | 137,904      |  | 62,414     
|Total current liabilities                                                                  |  | 2,951,398    |  | 2,647,034  
|                                                                                          
|NOTE PAYABLE, NET OF CURRENT
      PORTION                                                 |  | 1,204,486    |  | 1,211,528  
|MINORITY INTEREST                                                                          |  | 14,496       |  | 36,133     
|                                                                                          
|STOCKHOLDERS EQUITY:                                                                      |  |              |  |            
|Preferred stock, no par value; authorized 10,000 shares; none issued and
      outstanding |  | -            |  | -          
|Common
      stock, $0.02 par value per share; authorized 10,000,000                       |  |              |  |            
|shares; issued and outstanding 3,720,522 and 3,683,016,
      respectively                 |  | 74,410       |  | 73,660     
|Additional paid-in capital                                                                 |  | 5,140,096    |  | 4,755,146  
|Retained earnings                                                                          |  | 16,777,178   |  | 16,118,982 
|Accumulated other comprehensive income                                                     |  | 2,336,058    |  | 1,454,273  
|Total stockholders equity                                                                 |  | 24,327,742   |  | 22,402,061 
|                                                                                           |  | $28,498,122  |  | $26,296,756

See notes to consolidated financial
statements.

3

---

|NORTHERN TECHNOLOGIES
      INTERNATIONAL CORPORATION AND SUBSIDIARIES -CONSOLIDATED STATEMENTS
      OF OPERATIONS (Unaudited) THREE MONTHS ENDED NOVEMBER 30, 2007 AND
      2006
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   |  | November
      30, |   | November
      30,
|-------------------------------------------------- |  | ------------------ | - | ------------------
|                                                   |  | 2007               |   | 2006              
|NORTH
      AMERICAN OPERATIONS:                   |  |                    |   |                   
|Net sales                                          |  | $3,485,585         |   |                   
|Cost of sales                                      |  | 2,093,691          |   |                   
|Gross profit                                       |  | 1,391,894          |   |                   
|                                                  
|Operating expenses:                                |  |                    |   |                   
|Selling                                            |  | 859,644            |   |                   
|General and administrative                         |  | 948,297            |   |                   
|Lab and technical support                          |  | 57,128             |   |                   
|                                                   |  | 1,865,069          |   |                   
|                                                  
|NORTH AMERICAN OPERATING
      LOSS                |  | (473,175           | ) |                   
|                                                  
|CORPORATE JOINT VENTURES AND                       |  |                    |   |                   
|HOLDING COMPANIES:                                 |  |                    |   |                   
|Equity in income of industrial chemical corporate  |  |                    |   |                   
|joint ventures and holding companies               |  | 1,073,034          |   |                   
|Equity in income (loss) of industrial non-chemical |  |                    |   |                   
|corporate joint ventures and holding companies     |  | (18,352            | ) |                   
|Fees for technical support and other services      |  |                    |   |                   
|provided to corporate joint ventures               |  | 1,393,795          |   |                   
|Expenses incurred in support of corporate          |  |                    |   |                   
|joint ventures                                     |  | (1,239,175         | ) |                   
|                                                  
|INCOME FROM ALL CORPORATE JOINT                    |  | 1,209,302          |   |                   
|VENTURES AND HOLDING
      COMPANIES               |  |                    |   |                   
|                                                  
|INTEREST INCOME                                    |  | 495                |   |                   
|INTEREST EXPENSE                                   |  | (31,523            | ) |                   
|OTHER
      INCOME                                 |  | 7,930              |   |                   
|GAIN ON SALE OF
      ASSETS                       |  | 1,529              |   |                   
|MINORITY INTEREST                                  |  | 21,638             |   |                   
|                                                  
|INCOME BEFORE INCOME TAX EXPENSE                   |  | 736,196            |   |                   
|                                                  
|INCOME TAX EXPENSE                                 |  | 78,000             |   |                   
|                                                  
|NET
      INCOME                                   |  | $658,196           |   |                   
|                                                  
|NET
      INCOME PER COMMON SHARE:                 |  |                    |   |                   
|Basic                                              |  | $0.18              |   |                   
|Diluted                                            |  | $0.18              |   |                   
|                                                  
|WEIGHTED AVERAGE COMMON SHARES                     |  |                    |   |                   
|ASSUMED OUTSTANDING:                               |  |                    |   |                   
|Basic                                              |  | 3,692,153          |   |                   
|Diluted                                            |  | 3,734,102          |   |                   

See notes to consolidated financial
statements.

4

---

|NORTHERN TECHNOLOGIES
      INTERNATIONAL CORPORATION ANDSUBSIDIARIES - CONSOLIDATED STATEMENTS OF CASH FLOWS
      (Unaudited) THREE MONTHS ENDED NOVEMBER 30, 2007 and 2006
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                  |  | November
      30, |   | November
      30,
|------------------------------------------------------------------------------------------------- |  | ------------------ | - | ------------------
|                                                                                                  |  | 2007               |   | 2006              
|CASH
      FLOWS FROM OPERATING ACTIVITIES:                                                       |  |                    |   |                   
|Net income                                                                                        |  | $658,196           |   |                   
|Adjustments to reconcile net income
      to net cash provided by (used in) operating activities: |  |                    |   |                   
|Expensing of fair value of stock options vested                                                   |  | 24,680             |   |                   
|Depreciation expense                                                                              |  | 77,309             |   |                   
|Amortization expense                                                                              |  | 35,384             |   |                   
|Gain
      on sale of assets                                                                      |  | (1,529             | ) |                   
|Minority interest                                                                                 |  | (21,637            | ) |                   
|Equity in (income) loss from corporate joint ventures:                                            |  |                    |   |                   
|Industrial chemical                                                                               |  | (1,073,034         | ) |                   
|Industrial non-chemical                                                                           |  | 18,352             |   |                   
|Deferred joint venture royalties                                                                  |  | 24,000             |   |                   
|Change in current assets and liabilities:                                                         |  |                    |   |                   
|Receivables:                                                                                      |  |                    |   |                   
|Trade excluding corporate joint ventures                                                          |  | (218,870           | ) |                   
|Trade corporate joint ventures                                                                    |  | 114,767            |   |                   
|Technical and other services receivables, corporate joint
      ventures                          |  | (236,096           | ) |                   
|Income taxes                                                                                      |  | 15,990             |   |                   
|Inventories                                                                                       |  | 48,713             |   |                   
|Prepaid expenses and other                                                                        |  | (199,017           | ) |                   
|Employee note receivable                                                                          |  | -                  |   |                   
|Accounts payable                                                                                  |  | (77,199            | ) |                   
|Accrued liabilities                                                                               |  | (95,877            | ) |                   
|Net cash used in operating activities                                                             |  | (905,868           | ) |                   
|                                                                                                 
|CASH
      FLOWS FROM INVESTING ACTIVITIES:                                                       |  |                    |   |                   
|Investment in joint
      ventures:                                                               |  |                    |   |                   
|Industrial chemical                                                                               |  | (87,950            | ) |                   
|Proceeds from the sale of
      assets                                                            |  | 2,200              |   |                   
|Dividends received from corporate
      joint ventures                                            |  | 336,285            |   |                   
|Issuance of note receivable                                                                       |  | (140,000           | ) |                   
|Additions to property and
      equipment                                                         |  | (70,219            | ) |                   
|Decrease in other assets                                                                          |  | (9,697             | ) |                   
|Additions to industrial
      patents                                                             |  | (51,038            | ) |                   
|Net cash (used in) provided by investing activities                                               |  | (20,419            | ) |                   
|                                                                                                 
|CASH
      FLOWS FROM FINANCING ACTIVITIES:                                                       |  |                    |   |                   
|Bank overdraft                                                                                    |  | 94,637             |   |                   
|Repayment of note payable                                                                         |  | (6,969             | ) |                   
|Net borrowings made on line of
      credit                                                       |  | 693,000            |   |                   
|Proceeds from employee stock
      purchase plan                                                  |  | 26,750             |   |                   
|Net cash provided by financing activities                                                         |  | 807,418            |   |                   
|                                                                                                 
|NET
      DECREASE IN CASH AND CASH EQUIVALENTS                                                   |  | (118,869           | ) |                   
|CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                            |  | 244,499            |   |                   
|                                                                                                 
|CASH
      AND CASH EQUIVALENTS AT END OF PERIOD                                                  |  | $125,630           |   |                   

See notes to consolidated financial
statements.

5

---

|NORTHERN TECHNOLOGIES
      INTERNATIONAL CORPORATION ANDSUBSIDIARIES - NOTES TO CONSOLIDATED FINANCIAL
      STATEMENTS(Unaudited)
|-----------------------------------------------------------------------------------------------------------------------------------

1. INTERIM FINANCIAL INFORMATION

In the opinion of management, the
accompanying unaudited consolidated financial statements contain all necessary
adjustments, which are of a normal recurring nature, and present fairly the
consolidated financial position of Northern Technologies International
Corporation and its subsidiaries (the Company) as of November 30, 2007 and the
results of their operations for the three months ended November 30, 2007 and
November 30, 2006 and their cash flows for the three months ended November 30,
2007 and November 30, 2006, in conformity with accounting principles generally
accepted in the United States of America (US GAAP).

These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
related notes contained in the Companys annual report on Form 10-KSB for the
fiscal year ended August 31, 2007 and with the Managements Discussion and
Analysis or Plan of Operation section appearing in this quarterly report.
Operating results for the three months ended November 30, 2007 are not
necessarily indicative of the results that may be expected for the full fiscal
year ending August 31, 2008.

2. RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS

Effective September 1, 2007, we adopted
the provisions of the FASB Interpretation 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
entitys financial statements in accordance with SFAS No. 109 and prescribes a
recognition threshold and measurement attribute for financial statement
disclosure of tax positions taken or expected to be taken in a tax return. Under
FIN 48, the impact of an uncertain tax position on the income tax return must be
recognized at the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than a 50% likelihood of being sustained.
Additionally, FIN 48 provides guidance on subsequent derecognition of tax
positions, financial statement classification, recognition of interest and
penalties, accounting in interim periods and disclosure and transition rules.
The adoption of FIN 48 did not have a material impact on our financial
condition, results of operations or cash flows.

As of August 31, 2007, we had $75,000
of unrecognized tax benefits. If recognized, $75,000 would have an impact on our
effective tax rate. During the three months ended November 30, 2007, the
unrecognized tax benefits have not increased or decreased materially. It is
expected that the amount of unrecognized tax benefits will change in the next 12
months; however we can not reasonably estimate that change.

We recognize interest and penalties
related to unrecognized tax benefits as a component of our income tax provision.
This policy will not change as a result of the adoption of FIN 48. As of
September 1, 2007, we recorded a liability of $11,300 for interest and
penalties. The liability for the payment of interest and penalties did not
materially change during the quarter ended November 30, 2007.

We operate in multiple tax
jurisdictions, both within the United States and outside the United States. With
certain exceptions, we are no longer subject to examination for tax years prior
to 2004. Our tax filings for the years August 31, 2004 and August 31, 2005 were
examined by the Internal Revenue Service. The examination has been concluded
with the exception of the payroll tax issue discussed within Note 17 to these
consolidated financial statements entitled Commitments and Contingencies.

6

---

On December 4, 2007, the FASB issued
FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements - An Amendment of ARB No. 51 (Statement 160). Statement 160
establishes new accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary.
Specifically, Statement 160 requires the recognition of a noncontrolling
interest (minority interest) as equity in the consolidated financial statements
and separate from the parent's equity. The amount of net income attributable to
the noncontrolling interest will be included in consolidated net income on the
face of the income statement. Statement 160 clarifies that changes in a parent's
ownership interest in a subsidiary that do not result in deconsolidation are
equity transactions if the parent retains its controlling financial interest. In
addition, Statement 160 requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. Such gain or loss will be measured
using the fair value of the noncontrolling equity investment on the
deconsolidation date. Statement 160 also includes expanded disclosure
requirements regarding the interests of the parent and its noncontrolling
interest. Statement 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning with the quarter ended November 30, 2008.
Earlier adoption is prohibited.

On December 4, 2007, the FASB issued
FASB Statement No. 141 (Revised 2007), Business Combinations (FAS 141(R)).
FAS 141(R) will significantly change the accounting for business combinations.
Under Statement 141(R), an acquiring entity will be required to recognize all
the assets acquired and liabilities assumed in a transaction at the
acquisition-date fair value with limited exceptions. FAS 141(R) will change the
accounting treatment for certain specific items, including:

- Acquisition costs will be generally expensed as
  incurred;
- Noncontrolling interests (formerly known as
  "minority interests will be valued at fair value at the acquisition
  date);
- Acquired contingent liabilities will be recorded
  at fair value at the acquisition date and subsequently measured at either the
  higher of such amount or the amount determined under existing guidance for
  non-acquired contingencies;
- In-process research and development will be
  recorded at fair value as an indefinite-lived intangible asset at the
  acquisition date;
- Restructuring costs associated with a business
  combination will be generally expensed subsequent to the acquisition date;
  and
- Changes in deferred tax asset valuation allowances
  and income tax uncertainties after the acquisition date generally will affect
  income tax expense.

FAS 141(R) also includes a substantial
number of new disclosure requirements. The statement applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the fiscal year ended August 31, 2009. Earlier adoption is
prohibited.

3. INVENTORIES

Inventories consisted of the following:

November
      30,
    
    August
      31,2007
    
    2007Production materials
    
    $181,070
    
    $183,658Finished
goods
    
    1,406,291
    
    1,452,415$1,587,360
    
    $1,636,073


4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the
following:

November 30,
    
    August 31,2007
    
    2007Land
    
    $310,365
    
    
    $310,365Buildings and
      improvements
    
    3,048,101
    
    
    3,048,103Machinery and equipment
    
    1,344,256
    
    
    1,274,7074,702,722
    
    
    4,633,175Less
      accumulated depreciation
    
    (918,022
    )
    
    (840,714
    )$3,784,700
    
    
    $3,792,461


7

---

The Company recognized a gain on the
sale of land, building and equipment that previously served as its corporate
headquarters of $724,495 during the three months ended November 30, 2006. This
was a one-time sale and no additional gain is anticipated to be recognized
relating to the building in the future as the entire sale was received in cash
and the Company does not have any continued interest in the property sold.

5. INDUSTRIAL PATENTS AND
TRADEMARKS, NET

Industrial patents and trademarks, net
consisted of the following:

November 30,
    
    August 31,2007
    
    2007Patents and trademarks
    
    $1,463,246
    
    
    $1,412,209Less accumulated
      amortization
    
    (460,006
    )
    
    (429,003
    )$1,003,240
    
    
    $983,206


Patent and trademark costs are
amortized over seven years once a patent or trademark is filed and approved.
Amortization expense related to patents and trademarks was $31,004 and $40,213
for the three months ended November 30, 2007 and 2006, respectively.
Amortization expense is estimated to approximate $140,000 in each of the next
five fiscal years.

6. INVESTMENTS IN CORPORATE JOINT
VENTURES

Composite financial information from
the audited and unaudited financial statements of the Companys joint ventures
carried on the equity basis is summarized as follows:

November 30,
    
    August 31,2007
    
    2007Current assets
    
    $48,001,145
    
    $42,767,569Total assets
    
    54,939,063
    
    49,312,491Current liabilities
    
    17,167,450
    
    14,939,496Noncurrent liabilities
    
    5,564,480
    
    4,971,199Joint
      ventures equity
    
    32,207,133
    
    29,401,796Northern Technologies
      International Corporationsshare of Corporate Joint
      Ventures equity
    
    $15,240,974
    
    $13,602,842November 30,
    
    November 30,2007
    
    2006Net
      sales
    
    $23,944,115
    
    $18,879,432Gross profit
    
    11,009,748
    
    9,068,677Net
      income
    
    1,697,769
    
    1,624,028Northern Technologies
      International Corporations share ofequity in income of
      Corporate Joint Ventures
    
    $1,054,682
    
    $635,
219


8

---

The financial statements of the
Companys foreign joint ventures are prepared using accounting principles
accepted in the joint ventures country of domicile. Amounts related to foreign
joint ventures reported in the above tables and the accompanying financial
statements have been adjusted to approximate US GAAP in all material respects.

During the three months ended November
30, 2007, the Company invested $87,950 in a non-industrial chemical joint
venture in Thailand in addition to $143,000 previously invested in December
2006. The Company has a 50% ownership interest in the joint venture entity. The
joint venture entity had no operations prior to the Companys investment in
December 2006. The total capitalization by both owners of the joint venture was
$461,900 as of November 30, 2007.

7. GOODWILL

The Company tests goodwill annually for
impairment and in interim periods if certain events occur indicating that the
carrying value of goodwill may be impaired. Goodwill at both November 30, 2007
and August 31, 2007 was $304,000.

8. CORPORATE DEBT

The Company has a revolving credit
facility of $1,500,000 that expires on January 31, 2008. Outstanding amounts
under the revolving credit facility bear interest at an annual rate based on
LIBOR plus 2.25%. As of November 30, 2007, the interest rate was 7.49% and the
average interest rate over the quarter ended November 30, 2007 and 2006 was
7.43% and 7.25%, respectively. Amounts borrowed under the facility are
collateralized by a lien on substantially all of the Companys assets, excluding
its corporate joint venture interests, intellectual property rights and its
Circle Pines headquarters. The credit documents contain other terms and
provisions (including representations, covenants and conditions) customary for
transactions of this type. Significant financial covenants include the
maintenance of a minimum fixed charge coverage ratio of 1.0 to 1.0. The Company
is in compliance with all covenants under the revolving credit facility.
Outstanding balances were $693,000 and $0 as of November 30, 2007 and August 31,
2007, respectively.

The Company entered into a term loan
with a principal amount of $1,275,000 that matures on May 1, 2011, bears
interest at a fixed rate of 8.01% and is payable in 59 monthly payments equal to
approximately $10,776 (inclusive of principal and interest). All of the
remaining unpaid principal and accrued interest is due and payable on the
maturity date. The term loan note is secured by a first lien on the Companys
Circle Pines facility pursuant to a Mortgage dated as of May 3, 2006 between
Northern Technologies Holding Company LLC and National City Bank and is
guaranteed by the Company. Future minimum principal payments on the term loan
are as follows:

| | Fiscal 2008 |  | $22,350   
| | ----------- |  | ----------
| | Fiscal 2009 |  | $31,411   
| | Fiscal 2010 |  | $34,897   
| | Fiscal 2011 |  | $1,145,220

9. STOCKHOLDERS EQUITY

During the three months ended November
30, 2007, the Company did not purchase or retire any shares of its common stock
and no stock options to purchase shares of the Companys common stock were
exercised. The Company granted stock bonuses under the Northern Technologies
International Corporation 2007 Stock Incentive Plan for an aggregate of 33,595
shares of its common stock to various employees during the three months ended
November 30, 2007. The fair value of the shares of the Companys common stock as
of the date of grant of the stock bonuses was $334,270, based on the closing
sale price of a share of the Companys common stock on that date.

9

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During the three months ended November
30, 2006, the Company did not purchase or retire any shares of its common stock
and no stock options were exercised. The Company granted stock bonuses under the
Northern Technologies International Corporation 2000 Stock Incentive Plan for an
aggregate of 37,245 shares of its common stock to various employees during the
three months ended November 30, 2006. The fair value of the shares of the
Companys common stock as of the date of grant of the stock bonuses was
$298,330, based on the closing sale price of a share of the Companys common
stock on that date.

10. TOTAL COMPREHENSIVE INCOME

The Companys total comprehensive
income was as follows:

|                                                                          |  | November 30, |  | November 30,
|------------------------------------------------------------------------- |  | ------------ |  | ------------
|                                                                          |  | 2007         |  | 2006        
|Net
      income                                                          |  | $658,196     |  | $990,224    
|Other comprehensive
      income: foreign currency translation adjustment |  | 881,785      |  | 371,450     
|Total
      comprehensive income                                          |  | $1,539,981   |  | $1,361,674  

11. NET INCOME PER COMMON SHARE

Basic net income per common share is
computed by dividing net income by the weighted average number of common shares
outstanding. Diluted net income per share assumes the exercise of stock options
using the treasury stock method, if dilutive.

No options to purchase shares of common
stock were excluded from the computation of common share equivalents as of
November 30, 2007 and November 30, 2006, as all stock option exercise prices
were less than the average market price of a share of common stock.

12. STOCK-BASED COMPENSATION

The Company regularly grants stock
options to individuals under various plans. In January 2007, the Companys
stockholders approved the Northern Technologies International Corporation 2007
Stock Incentive Plan and the Northern Technologies International Corporation
Employee Stock Purchase Plan. The Compensation Committee of the Board of
Directors administers both of the plans.

The 2007 plan replaced the Northern
Technologies International Corporation 2000 Stock Incentive Plan, which was
terminated with respect to future grants, but will continue to govern grants
outstanding under such plan. The 2007 plan provides for the grant of incentive
stock options, non-statutory stock options, stock appreciation rights,
restricted stock, stock unit awards, performance awards and stock bonuses to
eligible recipients to enable the Company and its subsidiaries to attract and
retain qualified individuals through opportunities for equity participation in
the Company, and to reward those individuals who contribute to the achievement
of the Companys economic objectives. Up to a total of 400,000 shares of the
Companys common stock has been reserved for issuance under the 2007 plan,
subject to adjustment as provided in the 2007 plan. Options granted under the
2007 plan generally have a term of five years and become exercisable over a
three- or four-year period beginning on the one-year anniversary date of the
grant. Options are granted at per share exercise prices equal to the market
value of the Companys common stock on the date of grant.

In addition to the 2007 Stock Incentive
Plan, the Company also maintains the Northern Technologies International
Corporation Employee Stock Purchase Plan (ESPP). The maximum number of shares
of the Companys common stock available for issuance under the ESPP is 100,000
shares, subject to adjustment as provided in the ESPP. The ESPP provides for
six-month offering periods beginning on September 1 and March 1 of each year.
The purchase price of the shares is 90% of the lower of the fair market value of
the Companys common stock at the beginning or end of the offering period. This
discount may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes.

10

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FASB Statement No. 123 (revised 2004),Share-Based Payment(FAS 123(R)) requires that the compensation cost relating to
share-based payment transactions be recognized in financial statements based on
the fair value of the equity or liability instrument issued. The Company
implemented FAS 123(R) on September 1, 2006, using the modified prospective
transition method.

The Company granted options to purchase
37,140 and 14,000 shares of its common stock during the three months ended
November 30, 2007 and 2006, respectively. The fair value of option grants is
determined at date of grant, using the Black-Scholes option pricing model with
the assumptions listed below. Based on these valuations, the Company recognized
compensation expense of $24,680 and $44,793 during the three months ended
November 30, 2007 and 2006, respectively, related to the options that vested
during such time period. The stock-based expense recorded reduced after-tax net
income per share by $0.01 and $0.02 for the three months ended November 30, 2007
and 2006, respectively. As of November 30, 2007, the total compensation cost for
non-vested options not yet recognized in the Companys statements of income was
$172,738, net of estimated forfeitures. Additional stock-based compensation
expense of $74,041 is expected through the remainder of fiscal year 2008, and
expense of $54,843 and $43,854 is expected to be recognized during fiscal 2009
and 2010, respectively. Future option grants will impact the compensation
expense recognized.

The fair value of each option grant is
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions and results for the grants:

November 30,
    
    November 30,2007
    
    2006Dividend yield
    
    2.00%
    
    2.00%Expected
    volatility
    
    42.0%
    
    42.9%Expected life of option
    
    5 years
    
    5 yearsAverage risk-free interest
      rate
    
    3.84%
    
    4.67%


Dividend yield and expected volatility
are estimated using historical amounts that are anticipated to be consistent
with current values. Expected life of option is based on the life of the option
agreements. The risk free interest rate used is based on U.S. treasury rates
appropriate for the expected term.

Stock option activity during the
periods indicated is as follows:

|                                                |  |            |  | Weighted |  |                
|----------------------------------------------- |  | ---------- |  | -------- |  | ---------------
|                                                |  |            |  | Average  |  |                
|                                                |  | Number of  |  | Exercise |  | Aggregate      
|                                                |  | Shares (#) |  | Price    |  | Intrinsic Value
|Outstanding at August 31, 2007                  |  | 86,167     |  | $5.67    |  |                
|Granted                                         |  | 37,140     |  | $9.32    |  |                
|Exercised                                       |  | -          |  | -        |  |                
|Terminated                                      |  | -          |  | -        |  |                
|Outstanding at November 30, 2007                |  | 123,307    |  | $5.67    |  | $488,930       
|                                               
|Exercisable at August 31, 2007                  |  | 28,672     |  | $5.46    |  |                
|Exercisable at November
      30, 2007          |  | 56,732     |  | $5.62    |  | $227,787       
|                                               
|Available for future grant at November 30, 2007 |  | 328,098    |  |          |  |                

11

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The following table summarizes
information about stock options outstanding and exercisable at November 30,
2007:

|             |  | Per Share |  | Remaining        |  | Number of       |  | Number of      
|------------ |  | --------- |  | ---------------- |  | --------------- |  | ---------------
|Option Grant |  | Exercise  |  | Contractual Life |  | Options         |  | Options        
|Date         |  | Prices    |  | (years)          |  | Outstanding (#) |  | Exercisable (#)
|9/1/2003     |  | $5.30     |  | 0.8              |  | 2,000           |  | 2,000          
|9/1/2004     |  | 5.25      |  | 1.8              |  | 4,000           |  | 4,000          
|11/12/2004   |  | 6.15      |  | 2.0              |  | 3,000           |  | 3,000          
|9/1/2005     |  | 5.75      |  | 2.8              |  | 10,000          |  | 6,670          
|11/4/2005    |  | 5.38      |  | 2.9              |  | 56,000          |  | 37,338         
|9/1/2006     |  | 8.01      |  | 3.8              |  | 10,000          |  | 3,335          
|1/23/2007    |  | 7.51      |  | 4.2              |  | 1,167           |  | 389            
|9/1/2007     |  | 8.01      |  | 4.8              |  | 12,000          |  | 0              
|11/16/2007   |  | $9.95     |  | 5.0              |  | 25,140          |  | 0              
|             |  |           |  |                  |  | 123,307         |  | 56,732         

The weighted average fair value of
options granted during the three months ended November 30, 2007 and 2006 was
$3.54 and $2.95, respectively.

13. SEGMENT INFORMATION

Net sales by geographic location as a
percentage of total consolidated net sales were as follows:

November 30,
    
    November 30,2007
    
    2006Inside the U.S.A. to unaffiliated customers
    
    75.9%
    
    80.4%Outside the U.S.A.
      to:Corporate Joint Ventures in which
      the Company isa
      shareholder directly and indirectly
    
    15.9
    
    11.7Unaffiliated customers
    
    8.2
    
    7.9100%
    
    100%


One of the Companys North American
customers accounted for in the aggregate approximately 7.3% and 33.5% of the
Companys net sales for the three months ended November 30, 2007 and 2006
respectively, and $199,090 and $144,999 of the Companys receivables at November
30, 2007 and August 31, 2007, respectively.

14. RETIREMENT PLAN

The Company has a 401(k) employee
savings plan. Employees who meet certain age and service requirements may elect
to contribute up to 15% of their salaries. The Company contributes the lesser of
50% of the participants contributions or 3.5% of the employees salary. The
Company recognized expense for the savings plan of $40,987 and $26,426, for the
three months ended November 30, 2007 and 2006, respectively.

12

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15. RELATED PARTY
TRANSACTIONS

On May 18, 2006, the Company and
Emeritushnic Facilities Company, Inc. (EFC), an entity owned by the Companys
former Chairman of the Board and Chief Executive Officer and current Chairman
Emeritus, Philip M. Lynch, and certain of his family members, excluding G.
Patrick Lynch, the Companys current President and Chief Executive Officer,
entered into a Consulting Agreement, effective as of May 1, 2006. Pursuant to
the Consulting Agreement, the Company has engaged EFC to perform certain
consulting services to the Company, including maintaining communications and
relations between the Company and its joint venture partners. In consideration
for such services, the Company paid EFC consulting fees totaling $75,000 during
both the three months ended November 30, 2007 and 2006, and reimbursed EFC for
out-of-pocket expenses reasonably incurred in the course of providing such
services in an aggregate amount of $48,554 and $47,085 for the three months
ended November 30, 2007 and 2006, respectively. The Consulting Agreement
provides for fees of $25,000 per month and up to $180,000 in expense
reimbursement in a given fiscal year. Additionally, it may be terminated by
either party for any reason upon at least 90 days prior written notice to the
other party and may be terminated upon the occurrence of other certain events,
as set forth in the Consulting Agreement. The Consulting Agreement also contains
other standard and customary terms, including provisions regarding
confidentiality, non-competition and non-solicitation.

The Company made consulting payments to
Bioplastic Polymers LLC which is owned by Dr. Ramani Narayan, a director of the
Company, of $25,000 on each of November 2, 2006, February 1, 2007, May 1, 2007
and August 1, 2007. The consulting services rendered by Bioplastic Polymers LLC
are related to research and development associated with various new technologies
and are contracted on an annual basis paid monthly and cancellable by the
Company at any time. During the three months ended November 30, 2007, no
payments were made to Bioplastic Polymers LLC; however, the Company has accrued
expenses totaling $25,000 during the three months ended November 30, 2007.
Additionally, the Company has been invoiced by Bioplastic Polymers LLC and is
anticipating making payments totaling $100,000 by the end of fiscal year
2008.

The Company made consulting payments to
Dr. Sunggyu Lee, a director of the Company, of $25,000 on November 28, 2006 and
February 1, 2007. The consulting services rendered by Dr. Lee related to
research and development associated with various new technologies. In May 2007,
the consulting arrangement between the Company and Dr. Lee was terminated.

The Company pays rent for its Beachwood
office and lab location to a related party. See Note 17.

16. INCOME TAXES

Reconciliations of the expected federal
income tax at the statutory rate with the provisions for income taxes for the
three months ended November 30 are as follows:

|                                                                     |  | November 30, |   | November 30,
|-------------------------------------------------------------------- |  | ------------ | - | ------------
|                                                                     |  | 2007         |   | 2006        
|Tax
      computed at statutory rates                                |  | $265,000     |   |             
|Tax effect on equity in
      income of international joint ventures |  | (380,000     | ) |             
|Tax
      effect on dividends received from corporate joint ventures |  | 144,000      |   |             
|Research and development
      credit                                |  | (32,000      | ) |             
|Other                                                                |  | 81,000       |   |             
|                                                                     |  | $78,000      |   |             

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17. COMMITMENTS AND CONTINGENCIES

In April 2007, REACT-NTI, LLC (React
LLC), a company that is 75% owned by the Company, was served with a summons and
complaint that was filed by Shamrock Technologies, Inc. (Shamrock) in state
court in New York. This case has been removed to the Federal District Court for
the Southern District of New York. The lawsuit seeks payment from React LLC of
commissions in the approximate amount of $314,500 owed by React LLC under a
license agreement between React LLC and Shamrock. The complaint alleges breach
of the license agreement by React LLC and seeks damages in an unspecified amount
for such breach as well as damages of approximately $300,000 for the alleged
failure of React LLC to purchase from Shamrock certain inventory manufactured
for sale to a customer. React LLC acknowledges that React LLC has not made
payment for product in the approximate amount of $300,000 to Shamrock as the
invoice for this was only received after Shamrock had already filed its
complaint, but denies all of the claims of breach of the license agreement by it
and believes that damages caused by Shamrocks breach of the License Agreement
and tortious conduct exceed any amounts owing to Shamrock. React LLC formally
responded to the complaint after removal by moving to dismiss or stay because of
Shamrocks failure to comply with alternative dispute resolution procedures
contained in the license agreement. By court order, the matter is presently
stayed, and the parties will attempt mediation. If the mediation is
unsuccessful, React LLC will both defend against Shamrocks allegations and
pursue counterclaims against Shamrock for breach of the license agreement and
for tortious interference. Because this matter is in the early stage, the
Company cannot estimate the possible loss or range of loss, if any, associated
with its resolution. However, there can be no assurance that the ultimate
resolution of the matter will not result in a material adverse effect on the
Companys business, financial condition or results of operations.

In February 2007, the Company was named
as a defendant in a lawsuit brought by Evelyna Cantwell and Jack Cantwell,
individually, and also doing business as the principals of Byrd-Walsh
International, LLC, in United States Federal District Court for the Southern
District of Florida against the Company and its former Chairman of the Board and
Chief Executive Officer and current Chairman Emeritus, Philip M. Lynch. The
lawsuit alleges causes of action for breach of contract, breach of implied
contract, quasi contract, promissory estoppel, equitable estoppel, negligence,
wrongful conversion, fraud, constructive fraud, misappropriation and violation
of the Uniform Trade Secrets Act. The suit seeks unspecified injunctive relief
as well as compensatory and punitive damages in an unspecified amount which,
based on the allegations of the complaint, may be claimed by plaintiffs to be in
an amount in excess of $45 million. Based on the allegations in the complaint
and the Companys understanding of relevant facts and circumstances, the Company
believes that the claims made by the Cantwells and Byrd-Walsh in this lawsuit
are without merit and the Company intends to vigorously defend against them.
Because this matter is in the early stage, the Company cannot estimate the
possible loss or range of loss, if any, associated with its resolution. The
amounts claimed in this lawsuit are substantial, however, and, there can be no
assurance that the ultimate resolution of the matter will not result in a
material adverse effect on the Companys business, financial condition or
results of operations.

The Company is involved in a legal
action in Finland whereby the Company sued a Finnish company for trademark
infringement. Upon initiation of legal action, the courts seized the inventory
of the Finnish company as contraband. The Company won the initial case, but has
subsequently lost on appeal. The Company is currently appealing the latest court
decision. The outcome of the appeal is unknown and any potential loss cannot be
estimated at this time; however, the potential judgment or settlement resulting
from the case could have a material impact on the financial position or results
of operations of the Company due to claims against the Company related to
expiration of inventory seized from the Finnish company. The Company has
obtained a $600,000 stand-by letter of credit to potentially fund the Companys
obligations related to the courts in Finland against the defendants products
that were seized as contraband. Advances made under the demand letter of credit
will be made at the sole discretion of National City Bank and will be due and
payable on demand. Any outstanding unpaid principal balance under the demand
letter of credit
bears interest at an annual rate based on LIBOR plus 2.25%. Interest is payable in arrears beginning on January 15, 2007 and on the 15th day of each month thereafter and on demand. Because the Company believes that it has valid legal grounds for appeal, it has determined that a loss is not probable at this time as defined by SFAS 5, “Accounting for Contingencies.” However, there can be no assurance that the ultimate resolution of the matter will not result in a material adverse effect on the Company’s business, financial condition or results of operations.

14

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The Company is involved in various
other legal actions arising in the normal course of business. Management is of
the opinion that any judgment or settlement resulting from these pending or
threatened actions would not have a material adverse effect on the Companys
financial position or consolidated results of operations.

In June 2007, the U.S. Internal Revenue
Service concluded its audit of the Companys U.S. federal income tax returns for
fiscal 2004 and 2005. As a result of such audit, the Company paid the IRS
approximately $25,000 in additional payroll taxes. The Company also agreed in
principle with the IRS to adjustments that will result in the additional payment
of approximately $60,000 in income tax and interest. As a result of the audit,
the IRS has also taken the position that the Company failed to withhold and has
assessed against the Company approximately $505,000 of payroll taxes and
individual income taxes on travel and other expense reimbursements made to
Philip M. Lynch, the Companys former Chairman of the Board and Chief Executive
Officer and current Chairman Emeritus, and commissions payments made to Inter
Alia Holding Co. under that certain former Manufacturers Representative
Agreement dated as of October 1, 1976 and as subsequently amended thereafter
between the Company and Inter Alia, which agreement has since been terminated.
Inter Alia beneficially owns approximately 24.9% of the Companys outstanding
common stock, and Philip M. Lynch, the Companys former Chairman of the Board
and Chief Executive Officer and current Chairman Emeritus, and G. Patrick Lynch,
the Companys current President and Chief Executive Officer, are shareholders of
Inter Alia. The Company disagrees with the IRS position on withholding and is
in the process of appealing the matter. Because the Company believes that it has
valid legal grounds for appeal, it has determined that a loss is not probable at
this time as defined by SFAS 5, Accounting for Contingencies. However, there
can be no assurance that the ultimate resolution of the matter will not result
in a material adverse effect on the Companys business, financial condition or
results of operations.

In fiscal 1999, a subsidiary of the
Company, NTI Facilities, Inc., acquired a one-third ownership of Omni-Northern
Ltd., an Ohio limited liability company and entered into a lease agreement with
Omni-Northern Ltd. for approximately 50% of the net rental space in a building
owned by Omni-Northern Ltd. Omni-Northern Ltd. owns and operates a rental
property located at 23205 Mercantile Road, Beachwood, Ohio, comprising
approximately two acres of land and a building of approximately 34,000 square
feet. NTI Facilities consolidates its ownership in Omni-Northern LTD utilizing
the equity method of consolidation. The property has an approximate value of
$2,205,000, based upon the cash-to-mortgage acquisition price of the property
paid in fiscal 2000. The Company has guaranteed up to $329,082 of the
Omni-Northern Ltd.s $1,903,571 mortgage obligation with National City Bank,
Cleveland, Ohio. NTI Facilities, Inc. entered into a 15-year lease agreement
with Omni-Northern Ltd. for approximately 17,000 square feet of office,
manufacturing, laboratory and warehouse space, requiring monthly rental payments
of $17,500, which are adjusted annually according to the annual consumer price
index, through November 2014. By its ownership interest in Omni-Northern Ltd.,
NTI Facilities Inc. is entitled to one-third of the operating profits (losses)
of Omni-Northern Ltd. Omni-Northern has leased the remaining 50% of the net
rental space to other third parties.

15

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On November 16, 2007, the Companys
Board of Directors, upon recommendation of the Compensation Committee, approved
the material terms of an annual bonus plan for executive officers and certain
employees of the Company for fiscal year ending August 31, 2008, the purpose of
which is to align the interests of the Company and its subsidiaries, executive
officers and stockholders by providing an incentive for the achievement of key
corporate and individual performance measures that are critical to the success
of the Company and linking a significant portion of each executive officers
annual compensation to the achievement of such measures. The following is a
brief summary of the material terms approved by the Board:

- The total amount available under the bonus plan
  will be up to 25% of the Companys earnings before interest, taxes and other
  income (EBITOI) for the fiscal year ending August 31,
  2008;
- The total amount available under the bonus plan
  will be $0 if EBITOI, as adjusted to take into account amounts to be paid
  under the bonus plan, fall below 70% of target EBITOI;
  and
- The payment of bonuses under the plan will be made
  in both cash and shares of the Companys common stock, the exact amount and
  percentages of which will be determined by the Board, upon recommendation of
  the Compensation Committee, within a reasonable period of time after the
  completion of the Companys financial statements for the fiscal year ending
  August 31, 2008.

18. STATEMENTS OF CASH FLOWS

The Company did not declare or pay any
cash dividends during fiscal 2007 and as of January 11, 2008, had not declared
or paid any cash dividends during fiscal 2008.

The Company issued 33,595 and 37,245
shares of common stock as stock bonuses under its stock incentive plans to
various employees to satisfy $334,270 and $298,330 of accrued payroll liability
during the quarter ended November 30, 2007 and 2006, respectively.

16

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ITEM 2 - MANAGEMENTS DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION

This Managements Discussion and
Analysis provides material historical and prospective disclosures intended to
enable investors and other users to assess NTICs financial condition and
results of operations. Statements that are not historical are forward-looking
and involve risks and uncertainties discussed under the headings
Forward-Looking Statements and Risk Factors appearing elsewhere in this
report. The following discussion of the results of the operations and financial
condition of NTIC should be read in conjunction with NTICs consolidated
financial statements and the related notes thereto included under Part I, Item 1
entitled Financial Statements of this report.

General Overview

NTIC focuses on developing, marketing
and selling proprietary environmentally responsible materials science based
products and technical services directly and via a network of independent
distributors, manufacturers representatives and joint ventures in over 50
countries. NTIC manufactures, markets and sells primarily rust and corrosion
inhibiting products and services for automotive, electronics, electrical,
mechanical and military applications, sold under the brand names Zerust® and
EXCOR®. NTIC also offers direct, worldwide on-site technical support on rust and
corrosion issues. In North America, NTIC markets its technical services and
Zerust® products principally to industrial users by a direct sales force and
through a network of independent distributors and sales representatives. NTICs
technical service representatives work directly with the end users of NTICs
products to analyze their specific needs and develop systems to meet their
technical requirements. NTICs consolidated net sales were derived from the
sales of Zerust® rust and corrosion inhibiting packaging products and services
to the automotive, electronics, electrical, mechanical, military and retail
consumer markets.

NTIC participates, either directly or
indirectly through holding companies, in 29 corporate joint venture arrangements
in North America, South America, Europe, Asia and the Middle East. Each of these
joint ventures manufactures, markets and sells finished products generally in
the countries to which it is assigned. NTICs joint venture partners are
knowledgeable in the applicable environmental, labor, tax and other requisite
regulations and laws of the respective foreign countries in which they operate,
as well as the local customs and business practices. While most of NTICs joint
ventures currently sell rust and corrosion inhibiting products and custom
packaging systems, NTIC also has joint ventures that manufacture, market and
sell or intend to manufacture, market or sell bio-based additives with both
industrial and personal care applications, machinery that converts waste
plastics back into diesel, gasoline and mid-distillates and electronic sensing
instruments. The Company categorizes its joint ventures into two principal
areas: industrial chemical and non-industrial chemical.

NTICs consolidated net sales in North
America decreased 24.5% during the three months ended November 30, 2007 as
compared to the three months ended November 30, 2006 primarily as a result of
the anticipated loss of its React-NTI, LLC subsidiarys most significant
customer as discussed in more detail below under the heading Recent
Development. However, since the profit on React-NTI LLCs product sales to this
customer was extremely small, the effect on NTICs net income during the three
months ended November 30, 2007 was not material. Net income decreased 33.5% to
$658,196, or $0.18 per diluted common share, during the three months ended
November 30, 2007 compared to $990,224, or $0.27 per diluted common share,
during the three months ended November 30, 2006, primarily as a result of a
one-time gain on sale of assets of $724,495 during the first three months of
fiscal 2007. NTIC anticipates that its net sales will continue to decrease
significantly during the remainder of fiscal 2008 compared to the same periods
in fiscal 2007 as a result of the loss of the significant React-NTI customer.
NTIC does not expect, however, that the decrease will have a material adverse
effect on NTICs future consolidated net income.

Despite the decrease in NTICs
consolidated net sales in North America, sales of NTICs rust and corrosion
inhibiting products in North America increased during the three months ended
November 30, 2007 compared to the same period in fiscal 2007. Net sales of
NTICs Zerust® products increased 6.8% to $3,229,123during the three months ended November 30, 2007 as compared to $3,023,384
during the three months ended November 30, 2006.

17

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NTICs international rust and corrosion
inhibiting product business has expanded significantly during the past several
fiscal years. Total net sales of all of NTICs joint ventures increased 26.8% to
$23,944,115 during the three months ended November 30, 2007 as compared to
$18,879,432 during the three months ended November 30, 2006. The profits of
NTICs corporate joint ventures are shared, however, by the respective corporate
joint venture owners in accordance with their respective ownership percentages.
In addition, NTICs receipt of funds as a result of sales by its joint ventures
are dependent upon NTICs receipt of dividend distributions from the joint
ventures and NTICs receipt of fees for technical and other support services
that NTIC provides to its joint ventures based on the revenues of the joint
ventures. NTIC typically owns 50% or less of its joint venture entities and thus
does not control the decisions of these entities regarding whether to pay
dividends and how much in dividends in any given year. NTICs income from its
corporate joint ventures and holding companies increased 167.7% to $1,209,302
for the three months ended November 30, 2007 compared to $451,811 for the three
months ended November 30, 2006.

In an effort to increase net sales,
NTIC is in the process of expanding the application of its corrosion inhibiting
technology to include solutions targeted at the oil and gas industry and its
product line to include biodegradable and compostable plastics and machinery
that converts waste plastics back into diesel, gasoline and mid-distillates.
During fiscal 2008, NTIC expects to invest in aggregate between $2,800,000 and
$3,200,000 in additional research and development and marketing efforts and
resources into these new emerging businesses, product lines and markets. During
the first quarter of fiscal 2008, NTIC invested approximately $715,564 in
additional research and development and marketing efforts and resources into
these new emerging businesses, product lines and markets. NTIC anticipates
additional revenue from these new technologies in fiscal year ending August 31,
2008; however, no assurance can be provided that such new businesses will be
successful or that NTIC will be successful in obtaining such additional revenue.

Recent Development

NTICs consolidated financial
statements include the accounts of Northern Technologies International
Corporation, its wholly owned subsidiaries, NTI Facilities, Inc. and Northern
Technologies Holding Company, LLC, and its 75% owned subsidiary React-NTI LLC
(React-NTI).

React-NTI is an industrial chemical
corporate joint venture of NTIC that focuses on the development, manufacture and
marketing of proprietary lines of bio-based additives with both industrial and
personal care applications. Based on cotton, soy, corn and other renewable
resources, React-NTI products outperform many synthetically derived competing
alternatives. React-NTIs target market includes NTICs existing industrial
customer base, as well as the personal care and cosmetics industry. As of
February 28, 2005, NTIC began fully consolidating this 75% owned subsidiary,
which was previously accounted for using the equity method.

Since NTIC has been consolidating
React-NTI, the sales of React-NTI included in NTICs consolidated net sales have
consisted almost entirely of sales by React Inc., a 100% owned subsidiary of
React-NTI, of proprietary ink additives to one customer. As previously disclosed
by NTIC, during fourth quarter of fiscal 2007, this single customer notified
React Inc. of the intent to purchase Reacts remaining inventory of ink
additives, but that after such inventory was depleted, the customer would not
place any future orders with React Inc. Sales by React Inc. to this customer
were pursuant to standard purchase orders and not pursuant to any agreement
between React Inc. and this customer containing minimum purchase requirements or
similar provisions obligating the customer to purchase future products from
React Inc.

React-NTI had consolidated sales of
$256,462 and $1,593,990 in the three months ended November 30, 2007 and the
three months ended November 30, 2006, respectively. A vast majority of such
sales by React-NTICwere from React Inc., which
had sales of $248,160 during the three months ended November 30, 2007 and
$1,571,640 during the three months ended November 30, 2006.

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NTIC anticipates no additional sales
for React Inc. after the three months ended November 30, 2007. Accordingly, the
loss of Reacts sole customer has had and is expected to continue to have a
material adverse impact on NTICs consolidated net sales. However, since the
profit on Reacts sales of the ink additives to this customer was extremely
small, the effect on NTICs net income during the three months ended November
30, 2007 was not material and NTIC does not expect that the anticipated
continued decrease in net sales by React will have a material adverse effect on
NTICs future consolidated net income.

Financial Overview

NTIC conducts all foreign transactions
based on the U.S. dollar, except for its investments in various foreign
corporate joint ventures and holding companies. The exchange rate differential
relating to investments in foreign corporate joint ventures and holding
companies is accounted for under the requirements of SFAS No. 52, Foreign
Currency Translation. Since NTICs investments in its corporate joint ventures
and holding companies are accounted for using the equity method, any changes in
foreign currency exchange rates would be reflected as a foreign currency
translation adjustment and would not change the equity in income of joint
ventures and holding companies reflected in NTICs consolidated statement of
income.

NTICs consolidated net sales decreased
24.5% during the three months ended November 30, 2007 as compared to the three
months ended November 30, 2006 primarily as a result of the loss of React Incs
principal customer as described above, partially offset by an increase in demand
for Zerust® products. Net sales of React-NTI products decreased $1,337,528 to
$256,462 during the three months ended November 30, 2007 as compared to the
three months ended November 30, 2006. Net sales of Zerust® products increased
6.8% to $3,229,123 during the three months ended November 30, 2007 as compared
to $3,023,384 during the three months ended November 30, 2006. As discussed in
more detail above under the heading Recent Development, NTIC anticipates that
its net sales will significantly decrease during the remainder of fiscal 2008
compared to the same periods in fiscal 2007 as a result of the loss of a
principal customer of a subsidiary of NTICs React-NTI joint venture.

Cost of sales as a percentage of net
sales decreased to 60.0% in the three months ended November 30, 2007 as compared
to 63.8% for the three months ended November 30, 2006 primarily as a result of
the significant decrease during the three months ended November 30, 2007 as
compared to the same period during fiscal 2007 of React Inc. sales which are
sold at lower margins than NTICs Zerust® products.

NTIC spent $715,564 in the three months
ended November 30, 2007 and $710,296 in the three months ended November 30, 2006
in connection with its research and development activities. NTIC anticipates
that it will spend between $2,800,000 and $3,200,000 in total during fiscal 2008
on research and development activities related to its new technologies. These
fees are accounted for in the Expenses incurred in support of corporate joint
ventures section of NTICs consolidated statements of income.

Total net sales of all of NTICs joint
ventures increased 26.8% to $23,944,115 during the three months ended November
30, 2007 as compared to $18,879,432 during the three months ended November 30,
2006. NTICs equity in income of corporate joint ventures and holding companies
increased 66.1% to $1,054,682 during the three months ended November 30, 2007 as
compared to $635,219 during the three months ended November 30, 2006. NTIC also
recognized increased fee income for such technical and support services during
the three months ended November 30, 2007 as compared to the three months ended
November 30, 2006 as a result of the increase in total net sales of the joint
ventures. NTIC incurred decreased direct expenses related to its corporate joint
ventures and holding companies during the three months ended November 30, 2007
as compared to the three months ended November 30, 2006. NTICs income from its
corporate joint ventures and holding companies increased 167.7% to $1,209,302
for the three months ended November 30, 2007 compared to $451,811 for the three
months ended November 30, 2006.

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NTICs working capital was $3,840,057
at November 30, 2007, including $125,630 in cash and cash equivalents.
Additionally, as of November 30, 2007, NTIC had borrowings under its $1,500,000
revolving credit facility of $693,000. The revolving credit facility expires on
January 31, 2008. NTIC intends to renew or replace this facility on or prior to
the January 31, 2008 maturity date.

NTIC elected not to pay a cash dividend
to its stockholders in fiscal 2007 or thus far in fiscal 2008 in order to
preserve cash and make investments in future operations. NTIC expects to meet
its future liquidity requirements during at least the next twelve months by
using its existing cash and cash equivalents, forecasted cash flows from future
operations, distributions of earnings and technical assistance fees to NTIC from
its joint venture investments and funds available through existing or
anticipated financing arrangements.

Results of Operations

The following table sets forth NTICs
results of operations for the three months ended November 30, 2007 and 2006.

|                                          |  | November
      30, |  | %
      of Net |   | November
      30, |            | %
      of Net |       |          |  | %         
|----------------------------------------- |  | ------------------ |  | -------------- | - | ------------------ | ---------- | -------------- | ----- | -------- |  | ----------
|                                          |  | 2007               |  | Sales          |   | 2006               |            | Sales          |       | $ Change |  | Change    
|Net sales                                 |  | $3,485,585         |  | 100.0          | % |                    | $4,617,374 |                | 100.0 | %        |  | (1,131,789
|Cost of goods
      sold                  |  | 2,093,691          |  | 60.0           | % |                    | 2,945,055  |                | 63.8  | %        |  | (851,364  
|Selling expenses                          |  | 859,644            |  | 24.66          | % |                    | 769,039    |                | 16.7  | %        |  | 90,605    
|General and
      administrative expenses |  | 948,297            |  | 27.2           | % |                    | 822,883    |                | 17.8  | %        |  | 125,414   
|Lab and technical support expenses        |  | 57,128             |  | 1.6            | % |                    | $85,040    |                | 1.8   | %        |  | (27,912   

Net Sales. NTICs net sales originating in the United States decreased during the
three months ended November 30, 2007 compared to the same period in fiscal 2007
primarily as a result of the loss of the principal customer of React Inc. as
discussed in more detail above under the heading Recent Development,
partially offset by an increase in demand for Zerust® products sold to existing
customers.

Cost of Goods Sold. Cost of goods sold decreased as a percentage of net sales
for the three ended November 30, 2007 compared to the same period in fiscal 2007
primarily as a result of the significant decrease of React Inc. sales which are
sold at lower margins than NTICs Zerust® products

Selling Expenses. NTICs selling expenses increased for the three months ended
November 30, 2007 compared the same period in fiscal 2007 primarily as a result
of increases in (i) marketing trial expenses of $56,000, (ii) new employee hire
expense of $40,000 and (iii) salary and related benefit expenses of $40,000,
partially offset by decreases in travel and related expenses of $18,000. Selling
expenses as a percentage of net sales increased significantly due to the
decrease in React Inc. net sales that is discussed in more detail above under
the heading Recent Development for the three months ended November 30, 2007
compared to same period in fiscal 2007.

General and Administrative
Expenses. NTICs general and administrative
expenses increased for the three months ended November 30, 2007 compared to same
period in fiscal 2007 primarily as a result of increases in (i) audit and tax
expense of $134,000 and (ii) salary and benefits expenses of $25,000, partially
offset by decreases in (i) information technology expenses of $25,000 and (ii)
insurance expense of $37,000. As a percentage of net sales, general and
administrative expenses increased significantly due to the decrease in React
Inc. net sales that is discussed in more detail above under the heading Recent
Development for the three months ended November 30, 2007 compared to same
period in fiscal 2007.

NTIC includes expenses in general and
administrative expenses that provide benefit to the various joint ventures in
addition to providing benefit to NTICs North American operations, including
specifically,expenses associated with
information technology, general insurance, building expenses, audit and tax and
directors fees.

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Lab and Technical Support
Expenses. NTICs lab and technical support
expenses decreased slightly for the three months ended November 30, 2007
compared to the same period in fiscal 2007. As a percentage of net sales, lab
and technical support expenses remained relatively stable for the three months
ended November 30, 2007 compared to same period in fiscal 2007.

International Corporate Joint
Ventures and Holding Companies. Net sales of
NTICs corporate joint ventures in fiscal 2007 and fiscal 2006, excluding
React-NTI LLC, were as follows:

Three Months
    
    Three MonthsEnded
    
    EndedNovember 30,
    
    November 30,2007
    
    2006Industrial
      chemical
    $23,626,448
    
    $18,320,653Non-industrial
      chemical
    317,667
    
    558,780Total
    $23,944,115
    
    $18,879,433


NTIC had equity in income of corporate
joint ventures and holding companies of $1,054,682 during the three months ended
November 30, 2007 as compared to $635,219 during the three months ended November
30, 2006. The increase in equity in income was due to the significant increase
in sales and profitability from the corporate joint ventures as a whole due to
increasing global demand of NTICs Zerust® products and services.

NTIC receives fees for technical and
other support services it provides to its corporate joint ventures based on the
revenues of the individual corporate joint ventures. NTIC recognized fee income
for such support of $1,393,795 in the three months ended November 30, 2007
compared to $1,132,841 during the same period in fiscal 2007. The increase in
fees for technical and other support to its corporate joint ventures was due to
the significant increase in total net sales of the corporate joint ventures and
the weakening of the United States dollar.

NTIC sponsors a worldwide corporate
joint venture conference approximately every four to five years in which all of
its corporate joint ventures are invited to participate. The most recent
conference was in August 2005 and the next corporate joint venture conference is
scheduled to be held in 2008 or 2009. NTIC defers a portion of its technical and
other support fees received from its corporate joint ventures in each accounting
period leading up to the conference, reflecting that NTIC has not fully earned
the payments received during that period. There was $24,000 of deferred income
recorded during the three months ended November 30, 2007 bringing the total
deferred accrual for the conference to $216,000 at November 30, 2007. The costs
associated with these joint venture conferences are offset against the deferral
as incurred, generally in the period in which the conference is held and
immediately before.

NTIC incurred direct expenses related
to its corporate joint ventures and the holding companies of $1,239,175 during
the three months ended November 30, 2007 compared to $1,316,249 in the same
period in fiscal 2007. These expenses include: product and business development,
consulting, travel, technical and marketing services to existing joint ventures,
legal fees related to the establishment of new joint ventures, registration and
promotion and legal defense of worldwide trademarks and legal fees incurred in
the filing of patent applications for new technologies to which NTIC acquired
certain rights. The decrease in direct expenses incurred relating to NTICs
corporate joint ventures and holding companies during the three months ended
November 30, 2007 compared to the three months ended November 30, 2006 was
attributable to decreases of (i) lab testing and lab supplies of $22,000, (ii)
consulting expense of $26,000, (iii) legal expense of $97,000, partially offset
by increases in (i) expenses related to employee wages of $46,000, (ii) travel
and related expenses of $15,000, and (iv) miscellaneous expenses of $36,000.

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Interest Income. NTICs interest income decreased to $495 during the three
months ended November 30, 2007 compared to $935 for the same period in fiscal
2007 due to a lower average invested cash balances during the most recent
period.

Interest Expense. NTICs interest expense decreased to $31,523 during the
three months ended November 30, 2007 compared to $42,881 for the same period in
fiscal 2007 due to a lower average outstanding debt and a decrease in interest
rates during the most recent period.

Gain on sale of
assets. NTIC recognized a gain on the sale of
land, building and equipment that previously served as NTICs corporate
headquarters of $724,495 during the three months ended November 30, 2006. This
was a one-time sale and no additional gain was recognized or is anticipated to
be recognized relating to the building in the future. NTIC did recognize a gain
on sale of assets of $1,529 during the three months ended November 30, 2007.

Income Before Income Tax
Expense. Income before income tax expense
decreased $386,028 to $736,196 during the three months ended November 30, 2007
compared to $1,122,224 for the same period in fiscal 2007.

Income Tax Expense. Income tax expense during the three months ended November
30, 2007 and 2006 was calculated based on managements estimate of NTICs annual
effective income tax rate. NTICs annual effective income tax rate during the
three months ended November 30, 2007 and 2006 was lower than the statutory rate
primarily due to NTICs equity in income of corporate joint ventures being
recognized based on after-tax earnings of these entities. To the extent joint
ventures undistributed earnings are distributed to NTIC, it is not expected to
result in any material additional income tax liability after the application of
foreign tax credits.

Liquidity and Capital Resources

Sources of Cash and Working
Capital. As of November 30, 2007, NTICs
working capital was $3,840,057, including $125,630 in cash and cash equivalents,
compared to working capital of $3,788,777, including $244,499 in cash and cash
equivalents, as of August 31, 2007.

NTIC has a revolving credit facility
that expires on January 31, 2008 that NTIC expects to renew prior to the January
31, 2008 maturity date. Outstanding amounts under the revolving credit facility
bear interest at an annual rate based on LIBOR plus 2.25%. As of November 30,
2007, the interest rate was 7.49%. Amounts borrowed under the facility are
collateralized by a lien on substantially all of NTICs assets, excluding its
corporate joint venture interests, intellectual property rights and its Circle
Pines headquarters. The credit documents contain other terms and provisions,
including representations, covenants and conditions, customary for transactions
of this type. Significant financial covenants include minimum fixed charge
coverage ratio of 1.0 to 1.0. Other covenants include a prohibition on any
merger or consolidation without prior consent of the lender and restrictions on
future credit extensions and non-equity investments and the incurrence of
additional indebtedness without the lenders prior consent. NTIC is in
compliance with all covenants under the revolving credit facility. The facility
contains customary events of default, including nonpayment of principal or other
amounts when due; breach of covenants; inaccuracy of representations and
warranties; cross-default and/or cross-acceleration to other indebtedness;
non-compliance with laws; certain voluntary and involuntary bankruptcy events;
judgments entered against NTIC; and a sale of material assets. If an event of
default occurs and is continuing, the lender may, among other things, terminate
its obligations thereunder and require NTIC to repay all amounts thereunder. As
of November 30, 2007, there was $693,000 outstanding under the facility. NTIC
has the right to prepay the facility at any time without premium or penalty. The
line of credit is subject to a borrowing base calculation and at November 30,
2007, NTIC had $807,000 available.

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NTIC believes that a combination of its
existing cash and cash equivalents, forecasted cash flows from future
operations, distributions of earnings and technical assistance fees to NTIC from
its joint venture investments and funds available through existing or
anticipated financing arrangements, will continue to be adequate to fund its
operations, capital expenditures, debt repayments and any stock repurchases for
at least the next twelve months. In an effort to increase net sales, NTIC is in
the process of expanding the application of its corrosion inhibiting technology
into the oil and gas industry and its product line to include biodegradable and
compostable plastics and machinery that converts waste plastics back into
diesel, gasoline and mid-distillates. During the remainder of fiscal 2008, NTIC
expects to invest additional research and development and marketing efforts and
resources into these new emerging businesses, product lines and markets. In
order to take advantage of such new product and market opportunities to expand
its business and increase its revenues, NTIC may decide to finance such
opportunities by increasing borrowings under its line of credit or raising
additional financing through the issuance of debt or equity securities. There is
no assurance that any financing transaction will be available on terms
acceptable to NTIC or at all, or that any financing transaction will not be
dilutive to NTICs current stockholders.

Uses of Cash and Cash
Flows. Cash flows used in operations for the
three months ended November 30, 2007 was $905,868, which resulted principally
from net income, depreciation and amortization expense, inventories and trade
corporate joint ventures being offset by equity income of corporate joint
ventures, trade excluding corporate joint ventures, technical and other services
receivable, prepaid expenses, accounts payable and accrued liabilities. Cash
flows used in operations for the three months ended November 30, 2006 was
$265,279, which resulted principally from net income, depreciation and
amortization expense, inventories and accounts payable being offset by equity
income of corporate joint ventures, trade excluding corporate joint ventures,
prepaid expenses, gain on sale of assets and accrued liabilities.

Net cash used in investing activities
for the three months ended November 30, 2007 was $20,419 which comprised of
proceeds from the dividends received from corporate joint ventures, offset by
additions to property and equipment, loans made and investments in joint
ventures. Net cash provided by investing activities for the three months ended
November 30, 2006 was $135,698, which resulted from additions to property and
equipment and industrial patents, offset by proceeds from the sale of assets and
dividends received from corporate joint ventures.

Net cash provided by financing
activities for the three months ended November 30, 2007 was $807,418, which
resulted primarily from borrowings on the line of credit, proceeds from the
employee stock purchase plan and bank overdrafts. Net cash provided by financing
activities for the three months ended November 30, 2006 was $337,481, which
resulted primarily from borrowings on the line of credit, offset by repayment of
bank overdrafts.

Capital Expenditures and
Commitments. NTIC had no material lease
commitments as of November 30, 2007, except a lease agreement entered into by
NTI Facilities, Inc., a subsidiary of NTIC, for approximately 16,994 square feet
of office, manufacturing, laboratory and warehouse space in Beachwood, Ohio,
requiring monthly payments of $17,500, which are adjusted annually according to
the annual consumer price index, through November 2014.

NTIC moved its corporate headquarters
in September 2006. NTIC purchased the real estate and 40,000 square feet
building in which its new corporate headquarters is located pursuant to a
like-kind exchange transaction within the meaning of Section 1031 of the
Internal Revenue Code of 1986, as amended, for a purchase price of $1,475,000.
To finance the transaction, NTIC obtained a secured term loan in the principal
amount of $1,275,000. The term loan matures on May 1, 2011, bears interest at a
fixed rate of 8.01% and is payable in 59 monthly installments equal to
approximately $10,776 (inclusive of principal and interest) commencing June 1,
2006. All of the remaining unpaid principal and accrued interest is due and
payable on the May 1, 2011 maturity date. The loan is secured by a first lien on
the real estate and building.

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NTIC sold the real property and
building in which NTICs former Lino Lakes corporate headquarters was located
for a purchase price of $870,000 on September 8, 2006. The net book value of the
building held for sale was $89,636 and the closing costs and fees associated
with the sale of the property was $46,571. The gain on sale of the property was
$724,495.

NTIC has no post-retirement benefit
plan and does not anticipate establishing any post-retirement benefit program.

Off-Balance Sheet
Arrangements

NTIC does not have any relationships
with unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet financial
arrangements. As such, NTIC is not materially exposed to any financing,
liquidity, market or credit risk that could arise if NTIC had engaged in such
arrangements.

In fiscal 1999, a subsidiary of NTIC,
NTI Facilities, Inc., acquired a one-third ownership of Omni-Northern Ltd.,
which owns and operates a rental property located at 23205 Mercantile Road,
Beachwood, Ohio. The property has an approximate value of $2,205,000, based upon
the cash-to-mortgage acquisition price of the property paid in fiscal 2000. NTIC
has guaranteed up to $329,082 of Omni-Northern Ltd.s $1,903,571 mortgage
obligation with National City Bank, Cleveland, Ohio. The building is fully
leased at present.

Inflation and Seasonality

Inflation in the U.S. and abroad
historically has had little effect on NTICs business, results of operations or
financial condition. NTICs business has not historically been
seasonal.

Market Risk

NTIC is exposed to some market risk
stemming from changes in foreign currency exchange rates, commodity prices and
interest rates.

NTIC is exposed to foreign currency
exchange rate risk arising from its investments in its foreign corporate joint
ventures and holding companies since NTICs fees for technical support and other
services and dividend distributions from these foreign entities are paid in
foreign currencies. NTICs principal exchange rate exposure is with the Euro,
the Japanese yen, Korean won and the English pound against the U.S. dollar. NTIC
does not hedge against its foreign currency exchange rate risk. Since NTICs
investments in its corporate joint ventures and holding companies are accounted
for using the equity method, any changes in foreign currency exchange rates
would be reflected as a foreign currency translation adjustment and would not
change the equity in income of joint ventures and holding companies reflected in
NTICs consolidated statement of income.

Some raw materials used in NTICs
products are exposed to commodity price changes. The primary commodity price
exposures are with a variety of plastic resins.

NTICs revolving credit facility bears
interest at a rate based on LIBOR and thus may subject NTIC to some market risk
on interest rates. The outstanding balance under this facility as of November
30, 2007 was $693,000.

Related Party Transactions

See note 15 to NTICs consolidated
financial statements for related party transaction disclosure.

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Critical Accounting Policies

The preparation of NTICs consolidated financial statements
requires management to make estimates and judgments that affect the reported
amount of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Securities and Exchange Commission has
defined a companys most critical accounting policies as those that are most
important to the portrayal of its financial condition and results of operations,
and which require the company to make its most difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. Based on this definition, NTIC has identified the
following critical accounting policies. Although NTIC believes that its
estimates and assumptions are reasonable, they are based upon information
available when they are made. Actual results may differ significantly from these
estimates under different assumptions or conditions.

Investments in Corporate Joint
Ventures

NTICs investments in corporate joint
ventures are accounted for using the equity method, except for React-NTI LLC
which has been fully consolidated, due to the adoption of FIN 46R. Periodically,
NTIC evaluates the investments for any impairment and assesses the future cash
flow projections to determine if there are any going concern issues. If an
investment were determined to be impaired, then a reserve would be created to
reflect the impairment on the financial results of NTIC. NTICs evaluation of
its investments in corporate joint ventures requires NTIC to make assumptions
about future cash flows of its corporate joint ventures. These assumptions
require significant judgment and actual results may differ from assumed or
estimated amounts. NTICs investments in corporate joint ventures were
$15,290,974 and $13,602,842 as of November 30, 2007 and August 31, 2007,
respectively.

Principles of
Consolidation

The consolidated financial statements
include the accounts of Northern Technologies International Corporation, its
wholly owned subsidiaries, NTI Facilities, Inc. and Northern Technologies
Holding Company, LLC, and its 75% owned subsidiary, React-NTI LLC. All
significant intercompany transactions and balances have been eliminated in
consolidation.

Accounts and Notes
Receivable

NTIC values accounts and notes
receivable, net of an allowance for doubtful accounts. Each quarter, NTIC
prepares an analysis of its ability to collect outstanding receivables that
provides a basis for an allowance estimate for doubtful accounts. In doing so,
NTIC evaluates the age of its receivables, past collection history, current
financial conditions of key customers, and economic conditions. Based on this
evaluation, NTIC establishes a reserve for specific accounts and notes
receivable that it believes are uncollectible, as well as an estimate of
uncollectible receivables not specifically known. Deterioration in the financial
condition of any key customer or a significant slowdown in the economy could
have a material negative impact on NTICs ability to collect a portion or all of
the accounts and notes receivable. NTIC believes that an analysis of historical
trends and its current knowledge of potential collection problems provide NTIC
with sufficient information to establish a reasonable estimate for an allowance
for doubtful accounts. However, since NTIC cannot predict with certainty future
changes in the financial stability of its customers, NTICs actual future losses
from uncollectible accounts may differ from its estimates. In the event NTIC
determined that a smaller or larger uncollectible accounts reserve is
appropriate, NTIC would record a credit or charge to selling expense in the
period that it made such a determination. Accounts receivable have been reduced
by an allowance for uncollectible accounts of $20,000 and $30,000 at November
30, 2007 and August 31, 2007, respectively.

Revenue
Recognition

In recognizing revenue, NTIC applies
the provisions of the Securities and Exchange Commission Staff Accounting
Bulletin No. 104, Revenue Recognition. NTIC recognizes revenue from the sale of
its products when persuasive evidence of an arrangement exists, the product has
been delivered, the price is fixed and determinable and
collection of the resulting receivable is reasonably assured. These criteria are
met at the time of shipment when risk of loss and title pass to the customer or
distributor.

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Foreign Currency Translation
(Accumulated Other Comprehensive Income)

The functional currency of each
international corporate joint venture is the applicable local currency. The
translation of the applicable foreign currencies into U.S. dollars is performed
for balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using an average monthly
exchange rate. Translation gains or losses are reported as an element of
accumulated other comprehensive income.

Stock-Based
Compensation

In December 2004, FASB published FASB
Statement No. 123 (revised 2004), Share-Based Payment. FAS 123(R) requires
that the compensation cost relating to share-based payment transactions,
including grants of employee stock options, be recognized in financial
statements. That cost will be measured based on the fair value of the equity or
liability instruments issued. FAS 123(R) covers a wide range of share-based
compensation arrangements including stock options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase
plans. FAS 123(R) is a replacement of FASB Statement No. 123, Accounting for
Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and its related interpretive guidance. The effect of
FAS 123(R) is to require entities to measure the cost of employee services
received in exchange for stock options based on the grant-date fair value of the
award, and to recognize the cost over the period the employee is required to
provide services for the award. FAS 123(R) permits entities to use any
option-pricing model that meets the fair value objective in FAS 123(R). NTIC
implemented FAS 123(R) on September 1, 2006, using the modified prospective
transition method.

Forward-Looking Statements

This report contains not only
historical information, but also forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are subject to the safe harbor
created by those sections. In addition, NTIC or others on its behalf may make
forward-looking statements from time to time in oral presentations, including
telephone conferences and/or web casts open to the public, in press releases or
reports, on NTICs Internet web sites or otherwise. All statements other than
statements of historical facts included in this report that address activities,
events or developments that NTIC expects, believes or anticipates will or may
occur in the future are forward-looking statements including, in particular, the
statements about NTICs plans, objectives, strategies and prospects regarding,
among other things, its financial condition, results of operations and business.
NTIC has identified some of these forward-looking statements with words like
believe, may, could, might, forecast, possible, potential,
project, will, should, expect, intend, plan, predict,
anticipate, estimate, approximate or continue and other words and terms
of similar meaning. These forward-looking statements may be contained in the
notes to NTICs consolidated financial statements and elsewhere in this report,
including under the heading Part 1. Financial Information. Item 2. Managements
Discussion and Analysis or Plan of Operation.

NTIC wishes to caution readers not to
place undue reliance on any forward-looking statement that speaks only as of the
date made and to recognize that forward-looking statements are predictions of
future results, which may not occur as anticipated. Actual results could differ
materially from those anticipated in the forward-looking statements and from
historical results, due to the risks and uncertainties described under the
heading Risk Factors below, as well as others that NTIC may consider
immaterial or does not anticipate at this time. Although NTIC believes that the
expectations reflected in its forward-looking statements are reasonable, NTIC
does not know whether its expectations will prove correct. NTICs expectations
reflected in its forward-looking statements can be affected by inaccurate
assumptions NTIC might make or by known or unknown risks
and uncertainties, including those described below under the heading Risk
Factors. The risks and uncertainties described under the heading Risk Factors
below are not exclusive and further information concerning NTIC and its
business, including factors that potentially could materially affect its
financial results or condition, may emerge from time to time. NTIC assumes no
obligation to update forward-looking statements to reflect actual results or
changes in factors or assumptions affecting such forward-looking statements.
NTIC advises you, however, to consult any further disclosures it may make on
related subjects in its Annual Reports on Form 10-KSB, Quarterly Reports on Form
10-QSB and Current Reports on Form 8-K that NTIC files with or furnishes to the
Securities and Exchange Commission.

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Risk Factors

The following are the most significant
factors known to NTIC that could materially adversely affect its business,
financial condition or operating results.

A significant portion of NTICs
historical consolidated net sales were dependent upon a single customer, which
has indicated a desire not to purchase any future products from NTIC or its
subsidiaries. As a result, NTICs future consolidated net sales will be
materially harmed.

A customer of NTICs React-NTI, LLC
joint venture accounted for, in the aggregate, approximately 28.0% and 26.6% of
NTICs consolidated net sales for the fiscal year ended August 31, 2007 and
2006. As described in more detail under the heading Part I. Financial
Information. Item 2. Managements Discussion and Analysis or Plan of
OperationRecent Development, during fourth quarter of fiscal 2007, this
customer notified React that it would place future orders for Reacts remaining
inventory of ink additives, but that after such inventory was purchased, the
customer would not place any future orders. The loss of this customer had a
material adverse impact on NTICs consolidated net sales during the first
quarter of fiscal 2008 and NTIC anticipates that the loss of this customer will
continue to have a material adverse impact on NTICs consolidated net sales
thereafter. However, since the margins on Reacts sales of the ink additives to
this customer were extremely small, the loss of this customer did not have a
material adverse effect on NTICs consolidated net income for the first quarter
of fiscal 2008 and NTIC does not expect that the anticipated continued decrease
in net sales by React will have a material adverse effect on NTICs future
consolidated net income.No assurance can be provided, however, that the loss of this
customer will not have a material adverse effect on NTICs future consolidated
net income.

The automotive industry in the
United States has experienced contraction in recent years thus resulting in
decreased demand for NTICs Zerust®products in the United
States, which has adversely affected and may continue to adversely affect NTICs
net sales from North American operations and net income.

During the fiscal year ended August 31,
2007 and during the three months ended November 30, 2007, over 70% and 75.9%,
respectively, of NTICs consolidated net sales were derived from the sales of
Zerust®
rust and corrosion inhibiting packaging products and services. Most of these
products and services were sold to customers in the automotive industry and to a
lesser extent to customers in the electronics, electrical, mechanical, military
and retail consumer markets. The automotive industry in the United States has
experienced contraction in recent years and is not expected to improve in the
foreseeable future, which may result in a continued adverse effect on NTICs net
sales from North American operations and net income. While NTIC intends to
increase marketing efforts of its Zerust® products and services to customers
in other target industries, no assurance can be provided that NTIC will be
successful in doing so or will recognize increased sales from such new target
markets.

NTIC intends to invest additional
research and development and marketing efforts and resources to expand its
existing product lines and the distribution of its products into new target
markets, such as the oil and gas industry. No assurance can be provided,
however, that NTICs investments in such new products and markets will be
successful and result in additional revenue.

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In an effort to increase net sales,
NTIC is expanding its corrosion solution products into new markets, such as the
oil and gas industry, and expanding its product lines to include other products,
such as biodegradable and compostable plastics, plastic recycling technology and
corrosion solutions in the oil and gas industry. During fiscal 2008, NTIC
expects to invest additional research and development and marketing efforts and
resources into these new product lines and markets. NTIC anticipates additional
revenue from these new technologies beginning in fiscal year ending August 31,
2008; however, no assurance can be provided that such new businesses will be
successful or that NTIC will be successful in obtaining such additional revenue.

NTICs emerging new businesses
are risky and may not prove to be successful, which could harm NTICs operating
results and financial condition.

NTIC is in the process of expanding its
technologies into other applications and businesses. NTIC is undertaking these
new businesses either directly or through joint ventures. Such new businesses
are risky and subject to all of the risks inherent in the establishment of a new
business enterprise, including:

- the absence of an operating
  history;
- the lack of commercialized products;
- insufficient capital and other resources;
- expected substantial and continual losses for such businesses
  for the foreseeable future;
- the lack of manufacturing experience and limited marketing
  experience;
- an expected reliance on third parties for the
  commercialization of some of the proposed products;
- a competitive environment characterized by numerous,
  well-established and well-capitalized competitors; and
- reliance on key personnel.

A significant portion of NTICs
consolidated net sales, including corporate joint venture sales, are generated
outside of the U.S. and NTIC intends to continue to expand its international
operations. NTICs international operations require management attention and
financial resources and expose NTIC to difficulties and risks presented by
international economic, political, legal, accounting and business factors.

NTIC offers direct on-site technical
support on rust and corrosion issues in over 50 countries, and operates a
marketing, distribution, and technical network through joint ventures in North
America, South America, Europe, Asia and the Middle East. NTICs consolidated
net sales, including the corporate joint venture sales, outside the United
States were 24.1% and 20.8% of its total consolidated net sales for the three
months ended November 30, 2007 and for the fiscal year ended August 31, 2007,
respectively. One of NTICs strategic objectives is to expand its international
operations. NTIC has recently entered into joint ventures in Indonesia, the
Ukraine, Thailand and the United Arab Emirates. The expansion of NTICs existing
international operations and entry into additional international markets
requires management attention and financial resources. Many of the countries in
which NTIC sells its products directly or indirectly through its corporate joint
ventures, are, to some degree, subject to political, economic and/or social
instability. NTICs international operations expose NTIC and its joint venture
partners, representatives, agents and distributors to risks inherent in
operating in foreign jurisdictions. These risks include:

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- difficulties in managing and staffing
  international operations and the required infrastructure costs including
  legal, tax, accounting, information technology;
- the imposition of additional U.S. and foreign
  governmental controls or regulations, new trade restrictions and restrictions
  on the activities of foreign agents, representatives and distributors, the
  imposition of costly and lengthy export licensing requirements and changes in
  duties and tariffs, license obligations and other non-tariff barriers to
  trade;
- the imposition of U.S. and/or international
  sanctions against a country, company, person or entity with whom NTIC does
  business that would restrict or prohibit continued business with the
  sanctioned country, company, person or entity;
- pricing pressure that NTIC or its corporate joint
  ventures may experience internationally;
- laws and business practices favoring local
  companies;
- currency exchange rate
  fluctuations;
- longer payment cycles and difficulties in
  enforcing agreements and collecting receivables through certain foreign legal
  systems;
- difficulties in enforcing or defending
  intellectual property rights; and
- multiple, changing and often inconsistent
  enforcement of laws and regulations.

NTIC cannot assure you that one or more
of the factors listed above will not harm its business. Any material decrease in
NTICs international sales could adversely affect NTICs operating
results.

NTICs liquidity and financial
position rely on dividend distributions from its corporate joint ventures, which
if such dividends cease or are reduced could adversely affect NTICs liquidity
and financial position.

NTICs liquidity and financial position
rely on dividend distributions from its corporate joint ventures. During the
three months ended November 30, 2007 and the fiscal year ended August 31, 2007,
NTIC received approximately $336,286 and $1,643,000, respectively, in dividends
from its corporate joint ventures. Because NTIC typically owns only 50% or less
of its joint venture entities, NTIC does not control the decisions of these
entities regarding whether to pay dividends and how much in dividends should be
paid in any given year. Thus, NTIC cannot guarantee that any of its joint
ventures will pay dividends in any given year. The failure of NTICs joint
ventures to declare dividends in amounts typically expected by NTIC could
adversely affect NTICs liquidity and financial position.

Fluctuations in foreign currency
exchange rates could result in declines in NTICs reported consolidated net
sales and net income.

Because the functional currency of
NTICs foreign operations and investments in its foreign corporate joint
ventures and holding companies is the applicable local currency, NTIC is exposed
to foreign currency exchange rate risk arising from transactions in the normal
course of business since NTICs fees for technical support and other services
and dividend distributions from these foreign entities are paid in foreign
currencies. NTICs reported consolidated net sales and net income are subject to
fluctuations in foreign exchange rates. NTICs principal exchange rate exposure
is with the Euro, the Japanese yen, Korean won and the English pound against the
U.S. dollar. NTIC does not hedge against its foreign currency exchange rate
risk. Since NTICs investments in its corporate joint ventures and holding
companies are accounted for using the equity method, any changes in foreign
currency exchange rates would be reflected as a foreign currency translation
adjustment and would not change the equity in income of joint ventures and
holding companies reflected in NTICs consolidated statements of
income.

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NTICs compliance with U.S.
generally accepted accounting principles and any changes in such principles
might adversely affect NTICs operating results and financial condition. Any
requirement to consolidate NTICs corporate joint ventures or subject them to
compliance with the internal control provisions of the Sarbanes-Oxley Act of
2002 could adversely affect NTICs operating results and financial
condition.

NTIC adopted accounting policy FASB
Interpretation No. 46R (FIN 46R), Consolidation of
Variable Interest Entities, a revision of
FIN 46 effective as of February 28, 2005. As a result of FIN 46R,
NTIC consolidated React-NTI LLC, one of its corporate joint ventures that is 75%
owned by NTIC. If the interpretation of FIN 46R were to change and NTIC were
required to fully consolidate the remaining 28 of its corporate joint ventures
or if NTICs corporate joint ventures otherwise would be required to be in
compliance with the internal control provisions of the Sarbanes-Oxley Act of
2002, NTIC would incur significant additional costs. NTIC estimates that the
costs for each of its corporate joint ventures to become Sarbanes-Oxley
compliant would range between $150,000 to $500,000 and that annual maintenance
expenses would range from $50,000 to $100,000 per year per corporate joint
venture thereafter. In addition, other accounting pronouncements issued in the
future could have a material cost associated with NTICs implementation of such
new accounting pronouncements.

One of NTICs principal
stockholders beneficially owns 24.9% of NTICs outstanding common stock and is
affiliated with NTICs President and Chief Executive Officer and thus may be
able influence matters requiring stockholder approval, including the election of
directors, and could discourage or otherwise impede a transaction in which a
third party wishes to purchase NTICs outstanding shares at a
premium.

As of November 16, 2007, Inter Alia
Holding Company beneficially owned approximately 24.9% of NTICs outstanding
common stock. Inter Alia is an entity owned by, among others, G. Patrick Lynch,
NTICs President and Chief Executive Officer and a director, and Philip M.
Lynch, NTICs former Chairman of the Board and Chief Executive Officer and
current Chairman Emeritus. G. Patrick Lynch is the son of Philip M. Lynch.
Messrs. G.P. Lynch and P.M. Lynch share voting and dispositive power of shares
of NTICs common stock held by Inter Alia Holding Company. As a result of his
share ownership through Inter Alia and his position as President and Chief
Executive Officer and a director of NTIC, Mr. G.P. Lynch may be able to
influence the affairs and actions of NTIC, including matters requiring
stockholder approval, such as the election of directors and approval of
significant corporate transactions. The interests of Messrs. G.P. Lynch and
Inter Alia may differ from the interests of NTICs other stockholders. This
concentration of ownership may have the effect of delaying, preventing or
deterring a change in control of NTIC, could deprive NTICs stockholders of an
opportunity to receive a premium for their common stock as part of a sale or
merger of NTIC and may negatively affect the market price of NTICs common
stock. Transactions that could be affected by this concentration of ownership
include proxy contests, tender offers, mergers or other purchases of common
stock that could give stockholders the opportunity to realize a premium over the
then-prevailing market price for shares of NTICs common stock.

NTIC is currently involved in
litigation over its trademark on the use of the color Yellow in corrosion
inhibiting packaging, the loss of which could adversely affect NTICs
business.

One of NTICs important trademarks for
its business is the trademark for the color Yellow. NTIC is currently involved
in litigation against a competitor over this trademark. NTIC has also in the
past successfully prosecuted infringement claims against other competitors and
third parties for their use of the color Yellow. If NTIC were to lose this
current or any future litigation over its trademark for the color Yellow, NTIC
could be in a more difficult position to enforce its rights to this trademark in
other countries and against other third parties. NTIC believes that the loss of
its trademark for the color Yellow could have an adverse effect on NTICs
business.

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NTICs business, properties and
products are subject to governmental regulation and taxes with which compliance
may require NTIC to incur expenses or modify its products or operations and may
expose NTIC to penalties for non-compliance. Governmental regulation may also
adversely affect the demand for some of NTICs products and NTICs operating
results.

NTICs business, properties and
products are subject to a wide variety of international, federal, state and
local laws, rules, taxes and regulations relating to the protection of the
environment, natural resources, and worker health and safety and the use,
management, storage, and disposal of hazardous substances, wastes and other
regulated materials. These laws, rules and regulations may affect the way NTIC
conducts its operations, and the failure to comply with these regulations could
lead to fines and other penalties. Because NTIC owns and operates real property,
various environmental laws also may impose liability on NTIC for the costs of
cleaning up and responding to hazardous substances that may have been released
on NTICs property, including releases unknown to NTIC. These environmental laws
and regulations also could require NTIC to pay for environmental remediation and
response costs at third-party locations where NTIC disposed of or recycled
hazardous substances. NTICs future costs of complying with the various
environmental requirements, as they now exist or may be altered in the future,
could adversely affect NTICs financial condition and operating results. NTIC is
also subject to other international, federal and state laws, rules and
regulations, the future non-compliance of which may harm NTICs business or may
adversely affect the demand for some of its products. Changes in laws and
regulations, including changes in accounting standards and taxation changes,
including tax rate changes, new tax laws, revised tax law interpretations, also
may adversely affect NTICs operating results.

NTIC intends to grow its business
through additional joint ventures, alliances and acquisitions, which could be
risky and harm its business.

One of NTICs growth strategies is to
expand its business by entering into additional joint ventures and alliances and
acquiring businesses, technologies and products that complement or augment
NTICs existing products. The benefits of a joint venture, alliance or
acquisition may take more time than expected to develop, and NTIC cannot
guarantee that any future joint ventures, alliances or acquisitions will in fact
produce the intended benefits. In addition, joint ventures, alliances and
acquisitions involve a number of risks, including:

- diversion of managements
  attention;
- difficulties in assimilating the operations and
  products of an acquired business or in realizing projected efficiencies, cost
  savings and revenue synergies;
- potential loss of key employees or customers of
  the acquired businesses or adverse effects on existing business relationships
  with suppliers and customers;
- adverse impact on overall profitability if
  acquired businesses do not achieve the financial results projected in NTICs
  valuation models;
- reallocation of amounts of capital from other
  operating initiatives and/or an increase in NTICs leverage and debt service
  requirements to pay the acquisition purchase prices, which could in turn
  restrict NTICs ability to access additional capital when needed or to pursue
  other important elements of NTICs business strategy;
- inaccurate assessment of undisclosed, contingent
  or other liabilities or problems and unanticipated costs associated with the
  acquisition; and
- incorrect estimates made in the accounting for
  acquisitions, incurrence of non-recurring charges and write-off of significant
  amounts of goodwill that could adversely affect NTICs operating
  results.

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NTICs ability to grow through joint
ventures, alliances and acquisitions will depend, in part, on the availability
of suitable opportunities at an acceptable cost, NTICs ability to compete
effectively for these opportunities and the availability of capital to complete
such transactions.

NTIC relies on its independent
distributors, manufacturers sales representatives and corporate joint ventures
to market and sell its products.

In addition to its direct sales force,
NTIC relies on its independent distributors, manufacturers sales
representatives and corporate joint ventures to market and sell its products in
the United States and internationally. NTICs independent distributors,
manufacturers sales representatives and joint venture partners might terminate
their relationship with NTIC, or devote insufficient sales efforts to NTICs
products. NTIC does not control its independent distributors, manufacturers
sales representatives and joint ventures and they may not be successful in
implementing NTICs marketing plans. NTICs failure to maintain its existing
relationships with its independent distributors, manufacturers sales
representatives and joint ventures, or its failure to recruit and retain
additional skilled independent distributors, manufacturers sales
representatives and joint venture partners could have an adverse effect on
NTICs operations.

NTIC has very limited staffing
and will continue to be dependent upon key employees.

NTICs success is dependent upon the
efforts of a small management team and staff. NTICs future success will also
depend in large part on its ability to retain these individuals and identify,
attract and retain other highly qualified managerial, technical, sales and
marketing and customer service personnel. Competition for these individuals is
intense, especially in the markets in which NTIC operates. NTIC may not succeed
in identifying, attracting and retaining these personnel. The current
management, other than the President and Chief Executive Officer, do not have
any material stock ownership in NTIC or any contractual obligation to maintain
their employment with us. The loss or interruption of services of any of NTICs
key personnel, the inability to identify, attract or retain qualified personnel
in the future, delays in hiring qualified personnel, or any employee slowdowns,
strikes or similar actions could make it difficult for NTIC to manage its
business and meet key objectives, which could harm NTICs business, financial
condition and operating results.

NTIC relies on its management
information systems for inventory management, distribution and other functions.
If these information systems fail to adequately perform these functions or if
NTIC experiences an interruption in their operation, NTICs business and
operating results could be adversely affected.

The efficient operation of NTICs
business is dependent on its management information systems. NTIC relies on its
management information systems to effectively manage accounting and financial
functions; manage order entry, order fulfillment and inventory replenishment
processes; and to maintain its research and development data. The failure of
management information systems to perform as anticipated could disrupt NTICs
business and product development and could result in decreased sales, causing
NTICs business and operating results to suffer. In addition, NTICs management
information systems are vulnerable to damage or interruption from natural or
man-made disasters, terrorist attacks and attacks by computer viruses or
hackers, or power loss or computer systems, Internet, telecommunications or data
network failure. Any such interruption could adversely affect NTICs business
and operating results.

NTICs reliance upon patents,
trademark laws, trade secrets and contractual provisions to protect its
proprietary rights may not be sufficient to protect its intellectual property
from others who may sell similar products.

NTIC holds patents relating to various
aspects of its products and believes that proprietary technical knowhow is
critical to many of its products. Proprietary rights relating to NTICs products
are protected from unauthorized use by third parties only to the extent that
they are covered by valid and enforceable patents or are maintained in
confidence as trade secrets. NTIC cannot be certain that it will be issued any
patents from any pending or future patent applications owned by or licensed to
NTIC or that the claims allowed under any issued patents will be sufficiently
broad to protect its technology. In the absence of patent protection, NTIC may
be vulnerable to competitors who attempt to copy NTICs products or gain access
to its trade secrets and know-how. NTICs competitors may initiate litigation to
challenge the validity of NTICs patents, or they may use their resources to
design comparable products that do not infringe NTICs patents. NTIC may incur
substantial costs if its competitors initiate litigation to challenge the
validity of its patents or if it initiates any proceedings to protect its
proprietary rights and if the outcome of any such litigation is unfavorable to
NTIC, its business and operating results could be materially adversely
affected.

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In addition, NTIC relies on trade
secrets and proprietary know-how that it seeks to protect, in part, by
confidentiality agreements with its employees, and consultants. These agreements
may be breached and NTIC may not have adequate remedies for any such breach.
Even if these confidentiality agreements are not breached, NTICs trade secrets
may otherwise become known or be independently developed by
competitors.

If NTIC is unable to continue to
enhance existing products and develop and market new products that respond to
customer needs and achieve market acceptance, NTIC may experience a decrease in
demand for its products, and its business could suffer.

One of NTICs strategies is to enhance
its existing products and develop and market new products that respond to
customer needs. NTIC may not be able to compete effectively with its competitors
unless NTIC can keep up with existing or new products in the markets in which it
competes. Product development requires significant financial and other
resources. Although in the past NTIC has implemented lean manufacturing and
other productivity improvement initiatives to provide investment funding for new
products, NTIC cannot assure you that it will be able to continue to do so in
the future. Product improvements and new product introductions also require
significant planning, design, development and testing at the technological,
product, and manufacturing process levels and NTIC may not be able to timely
develop product improvements or new products. NTICs competitors new products
may beat NTICs products to market, may be more effective or less expensive than
NTICs products or render NTICs products obsolete. Any new products that NTIC
may develop may not receive market acceptance or otherwise generate any
meaningful net sales or profits for NTIC relative to its expectations, based on,
among other things, existing and anticipated investments in manufacturing
capacity and commitments to fund advertising, marketing, promotional programs,
and research and development.

NTIC faces intense competition in
almost all of its product lines, including from competitors that have
substantially greater resources than NTIC does. NTIC cannot assure you it will
be able to compete effectively, which would harm its business and operating
results.

NTICs products are sold in highly
competitive markets throughout the world. The principal competitive factors in
NTICs markets are pricing, product innovation, quality and reliability, product
support and customer service and reputation. NTIC often competes with numerous
manufacturers, many of who have substantially greater financial, marketing, and
other resources than NTIC does. As a result, they may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the promotion and sale of their products than
NTIC can. In addition, competition could increase if new companies enter the
market or if existing competitors expand their product lines or intensify
efforts within existing product lines. NTICs current products, products under
development and its ability to develop new and improved products may be
insufficient to enable NTIC to compete effectively with its competitors. NTIC
cannot assure you that it will be able to compete effectively, which would harm
its business and operating results.

NTIC is currently involved in
several litigation matters and an audit matter with the U.S. Internal Revenue
Service, which are costly to defend and the resolution of which could have a
material adverse effect on NTICs operating results and financial
position.

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NTIC is party to several litigation
matters and an audit matter with the U.S. Internal Revenue Service as described
in more detail in Note 17 to NTICs consolidated financial statements. Such
litigation and audit matter are costly and may adversely affect NTICs operating
results and financial condition. In addition, the resolution of such matters may
also have a material adverse effect on NTICs operating results and financial
condition.

NTIC is exposed to risks relating
to its evaluation of its internal control over financial reporting as required
by Section 404 of the Sarbanes-Oxley Act.

Changing laws, regulations and
standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002 and related and other recent regulations implemented
by the SEC and The American Stock Exchange, are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some
activities more time consuming. NTIC will be evaluating its internal controls
systems to allow management to report on, and its independent registered public
accounting firm to attest to, NTICs internal control over financial reporting.
NTIC will be performing the system and process evaluation and testing (and any
necessary remediation) required to comply with the management certification and
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. NTIC
cannot be certain as to the timing of completion of its evaluation, testing and
remediation actions or the impact of the same on its operations since there is
presently no precedent available by which to measure compliance adequacy. If
NTIC is not able to implement the requirements of Section 404 in a timely manner
or with adequate compliance, NTIC may be subject to sanctions or investigation
by regulatory authorities, including the SEC or The American Stock Exchange.
This type of action could adversely affect NTICs financial results or
investors confidence in NTIC, and could cause NTICs stock price to decline. In
addition, the controls and procedures that NTIC may implement may not comply
with all of the relevant rules and regulations of the SEC and The American Stock
Exchange. If NTIC fails to develop and maintain effective controls and
procedures, it may be unable to provide the required financial information in a
timely and reliable manner. In addition, NTICs efforts to comply with Section
404 of the Sarbanes-Oxley Act of 2002 and the related regulations regarding its
assessment of its internal control over financial reporting and its independent
registered public accounting firms report on that assessment will require the
commitment of significant financial and managerial resources.

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ITEM 3  CONTROLS AND
PROCEDURES

Evaluation of Disclosure Controls
and Procedures

NTIC maintains disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) that are designed to reasonably ensure that
information required to be disclosed by NTIC in the reports it files or submits
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized, and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms and that such information is
accumulated and communicated to NTICs management, including NTICs principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure. In designing and evaluating NTICs disclosure controls and
procedures, NTIC recognizes that any controls and procedures, no matter how well
designed and operated can provide only reasonable assurance of achieving the
desired control objectives and NTIC necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. NTICs management evaluated, with the participation of its Chief
Executive Officer and its Chief Financial Officer, the effectiveness of the
design and operation of NTICs disclosure controls and procedures as of the end
of the period covered in this report. Based on that evaluation, NTICs Chief
Executive Officer and Chief Financial Officer concluded that NTICs disclosure
controls and procedures were effective as of the end of such period to provide
reasonable assurance that information required to be disclosed in NTICs
Exchange Act reports is recorded, processed, summarized, and reported within the
time periods specified in the SECs rules and forms, and that material
information relating to NTIC and its consolidated subsidiaries is made known to
management, including NTICs Chief Executive Officer and Chief Financial
Officer, particularly during the period when NTICs periodic reports are being
prepared.

NTICs management is aware, however,
that there is a lack of segregation of duties due to the small number of
employees of NTIC dealing with general administrative and financial matters.
However, NTICs management has decided that considering the employees involved
and the control procedures in place, risks associated with such lack of
segregation are minimal and the potential benefits of adding employees to
clearly segregate duties do not at this time justify the expenses associated
with such increases.

Changes in Internal Control over
Financial Reporting

There was no change in NTICs internal
control over financial reporting that occurred during the quarter ended November
30, 2007 that has materially affected, or is reasonably likely to materially
affect NTICs internal control over financial reporting.

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PART II - OTHER
INFORMATION

ITEM 1. LEGAL
PROCEEDINGS

A description of NTICs legal
proceedings in Note 17 of NTICs consolidated financial statements included
within this report is incorporated herein by reference.

ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES, USE OF PROCEEDS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES

Recent Sales of Unregistered Equity
Securities

During the three months ended November
30, 2007, NTIC did not issue any shares of its common stock or other equity
securities of NTIC that were not registered under the Securities Act of
1933.

Small Business Issuer Purchases of
Equity Securities

During the three months ended November
30, 2007, NTIC did not purchase any shares of its common stock or other equity
securities of NTIC.

On November 13, 2003, the Board of
Directors of NTIC authorized Matthew Wolsfeld, Chief Financial Officer of NTIC,
to repurchase on behalf of NTIC, up to 100,000 shares of NTICs common stock
from time to time in accordance with applicable rules governing issuer stock
repurchases. Since being authorized, NTIC has repurchased and retired an
aggregate of 44,200 shares of its common stock.

ITEM 5. OTHER
INFORMATION

On November 16, 2007, NTICs Board of
Directors, upon recommendation of the Compensation Committee, approved the
material terms of an annual bonus plan for NTICs executive officers and certain
employees for fiscal year ending August 31, 2008, the purpose of which is to
align the interests of NTIC and its subsidiaries, executive officers and
stockholders by providing an incentive for the achievement of key corporate and
individual performance measures that are critical to the success of NTIC and
linking a significant portion of each executive officers annual compensation to
the achievement of such measures. The following is a brief summary of the
material terms approved by the Board:

- The total amount available under the bonus plan will be up to 25% of
  the Companys earnings before interest, taxes and other income (EBITOI) for
  the fiscal year ending August 31, 2008;
- The total amount available under the bonus plan will be $0 if EBITOI,
  as adjusted to take into account amounts to be paid under the bonus plan, fall
  below 70% of target EBITOI; and
- The payment of bonuses under the plan will be made in both cash and
  shares of the Companys common stock, the exact amount and percentages of
  which will be determined by the Board, upon recommendation of the Compensation
  Committee, within a reasonable period of time after the completion of the
  Companys financial statements for the fiscal year ending August 31,
  2008.

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ITEM 6. EXHIBITS

The following exhibits are being filed
or furnished with this quarterly report on Form 10-QSB:

|**Exhibit
      No.** |  | Description                                                                                                                                                  
|--------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1                  |  | Certification of Chief Executive Officer Pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002                                                     
|                      |  |                                                                                                                                                              
|31.2                  |  | Certification of Chief Financial Officer Pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002                                                     
|                      |  |                                                                                                                                                              
|32.1                  |  | Certification of Chief Executive Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
|                      |  |                                                                                                                                                              
|32.2                  |  | Certification of Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002

37

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SIGNATURES

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

NORTHERN TECHNOLOGIES INTERNATIONAL
CORPORATION

|                           |                                                                                                                  | 
|-------------------------- | ---------------------------------------------------------------------------------------------------------------- | 
|Date: January 11,
    2008 | Matthew C. Wolsfeld, CPA                                                                                         | 
|                           | Chief Financial Officer                                                                                         
|                           | (Principal Financial and Accounting
      Officer and Duly Authorized to Sign on Behalf of the
      Registrant)

38

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NORTHERN TECHNOLOGIES INTERNATIONAL
CORPORATION QUARTERLY REPORT ON FORM 10-QSBEXHIBIT INDEX

|Exhibit |                                                                                                                                                               |                     
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
|No.     | **Description**                                                                                                                                               | **Method of Filing**
|31.1    | Certification of Chief
      Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002                                                | Filed herewith      
|31.2    | Certification of Chief
      Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002                                                | Filed herewith      
|32.1    | Certification of Chief
      Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith  
|32.2    | Certification of Chief
      Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith  

39

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