SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

Quarterly Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)

6680 N. Highway 49, Lino Lakes, MN 55014
(Address of principal executive offices)

(651) 784-1250
(Registrant’s telephone number)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

See notes to financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

See notes to financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

See notes to financial statements.

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NORTHERN TECHNOLOGIES INTERNATIONAL CORPORATION
AND SUBSIDIARIES

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

RESULTS OF OPERATIONS

General — The Company conducts all foreign transactions based on the U.S. dollar, except for its investments in foreign joint ventures and foreign company. The exchange rate differential relating to investments in foreign joint ventures and foreign company is accounted for under the requirements of SFAS No. 52.

Sales Originating in North America — Net sales originating in North America decreased by $406,518 or 16% during the first quarter of fiscal 2002 as compared to the first quarter of fiscal 2001. These changes in sales are due to a decrease in demand for materials-science-based industrial packaging products. The decrease was due to the slow down in the industrial sector that the Company serves.

Cost of Goods Sold — Cost of goods sold decreased as a percentage of sales to 43% in the first quarter of fiscal 2002 from 52% in the first quarter of fiscal 2001. The variation in the cost of sales percentage is attributable to the decrease in the market price for certain raw materials.

Operating Expenses — As a percentage of net sales, total operating expenses were 48% in the first quarter of fiscal 2002 and 44% in the first quarter of fiscal 2001.

Operating expense classification percentages of sales were as follows:

Selling expenses decreased $165,370 during the three months ended November 30, 2001 as compared to the same period in fiscal 2001 due primarily to decreases in sales driven expenses, mainly travel. Selling expense as a percentage of net sales decrease as there was an increased emphasis placed on decreasing travel expenditures in the period.

General and administrative expenses increased $40,615 during the first quarter of fiscal 2002 as compared to the same period in fiscal 2001 due primarily to increases in general insurance, legal and consulting expenses, and additional employees. General and administrative expenses as a percentage of net sales increased for the three months ended November 30, 2001, as compared to the same periods in 2001, due to the decrease in sales in the first quarter of fiscal 2002 compared to the same period in fiscal 2001, coupled with relatively fixed general and administrative expenses during the same period.

Research, engineering, and technical support expenses increased $33,248 during the first quarter of fiscal 2002 as compared to the same period in fiscal 2001 due primarily to a increase in independent consulting services for product development and salary expense associated with an additional employee in the area. Research, engineering, and technical support expenses as a percentage of net sales increased for the three months ended November 30, 2001 compared to the same periods in fiscal 2001 due to the decreases in sales in fiscal 2002 coupled with an increase in fiscal 2002 research, engineering, and technical support expenses.

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International Corporate Joint Ventures and European Holding Company — Net earnings from international corporate joint ventures and European holding company were $458,553 for the three months ended November 30, 2001, compared to $508,071 for the three months ended November 30, 2000. The net decrease for the three months ended November 30, 2001 compared to the same periods in fiscal 2001 is due primarily to lower expenses incurred by certain of the Company’s international corporate joint ventures and an increase in expenses incurred in support of international corporate joint ventures.

Income Taxes — Income tax expense for the three months ended November 30, 2001 and 2000 was calculated based on management’s estimate of the Company’s annual effective income tax rate. The Company’s effective income tax rate for fiscal 2001 and 2000 is lower than the statutory rate primarily due to the Company’s equity in income of international corporate joint ventures and European holding company being recognized based on after-tax earnings of these entities. To the extent joint ventures’ undistributed earnings are distributed to the Company, it does not result in any material additional income tax liability after the application of foreign tax credits.

LIQUIDITY AND CAPITAL RESOURCES

At November 30, 2001, the Company’s working capital was $5,819,851, including $3,135,811 in cash and cash equivalents, compared to working capital of $5,579,475 including $3,238,283 in cash and cash equivalents as of August 31, 2001.

Net cash provided from operations has been sufficient to meet liquidity requirements, capital expenditures, research and development cost, and expansion of operations of the Company’s international joint ventures. Cash flows (used in) provided by operations for the three months ended November 30, 2001 and 2000 was ($26,248) and $51,823, respectively. The net cash used in operations for the three months ended November 30, 2001 resulted principally from net income and depreciation, offset by equity income of international corporate joint ventures and European holding company, and increases in prepaid expenses and other. The net cash provided by in operations for the three months ended November 30, 2000 was principally from net income and dividends received from international corporate joint ventures offset by equity in income of international corporate joint ventures and European holding company and decreases in current liabilities.

Net cash provided by investing activities for the three months ended November 30, 2001 was $23,776, which resulted from a partial return of the Company’s original investment in European holding company partially offset by an increase in other assets and additions to property and equipment. Net cash used in investing activities for the three months ended November 30, 2000 was $274,011, which resulted from investments in international corporate joint ventures and additions to property.

Net cash used in financing activities for the three months ended November 30, 2001 was $100,000, which resulted from the repurchase of common stock. Net cash used in financing activities for the three months ended November 30, 2000 was $52,826, which resulted from the repurchase of common stock of $72,825 offset by proceeds from the exercise of stock options of $19,999.

The Company expects to meet future liquidity requirements with its existing cash and cash equivalents and from cash flows of future operating earnings and distributions of earnings and technical assistance fees from the international corporate joint venture investments.

The Company has no long-term debt and no material capital lease commitments at November 30, 2001; however, the Company’s subsidiary has entered into a 15-year lease agreement for 16,826 square feet of office, manufacturing, laboratory, and warehouse space requiring monthly payments of $16,434, which can be adjusted annually according to the annual consumer price index through November 2014.

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The Company has no postretirement benefit plan and does not anticipate establishing any postretirement benefit program.

Euro Currency Issue

On January 1, 1999, twelve of the fifteen member countries of the European Union established fixed conversion rates between their respective existing currencies and the Euro and elected to adopt the Euro as their common legal currency on that date (the “Euro Conversion”). Following the Euro Conversion, however, the previously existing currencies of the participating countries will remain legal tender in the participating countries through January 2002. During the transition period, public and private parties have been paying for goods and services using both the Euro and the previously existing currencies. The participating countries were issued new Euro-denominated bills and coins for use in cash transactions. No later than July 1, 2002, the participating countries will withdraw all bills and coins denominated in the previously existing currencies making Euro Conversion complete. The Euro Conversion has not impacted on the overall business operations of the Company or its international corporate joint ventures.

Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets (the Statements). The Company does not currently have any goodwill or intangible assets relating to business acquisitions. Therefore, the adoption of the Statements does not impact the Company’s financial statements.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its fair value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company expects to adopt SFAS No. 143 in fiscal year 2003. The Company has not yet determined the impact of SFAS No. 143 on its financial position and results of operations.

In September 2001, the FASB also issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposal Of. The FASB issued SFAS No. 144 to establish a single accounting model, based on the framework established in SFAS No. 121, as SFAS No. 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under Accounting Principle Board Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions. SFAS No. 144 also resolves significant implementation issues related to SFAS No. 121. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. The Company expects to adopt SFAS No. 144 in fiscal year 2003. The Company has not yet determined the impact of SFAS No. 144 on its financial postion and results of operations.

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PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

None

ITEM 2 — CHANGES IN SECURITIES

None

ITEM 3 — DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 — OTHER INFORMATION

None

ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K

None

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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.

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