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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended October 3, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 000-17297





BTU INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|DELAWARE                                                       |  | 04-2781248                             
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer Identification Number)



|                                                |  |           
|----------------------------------------------- |  | ----------
|23 Esquire Road, North Billerica,
Massachusetts |  | 01862-2596
|(Address of principal executive offices)        |  | (Zip Code)

Registrants telephone number, including area code: (978) 667-4111





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive
data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such
files.)    Yes   ̈     No   ̈ (Registrant is not subject to the requirements of Rule 405
of Regulation S-T at this time)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated Filer |  |  ̈ |  | Accelerated Filer         |  |  ̈
|                        |  |   | 
|Non-Accelerated Filer   |  |  ̈ |  | Smaller Reporting Company |  | x

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

Indicate the number of shares outstanding of the Registrants Common Stock, par value $0.01 per share, as of the latest practicable
date: As of November 2, 2010: 9,289,630 shares.









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BTU INTERNATIONAL, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION



|                                                                                                    |  |  |       | 
|--------------------------------------------------------------------------------------------------- |  |  | ----- | 
|Item 1. Financial Statements (Unaudited)                                                            |  |  |       | 
|                                                                                                    | 
|Unaudited Condensed Consolidated Balance Sheets                                                     |  |  | 1     | 
|Unaudited Condensed Consolidated Statements of Operations                                           |  |  | 2     | 
|Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income
(Loss) |  |  | 3     | 
|Unaudited Condensed Consolidated Statements of Cash Flows                                           |  |  | 4-5   | 
|Notes to Unaudited Condensed Consolidated Financial Statements                                      |  |  | 6-11  | 
|                                                                                                    | 
|Item 
2. Managements Discussion and Analysis of Financial Condition and Results of Operations      |  |  | 12-16 | 
|                                                                                                    | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                  |  |  | 17    | 
|                                                                                                    | 
|Item 4. Controls and Procedures                                                                     |  |  | 17    | 
|                                                                                                    | 
|PART II. OTHER INFORMATION                                                                          |  |  |       | 
|                                                                                                    | 
|Item 1A. Risk Factors                                                                               |  |  | 18    | 
|                                                                                                    | 
|Item 5. Other Information                                                                           |  |  | 18    | 
|                                                                                                    | 
|Item 6. Exhibits                                                                                    |  |  | 18    | 
|                                                                                                    | 
|Signatures                                                                                          |  |  | 19    | 
|EX-10.2 Loan Modification Agreement                                                                 |  |  |       | 
|EX-31.1 Section 302 Certification of C.E.O.                                                         |  |  |       | 
|EX-31.2 Section 302 Certification of C.F.O.                                                         |  |  |       | 
|EX-32.1 Section 906 Certification of C.E.O.                                                         |  |  |       | 
|EX-32.2 Section 906 Certification of C.F.O.                                                         |  |  |       | 



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)



|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                                                                                              |  | October 3,2010 |        |   | December 31,2009 |  
|Assets                                                                                                                                                                                                                        |  |                |        |   |                  |   |        |  
|                                                                                                                                                                                                                              |  |               
|Current assets                                                                                                                                                                                                                |  |                |        |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                                                                                     |  | $              | 21,813 |   |                  | $ | 25,397 |  
|Accounts receivable, net                                                                                                                                                                                                      |  |                | 17,635 |   |                  |   | 10,333 |  
|Inventories, net                                                                                                                                                                                                              |  |                | 17,493 |   |                  |   | 14,533 |  
|Other current assets                                                                                                                                                                                                          |  |                | 1,058  |   |                  |   | 1,283  |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Total current assets                                                                                                                                                                                                          |  |                | 57,999 |   |                  |   | 51,546 |  
|                                                                                                                                                                                                                              |  |               
|Property, plant and equipment, net                                                                                                                                                                                            |  |                | 5,917  |   |                  |   | 6,332  |  
|                                                                                                                                                                                                                              |  |               
|Other assets, net                                                                                                                                                                                                             |  |                | 617    |   |                  |   | 916    |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Total assets                                                                                                                                                                                                                  |  | $              | 64,533 |   |                  | $ | 58,794 |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Liabilities and stockholders equity                                                                                                                                                                                          |  |                |        |   |                  |   |        |  
|                                                                                                                                                                                                                              |  |               
|Current liabilities                                                                                                                                                                                                           |  |                |        |   |                  |   |        |  
|Current portion of long-term debt                                                                                                                                                                                             |  | $              | 325    |   |                  | $ | 310    |  
|Accounts payable                                                                                                                                                                                                              |  |                | 9,196  |   |                  |   | 5,527  |  
|Other current liabilities                                                                                                                                                                                                     |  |                | 9,663  |   |                  |   | 8,577  |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Total current liabilities                                                                                                                                                                                                     |  |                | 19,184 |   |                  |   | 14,414 |  
|                                                                                                                                                                                                                              |  |               
|Long-term debt, less current portion                                                                                                                                                                                          |  |                | 8,446  |   |                  |   | 8,687  |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Total liabilities                                                                                                                                                                                                             |  |                | 27,630 |   |                  |   | 23,101 |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|                                                                                                                                                                                                                              |  |               
|Commitments and contingencies                                                                                                                                                                                                 |  |                |        |   |                  |   |        |  
|                                                                                                                                                                                                                              |  |               
|Stockholders equity                                                                                                                                                                                                          |  |                |        |   |                  |   |        |  
|Preferred stock, $1.00 par value - 5,000,000 shares authorized; no shares issued or outstanding                                                                                                                               |  |                |       |   |                  |   |       |  
|Common stock, $0.01 par value - 25,000,000 shares authorized; 10,655,967 shares issued and 9,288,000 shares outstanding at
October 3, 2010 and 10,619,589 shares issued and 9,251,622 shares outstanding at December 31, 2009 |  |                | 107    |   |                  |   | 106    |  
|Additional paid in capital                                                                                                                                                                                                    |  |                | 48,197 |   |                  |   | 47,054 |  
|Accumulated deficit                                                                                                                                                                                                           |  |                | (7,905 | ) |                  |   | (7,847 | )
|Treasury stock, at cost, 1,367,967 shares at October 3, 2010 and December 31, 2009                                                                                                                                            |  |                | (4,990 | ) |                  |   | (4,990 | )
|Accumulated other comprehensive income                                                                                                                                                                                        |  |                | 1,494  |   |                  |   | 1,370  |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Total stockholders equity                                                                                                                                                                                                    |  |                | 36,903 |   |                  |   | 35,693 |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  
|Total liabilities and stockholders equity                                                                                                                                                                                    |  | $              | 64,533 |   |                  | $ | 58,794 |  
|                                                                                                                                                                                                                              |  |                |        |   |                  |   |        |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)



|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|----------------------------------------------- |  | ------------------ | --------- | - | ----------------- | - | --------- | -------------- |  | - | ----------------- | - |  | - | --------- | -
|                                                |  | Three Months Ended |           |   | Nine Months Ended |  
|                                                |  | October 3,2010     |           |   | September 27,2009 |   |           | October 3,2010 |  |   | September 27,2009 |  
|Net sales                                       |  | $                  | 19,011    |   |                   | $ | 12,409    |                |  | $ | 54,235            |   |  | $ | 33,023    |  
|Costs of goods sold                             |  |                    | 10,845    |   |                   |   | 8,548     |                |  |   | 31,281            |   |  |   | 24,093    |  
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Gross profit                                    |  |                    | 8,166     |   |                   |   | 3,861     |                |  |   | 22,954            |   |  |   | 8,930     |  
|                                                |  |                    |           |  
|Operating expenses:                             |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Selling, general and administrative             |  |                    | 5,758     |   |                   |   | 4,697     |                |  |   | 16,533            |   |  |   | 13,397    |  
|Research, development and engineering           |  |                    | 1,618     |   |                   |   | 1,411     |                |  |   | 4,813             |   |  |   | 5,286     |  
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Operating income (loss)                         |  |                    | 790       |   |                   |   | (2,247    | )              |  |   | 1,608             |   |  |   | (9,753    | )
|                                                |  |                    |           |  
|Interest income                                 |  |                    | 21        |   |                   |   | 68        |                |  |   | 62                |   |  |   | 214       |  
|Interest expense                                |  |                    | (155      | ) |                   |   | (206      | )              |  |   | (466              | ) |  |   | (504      | )
|Foreign exchange loss                           |  |                    | (114      | ) |                   |   | (4        | )              |  |   | (9                | ) |  |   | (239      | )
|Other income (expense)                          |  |                    | (5        | ) |                   |   | 7         |                |  |   | 5                 |   |  |   | 41        |  
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Income (loss) before provision for income taxes |  |                    | 537       |   |                   |   | (2,382    | )              |  |   | 1,200             |   |  |   | (10,241   | )
|                                                |  |                    |           |  
|Provision for income taxes                      |  |                    | 557       |   |                   |   | 238       |                |  |   | 1,258             |   |  |   | 419       |  
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Net loss                                        |  | $                  | (20       | ) |                   | $ | (2,620    | )              |  | $ | (58               | ) |  | $ | (10,660   | )
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Loss per share:                                 |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Basic                                           |  | $                  | (0.00     | ) |                   | $ | (0.29     | )              |  | $ | (0.01             | ) |  | $ | (1.16     | )
|Diluted                                         |  | $                  | (0.00     | ) |                   | $ | (0.29     | )              |  | $ | (0.01             | ) |  | $ | (1.16     | )
|                                                |  |                    |           |  
|Weighted average number of shares outstanding:  |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Basic shares                                    |  |                    | 9,285,002 |   |                   |   | 9,194,502 |                |  |   | 9,269,047         |   |  |   | 9,222,723 |  
|Effect of dilutive options                      |  |                    |          |   |                   |   |          |                |  |   |                  |   |  |   |          |  
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  
|Diluted shares                                  |  |                    | 9,285,002 |   |                   |   | 9,194,502 |                |  |   | 9,269,047         |   |  |   | 9,222,723 |  
|                                                |  |                    |           |   |                   |   |           |                |  |   |                   |   |  |   |           |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)

FOR THE NINE MONTHS ENDED OCTOBER 3, 2010

(in thousands)

(unaudited)



|                             |  |              |        |  |                          |   |     |                                       |  |             |                |  |   |                                     |        |   |       |  |       |  |  |   |        |   |  |   |       |  |  |   |        |  
|---------------------------- |  | ------------ | ------ |  | ------------------------ | - | --- | ------------------------------------- |  | ----------- | -------------- |  | - | ----------------------------------- | ------ | - | ----- |  | ----- |  |  | - | ------ | - |  | - | ----- |  |  | - | ------ | -
|                             |  | Common Stock |        |  | AdditionalPaid-InCapital |   |     | RetainedEarnings/(AccumulatedDeficit) |  |             | Treasury Stock |  |   | AccumulatedOtherComprehensiveIncome |        |   | Total | 
|                             |  | # of shares  |        |  | $                        |   |     |                                       |  | # of shares |                |  | $ |                                     |        |  
|Balance at December 31, 2009 |  |              | 10,620 |  |                          | $ | 106 |                                       |  | $           | 47,054         |  |   | $                                   | (7,847 | ) |       |  | 1,368 |  |  | $ | (4,990 | ) |  | $ | 1,370 |  |  | $ | 35,693 |  
|Net loss                     |  |              |       |  |                          |   |    |                                       |  |             |               |  |   |                                     | (58    | ) |       |  |      |  |  |   |       |   |  |   |      |  |  |   | (58    | )
|Exercise of stock options    |  |              | 25     |  |                          |   |    |                                       |  |             | 76             |  |   |                                     |       |   |       |  |      |  |  |   |       |   |  |   |      |  |  |   | 76     |  
|Issuance of common stock     |  |              | 11     |  |                          |   | 1   |                                       |  |             | 55             |  |   |                                     |       |   |       |  |      |  |  |   |       |   |  |   |      |  |  |   | 56     |  
|Stock-based compensation     |  |              |       |  |                          |   |    |                                       |  |             | 1,012          |  |   |                                     |       |   |       |  |      |  |  |   |       |   |  |   |      |  |  |   | 1,012  |  
|Translation adjustment       |  |              |       |  |                          |   |    |                                       |  |             |               |  |   |                                     |       |   |       |  |      |  |  |   |       |   |  |   | 124   |  |  |   | 124    |  
|                             |  |              |        |  |                          |   |     |                                       |  |             |                |  |   |                                     |        |   |       |  |       |  |  |   |        |   |  |   |       |  |  |   |        |  
|Balance at October 3, 2010   |  |              | 10,656 |  |                          | $ | 107 |                                       |  | $           | 48,197         |  |   | $                                   | (7,905 | ) |       |  | 1,368 |  |  | $ | (4,990 | ) |  | $ | 1,494 |  |  | $ | 36,903 |  
|                             |  |              |        |  |                          |   |     |                                       |  |             |                |  |   |                                     |        |   |       |  |       |  |  |   |        |   |  |   |       |  |  |   |        |  



|                                                      |  |                  |     |   |                    |   |     |                  |  |   |                 |   |  |   |         |  
|----------------------------------------------------- |  | ---------------- | --- | - | ------------------ | - | --- | ---------------- |  | - | --------------- | - |  | - | ------- | -
|                                                      |  | ThreeMonthsEnded |     |   | NineMonthsEnded    |   |     | ThreeMonthsEnded |  |   | NineMonthsEnded |  
|                                                      |  | October 3, 2010  |     |   | September 27, 2009 |  
|Comprehensive income (loss) is calculated as follows: |  |                  |     |   |                    |   |     |                  |  |   |                 |   |  |   |         |  
|Net loss                                              |  | $                | (20 | ) |                    | $ | (58 | )                |  | $ | (2,620          | ) |  | $ | (10,660 | )
|Other comprehensive income:                           |  |                  |     |   |                    |   |     |                  |  |   |                 |   |  |   |         |  
|Foreign currency translation adjustment               |  |                  | 150 |   |                    |   | 124 |                  |  |   | 1               |   |  |   | 148     |  
|                                                      |  |                  |     |   |                    |   |     |                  |  |   |                 |   |  |   |         |  
|Comprehensive income (loss)                           |  | $                | 130 |   |                    | $ | 66  |                  |  | $ | (2,619          | ) |  | $ | (10,512 | )
|                                                      |  |                  |     |   |                    |   |     |                  |  |   |                 |   |  |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED OCTOBER 3, 2010 AND SEPTEMBER 27, 2009

(in
thousands)

(unaudited)



|                                                                |  |                |        |   |                   |   |         |  
|--------------------------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------- | -
|                                                                |  | October 3,2010 |        |   | September 27,2009 |  
|Cash flows from operating activities:                           |  |                |        |   |                   |   |         |  
|Net loss                                                        |  | $              | (58    | ) |                   | $ | (10,660 | )
|Adjustments to reconcile net cash used in operating activities: |  |                |        |   |                   |   |         |  
|Depreciation and amortization                                   |  |                | 1,683  |   |                   |   | 1,588   |  
|Provision (recovery) for bad debts                              |  |                | (40    | ) |                   |   | (7      | )
|Provision for inventory obsolescence                            |  |                | 990    |   |                   |   | 1,522   |  
|Stock-based compensation                                        |  |                | 1,012  |   |                   |   | 915     |  
|Net change in operating assets and liabilities:                 |  |                |        |   |                   |   |         |  
|Accounts receivable                                             |  |                | (7,115 | ) |                   |   | 4,076   |  
|Inventories                                                     |  |                | (3,832 | ) |                   |   | 2,257   |  
|Other current assets                                            |  |                | 134    |   |                   |   | 477     |  
|Other assets                                                    |  |                | 23     |   |                   |   | (9      | )
|Accounts payable                                                |  |                | 3,599  |   |                   |   | (1,109  | )
|Accrued expenses                                                |  |                | 1,055  |   |                   |   | (659    | )
|                                                                |  |                |        |   |                   |   |         |  
|Net cash used in operating activities                           |  |                | (2,549 | ) |                   |   | (1,609  | )
|                                                                |  |                |        |   |                   |   |         |  
|Cash flows used in investing activities:                        |  |                |        |   |                   |   |         |  
|Purchases of property, plant and equipment                      |  |                | (887   | ) |                   |   | (479    | )
|                                                                |  |                |        |   |                   |   |         |  
|Net cash used in investing activities                           |  |                | (887   | ) |                   |   | (479    | )
|                                                                |  |                |        |   |                   |   |         |  
|Cash flows from (used in) financing activities:                 |  |                |        |   |                   |   |         |  
|Principal payments under loan and capital lease agreements      |  |                | (226   | ) |                   |   | (210    | )
|Issuance of common stock                                        |  |                | 56     |   |                   |   | 49      |  
|Purchase of treasury stock                                      |  |                |       |   |                   |   | (599    | )
|Proceeds from the exercise of stock options                     |  |                | 76     |   |                   |   | 17      |  
|                                                                |  |                |        |   |                   |   |         |  
|Net cash used in financing activities                           |  |                | (94    | ) |                   |   | (743    | )
|                                                                |  |                |        |   |                   |   |         |  
|Effects of exchange rates on cash                               |  |                | (54    | ) |                   |   | 159     |  
|                                                                |  |                |        |   |                   |   |         |  
|Net decrease in cash and cash equivalents                       |  |                | (3,584 | ) |                   |   | (2,672  | )
|Cash and cash equivalents, beginning of period                  |  |                | 25,397 |   |                   |   | 27,464  |  
|                                                                |  |                |        |   |                   |   |         |  
|Cash and cash equivalents, end of period                        |  | $              | 21,813 |   |                   | $ | 24,792  |  
|                                                                |  |                |        |   |                   |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



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BTU
INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

FOR THE NINE MONTHS ENDED OCTOBER 3, 2010 AND SEPTEMBER 27, 2009

(in thousands)

(unaudited)



|                                                   |  |                |     |  |                   |   |     | 
|-------------------------------------------------- |  | -------------- | --- |  | ----------------- | - | --- | 
|                                                   |  | October 3,2010 |     |  | September 27,2009 |  
|Supplemental disclosures of cash flow information: |  |                |     |  |                   |   |     | 
|Cash paid during the periods for:                  |  |                |     |  |                   |   |     | 
|Interest                                           |  | $              | 404 |  |                   | $ | 322 | 
|Income taxes                                       |  |                | 887 |  |                   |   | 424 | 

The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.



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BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis
of Presentation

The condensed consolidated balance sheet, financial information and related disclosures as of and for the year ended
December 31, 2009 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of October 3, 2010 and the related condensed statements of operations and
comprehensive income (loss) for the three and nine months ended October 3, 2010 are unaudited. The condensed consolidated statements of stockholders equity and consolidated statements of cash flows for the nine months ended
October 3, 2010 and September 27, 2009 are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring
items. Interim results are not necessarily indicative of results for any other period or for the full year. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in
conjunction with the footnotes contained in the Companys consolidated financial statements as of and for the year ended December 31, 2009, together with the auditors report, included in the Companys Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission.

(2) Summary of Significant Accounting Policies

The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 1 to the
consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission.

Subsequent Events  The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q. We are not aware of any significant events that occurred subsequent to
the balance sheet date, but prior to the filing of this report that would have a material impact on our condensed consolidated financial statements.

(3) Inventories, net



|                                          |  |                |        |  |                  |   |        | 
|----------------------------------------- |  | -------------- | ------ |  | ---------------- | - | ------ | 
|                                          |  | October 3,2010 |        |  | December 31,2009 |  
|                                          |  | (in thousands) |       
|Raw materials and manufactured components |  | $              | 8,057  |  |                  | $ | 6,051  | 
|Work-in-process                           |  |                | 7,748  |  |                  |   | 5,970  | 
|Finished goods                            |  |                | 1,688  |  |                  |   | 2,512  | 
|                                          |  |                |        |  |                  |   |        | 
|Total Net Inventory                       |  | $              | 17,493 |  |                  | $ | 14,533 | 
|                                          |  |                |        |  |                  |   |        | 



6



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



(4) Other Current Liabilities



|                                               |  |                |                |  |                  |   |       | 
|---------------------------------------------- |  | -------------- | -------------- |  | ---------------- | - | ----- | 
|                                               |  | October 3,2010 |                |  | December 31,2009 |  
|                                               |  |                | (in thousands) | 
|Accrued commissions                            |  | $              | 808            |  |                  | $ | 1,176 | 
|Accrued warranty                               |  |                | 565            |  |                  |   | 486   | 
|Accrued income taxes                           |  |                | 647            |  |                  |   | 774   | 
|Accrued audit                                  |  |                | 340            |  |                  |   | 366   | 
|Accrued legal                                  |  |                | 281            |  |                  |   | 265   | 
|Accrued bonus                                  |  |                | 471            |  |                  |   | 305   | 
|Accrued Atmoplas acquisition-related royalties |  |                |               |  |                  |   | 600   | 
|Payroll and payroll taxes                      |  |                | 778            |  |                  |   | 836   | 
|Accrued royalties                              |  |                | 23             |  |                  |   | 179   | 
|Accrued cost of sales                          |  |                | 521            |  |                  |   | 157   | 
|Customer deposits                              |  |                | 5,151          |  |                  |   | 3,310 | 
|Other                                          |  |                | 78             |  |                  |   | 123   | 
|                                               |  |                |                |  |                  |   |       | 
|Other current liabilities                      |  | $              | 9,663          |  |                  | $ | 8,577 | 
|                                               |  |                |                |  |                  |   |       | 

Warranty

The Company provides standard warranty coverage for labor for 12 months and special extended material-only coverage on certain other products. The Company estimates and records an accrual for
anticipated warranty claims based on sales. The accrual for warranty covers the estimated costs of material, labor and travel. Actual warranty claims incurred are charged to the accrual. Factors that affect the Companys product warranty
liability include the number of installed units, the anticipated cost of warranty repairs and historical and anticipated rates of warranty claims.

The following table reflects changes in the Companys accrued warranty account during the nine months ended October 3, 2010:



|                                                      |  |                                  |      |  
|----------------------------------------------------- |  | -------------------------------- | ---- | -
|                                                      |  | Nine Months EndedOctober 3, 2010 |     
|                                                      |  | (in thousands)                   |     
|Beginning balance, December 31, 2009                  |  | $                                | 486  |  
|Plus: accruals related to new sales                   |  |                                  | 707  |  
|Less: warranty claims incurred and reserve adjustment |  |                                  | (628 | )
|                                                      |  |                                  |      |  
|Ending balance, October 3, 2010                       |  | $                                | 565  |  
|                                                      |  |                                  |      |  



7



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



(5) Debt

Long-term debt at October 3, 2010 and December 31, 2009 consisted of:



|                                              |  |                |       |  |                  |   |       | 
|--------------------------------------------- |  | -------------- | ----- |  | ---------------- | - | ----- | 
|                                              |  | October 3,2010 |       |  | December 31,2009 |  
|                                              |  | (in thousands) |      
|Mortgage note payable, interest rate of 5.50% |  | $              | 8,771 |  |                  | $ | 8,997 | 
|Less: current maturities                      |  |                | 325   |  |                  |   | 310   | 
|                                              |  |                |       |  |                  |   |       | 
|                                              |  | $              | 8,446 |  |                  | $ | 8,687 | 
|                                              |  |                |       |  |                  |   |       | 

On March 30, 2006, the Company entered into a mortgage note that is secured by our real property in Billerica,
Massachusetts, in the amount of $10 million. This mortgage note payable has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification
Agreement relating to the mortgage note. The modifications resulted in a reduction of the annual interest rate from 6.84% to 5.50% and a reduction in the monthly payment from $76,280 to $69,000.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Companys request, to issue
letters of credit in the banks name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of October 3, 2010, the value of the outstanding letters of credit issued by the bank for the
Company and cash collateralized by the Company was $479,648. This restricted cash value is included in the Companys balance sheet in other current assets.

(6) Net Loss Per Share (EPS)

Basic EPS is computed by dividing net loss available to
common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive potential common shares outstanding during the period, using the
treasury stock method. Due to their antidilutive effect, approximately 495,162 and 493,414 options to purchase common stock were excluded from the calculation of diluted earnings per share for the three and nine months ended October 3, 2010,
respectively, and 338,360 and 681,610 options were excluded for the three and nine months ended September 27, 2009, respectively. However, these options could become dilutive in future periods.

(7) Accounting for Stock-Based Compensation

The Companys stock option compensation expense was $380,015 and $1,012,268 for the three and nine months ended October 3, 2010 and $303,027 and $911,598 for the three and nine months ended
September 27, 2009, respectively. These amounts do not include expense related to restricted stock awards issued in 2009. No restricted stock has been issued during the first nine months of 2010.



8



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing
model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying
common stock. The Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures
and record stock-based compensation expense only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by annualized estimated forfeiture rates of 4% and 5% for the three and nine month periods
ended October 3, 2010 and September 27, 2009, respectively. We used the following assumptions for options granted in the following periods:

Calculation of Fair Value - Assumptions Used:



|                        |  |                   |       |   |                    |  |       |  
|----------------------- |  | ----------------- | ----- | - | ------------------ |  | ----- | -
|                        |  | Nine months ended |      
|                        |  | October 3, 2010   |       |   | September 27, 2009 | 
|Expected Volatility     |  |                   | 66.81 | % |                    |  | 65.57 | %
|Expected Life           |  |                   | 4.63  |   |                    |  | 4.67  |  
|Risk-Free Interest Rate |  |                   | 1.87  | % |                    |  | 2.17  | %
|Expected Dividend Yield |  |                   | 0     |   |                    |  | 0     |  

Expected volatilities are based on
the historical volatility of the Companys common stock. The Company had significant historical data to help evaluate the expected lives of options in developing its assumption. The risk-free interest rate is based upon quoted market yields for
United States Treasury debt securities. The expected dividend yield is based upon the Companys history of having never issued a dividend and managements current expectation of future action surrounding dividends.

The following table summarizes the stock option activity during the nine months ended October 3, 2010



|                                 |  |        |           |   |                               |   |      |                                 |  |  |                         |  |  |   |           | 
|-------------------------------- |  | ------ | --------- | - | ----------------------------- | - | ---- | ------------------------------- |  |  | ----------------------- |  |  | - | --------- | 
|                                 |  | Shares |           |   | Weighted-AverageExercisePrice |   |      | AverageRemainingContractualTerm |  |  | AggregateIntrinsicValue | 
|Options                          |  |        |           |   |                               |   |      |                                 |  |  |                         |  |  |   |           | 
|Outstanding at December 31, 2009 |  |        | 1,177,028 |   |                               | $ | 6.55 |                                 |  |  |                         |  |  |   |           | 
|Granted                          |  |        | 150,044   |   |                               | $ | 5.46 |                                 |  |  |                         |  |  |   |           | 
|Exercised                        |  |        | (25,250   | ) |                               | $ | 3.31 |                                 |  |  |                         |  |  |   |           | 
|Forfeited                        |  |        | (73,363   | ) |                               | $ | 7.94 |                                 |  |  |                         |  |  |   |           | 
|                                 |  |        |           |   |                               |   |      |                                 |  |  |                         |  |  |   |           | 
|Outstanding at October 3, 2010   |  |        | 1,228,459 |   |                               | $ | 6.40 |                                 |  |  | 4.68                    |  |  | $ | 2,603,508 | 
|Exercisable at October 3, 2010   |  |        | 503,019   |   |                               | $ | 7.58 |                                 |  |  | 3.23                    |  |  | $ | 989,441   | 

The weighted-average grant date fair
values of options granted during the nine month periods ended October 3, 2010 and September 27, 2009 were $2.98 and $4.06, respectively. The aggregate fair value of options exercised during the nine-month period ended October 3, 2010
and September 27, 2009 was $49,711 and $17,337, respectively

As of October 3, 2010 there was $2,193,582 of total unrecognized
compensation cost related to non-vested options granted under the Companys option plans. That cost is expected to be recognized over a weighted average period of 2.27 years. The total fair value of options vested during the nine-month period
ended October 3, 2010 was $723,249.



9



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



(8) Revenue Recognition

For the three and nine months ended October 3, 2010, there was $292,600 and $1,848,012, respectively, of revenue recognized using the percentage of completion method. For the three and nine months
ended September 27, 2009, there was $1,053,778 and $3,943,391, respectively, of revenue recognized using the percentage of completion method. For additional information on the Companys revenue recognition policies, please see Note 1 in
the notes to the Companys audited consolidated financial statements included in the Companys Annual Report on Form 10-K filed March 4, 2010 with the Securities and Exchange Commission.

(9) Fair Value of Financial Instruments

In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting
Standards Codification (ASC), the Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the
assumptions used to determine fair value. These levels are:



| |  |  | Level 1  Valuation is based upon quoted market price for identical instruments traded in active markets.
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Level 2  Valuation is based on quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments
in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3  Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques
include use of discounted cash flow models and similar techniques.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In accordance with the requirements of the Fair Value
Measurements and Disclosures Topic of the FASB ASC, it is the Companys policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted
market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including interest rate yield curves, option volatilities and currency rates. In
certain cases, where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions
used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.

a. Cash and Cash Equivalents-The carrying amount of these assets on the Companys consolidated balance sheets approximates their fair value
because of the short maturities of these instruments.

b. Receivables, Payables and AccrualsThe recorded amounts of financial
instruments, including accounts receivable, accounts payable, and accrued liabilities, approximate their fair value because of the short-term maturity of these instruments.

c. Long-term DebtThe fair value of long-term indebtedness as of October 3, 2010, was approximately $8.8 million. The current market interest rate approximates the rate of the mortgage note
payable of 5.5%.

(10) Contingent Liabilities

As an equipment manufacturer, the Company generates and disposes of small quantities of solid waste that is considered hazardous under EPA Environmental Protection Agency regulations. Because the Company
used a waste disposal firm that disposed the solid waste at a site that the EPA has designated as a Superfund site the Company has been named by the EPA as one of the entities responsible for a portion of the expected clean-up costs. Based on the
Companys proportional responsibility, as negotiated with and agreed to by the EPA, the Companys liability related to this matter is $225,140. This amount is included in other current liabilities on the balance sheet as of October 3,
2010. On October 2, 2009, in accordance with the agreement, the Company established a letter of credit for $225,140 to the benefit of the EPA for potential cash payments as settlements for the Companys proportional liability.

(11) Recent Accounting Pronouncements

In January 2010, the FASB issued Accounting Standards Update (ASU) 2010-06, Improving Disclosures about Fair Value Measurements. The ASU reports on
new disclosure requirements -and clarifications of existing requirements -under ASC Subtopic 820-10 (originally issued as FAS 157). The new rules require companies to provide greater detail about the methods and inputs they use to measure the fair
value of assets, bringing U.S. Generally Accepted Accounting Principles (GAAP) in line with International Financial Reporting Standards (IFRS) 7, which already requires similar disclosures. The adoption of this Standard has not had an impact on the
Companys consolidated financial statements.



10



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



(12) Segment Reporting

Segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate
resources and in assessing performance. The Company operates as a single business segment called Thermal Processing Capital Equipment.

The
Thermal Processing Capital Equipment segment consists of the designing, manufacturing, selling and servicing of thermal processing equipment and related process controls for use in the electronics, alternative energy, automotive and other
industries. This business segment includes the supply of solder reflow systems used for surface mount applications in printed circuit board assembly. Thermal processing equipment is used in low temperature curing/encapsulation, hybrid integrated
circuit manufacturing, integrated circuit packaging and sealing, and processing multi-chip modules. In addition, the thermal process equipment is used for solar cell processing, sintering nuclear fuel for commercial power generation, as well as
brazing and the sintering of ceramics and powdered metals, and the deposition of precise thin film coatings. The business segments customers are multinational original equipment manufacturers and contract manufacturing companies.

Tangible long-lived assets by geographic location are as follows:



|              |  |                |       |  |                  |   |       | 
|------------- |  | -------------- | ----- |  | ---------------- | - | ----- | 
|              |  | October 3,2010 |       |  | December 31,2009 |  
|              |  | (in thousands) |      
|United States |  | $              | 5,230 |  |                  | $ | 5,679 | 
|Asia Pacific  |  |                | 687   |  |                  |   | 653   | 
|              |  |                |       |  |                  |   |       | 
|              |  | $              | 5,917 |  |                  | $ | 6,332 | 
|              |  |                |       |  |                  |   |       | 



11



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##### Table of Contents



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

BTU International, Inc. (BTU), founded in 1950 and headquartered in North Billerica, Massachusetts, is a market-leading, global supplier of advanced thermal processing equipment to the
alternative energy and electronics manufacturing markets. BTU equipment is used in the production of solar cells and nuclear fuel, as well as in printed circuit board assembly and semiconductor packaging.

Our customers require high throughput, high yield and highly reliable thermal processing systems with tightly controlled temperature and atmospheric
parameters. In the solar market, BTU offers processing equipment for both silicon and thin film photovoltaics. Also in alternative energy, our customers use our thermal systems for the processing of nuclear fuel. Our convection solder reflow systems
are used to attach electronic components to the printed circuit boards, primarily in the advanced, high-density, surface mount segments of this market. In the semiconductor market, we participate in both wafer level and die level packaging, where
our thermal processing systems are used to connect and seal integrated circuits into a package.

In 2004, we began manufacturing and material
sourcing operations in a leased facility in Shanghai, China. These additional facilities were needed for further expansion into the Asia Pacific region. In addition, we expanded our product development capability to China, creating a global
engineering team. This team has developed and commercially introduced our latest PYRAMAX and TRITAN products and continues to collaborate with our U.S. headquarters on additional product initiatives.

RESULTS OF OPERATIONS

Three months ended October 3, 2010 compared to the three months ended September 27, 2009

The following table sets forth, for the periods indicated selected items in our statements of operations expressed as a percentage of net sales.

Summary Consolidated Statement of Operations



|                                                |  |                    |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|----------------------------------------------- |  | ------------------ | ------ | - | ------------------ |  | ----- | -- |  | - | ------------- | - |  | ------------- | ----- | -- |  |  | ------ | --
|                                                |  | Three Months Ended |        |   |                    | 
|                                                |  | October 3, 2010    |        |   | September 27, 2009 |  |       |    | 
|                                                |  |                    |        |   | ($ in thousands)   |  |       |    |  |   |               |  
|                                                |  |                    |        |   | % ofNet Sales      |  |       |    |  |   | % ofNet Sales |   |  | PercentChange |      
|Net sales                                       |  | $                  | 19,011 |   |                    |  | 100.0 | %  |  | $ | 12,409        |   |  |               | 100.0 | %  |  |  | 53.2   | % 
|Cost of goods sold                              |  |                    | 10,845 |   |                    |  | 57.0  | %  |  |   | 8,548         |   |  |               | 68.9  | %  |  |  | 26.9   | % 
|                                                |  |                    |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Gross profit                                    |  |                    | 8,166  |   |                    |  | 43.0  | %  |  |   | 3,861         |   |  |               | 31.1  | %  |  |  | 111.5  | % 
|                                                |  |                    |        |   |                   
|Selling, general and administrative expenses    |  |                    | 5,758  |   |                    |  | 30.3  | %  |  |   | 4,697         |   |  |               | 37.8  | %  |  |  | 22.6   | % 
|Research, development and engineering expenses  |  |                    | 1,618  |   |                    |  | 8.5   | %  |  |   | 1,411         |   |  |               | 11.4  | %  |  |  | 14.7   | % 
|                                                |  |                    |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Operating income (loss)                         |  |                    | 790    |   |                    |  | 4.2   | %  |  |   | (2,247        | ) |  |               | (18.1 | )% |  |  | (135.2 | )%
|                                                |  |                    |        |   |                   
|Income (loss) before provision for income taxes |  |                    | 537    |   |                    |  | 2.8   | %  |  |   | (2,382        | ) |  |               | (19.2 | )% |  |  | (122.5 | )%
|                                                |  |                    |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Provision for income taxes                      |  |                    | 557    |   |                    |  | 2.9   | %  |  |   | 238           |   |  |               | 1.9   | %  |  |  | 134.0  | % 
|                                                |  |                    |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Net loss                                        |  | $                  | (20    | ) |                    |  | (0.1  | )% |  | $ | (2,620        | ) |  |               | (21.1 | )% |  |  | (99.2  | )%
|                                                |  |                    |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   

Net Sales. Net sales in the third quarter of 2010 increased by $6.6 million, or 53.2%, as
compared to the same quarter in 2009. In the third quarter of 2010 versus the third quarter of 2009, net sales for the Companys electronics market systems increased by $4.4 million, or 61.9%; for alternative energy systems, sales increased by
$1.8 million, or 49.3%; and parts and service sales increased by $0.4 million, or 23.7%. The Companys third quarter 2010 alternative energy systems sales growth versus the same period in 2009 is the result of increased demand for our solar
products. The substantial growth in the third quarter of 2010 for the Companys electronics market systems, as compared to the same period in 2009, represents the continuing recovery of demand for our electronic products from the economic
recession, particularly in Asia.



12



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##### Table of Contents

The following table sets forth, for the periods indicated, revenues from sales into select geographies
expressed in thousands of dollars and as a percentage of total revenues. The values shown represent the amount sold into each of the listed geographical areas.



|                  |  |                    |        |  |                    |  |      |   |  |   |              |  |  |  |      |  
|----------------- |  | ------------------ | ------ |  | ------------------ |  | ---- | - |  | - | ------------ |  |  |  | ---- | -
|                  |  | Three Months Ended |       
|                  |  | October 3, 2010    |        |  | September 27, 2009 | 
|                  |  | ($ in thousands)   |       
|                  |  | $                  |        |  | % ofRevenues       |  |      | $ |  |   | % ofRevenues | 
|United States     |  | $                  | 1,675  |  |                    |  | 8.8  | % |  | $ | 2,194        |  |  |  | 17.7 | %
|Europe, Near East |  |                    | 1,581  |  |                    |  | 8.3  | % |  |   | 2,040        |  |  |  | 16.4 | %
|Asia Pacific      |  |                    | 15,094 |  |                    |  | 79.4 | % |  |   | 7,864        |  |  |  | 63.4 | %
|Other Americas    |  |                    | 661    |  |                    |  | 3.5  | % |  |   | 311          |  |  |  | 2.5  | %
|                  |  |                    |        |  |                    |  |      |   |  |   |              |  |  |  |      |  
|Total Revenue     |  | $                  | 19,011 |  |                    |  |      |   |  | $ | 12,409       |  |  |  |      |  
|                  |  |                    |        |  |                    |  |      |   |  |   |              |  |  |  |      |  

The above geographical revenue breakdown reflects the magnitude of the recovery in Asia from
the economic downturn with a nearly doubling of revenue in Asia for the comparative periods.

Gross Profit. The
third quarter 2010 gross profit of $8.2 million increased by $4.3 million, or 111.5%, versus the third quarter of 2009 primarily as a result of the 53.2% revenue increase. In the third quarter of 2010 as compared to the same period of 2009, gross
profit as a percentage of sales increased to 43.0% as compared to 31.1% reflecting increased revenues and improved factory utilization in both our China and USA facilities and reduced inventory write-downs.

Selling, General and Administrative (SG&A).SG&A expenses increased by $1.1 million, or 22.6%, as compared to the same
quarter in 2009 which occurred primarily in commission expense as a result of increased revenue of 53.2% in the third quarter of 2010 as compared to 2009.

Research, Development and Engineering (RD&E). RD&E expenses increased by $0.2 million, or 14.7%, from $1.4 million in the third quarter of 2009 to $1.6 million in the third quarter of 2010.
The increases relate principally development of our products for the solar industry.

Operating Income (Loss) The
impact of the revenue increase and its associated increase in gross margin in the third quarter of 2010, resulted in operating income as compared to an operating loss, for the same period in 2009.

Interest Income (Expense). In the third quarter of 2010, as compared to the same period in 2009, net interest expense remained
relatively stable.

Foreign Exchange loss.The foreign exchange loss for the third quarter of 2010 was $115,000 as
compared to a loss of $4,000 in the third quarter of 2009. The Companys primary exposure to foreign exchange losses result from U.S. dollar denominated balance sheet accounts recorded at the Companys China and UK operations and Chinese
RMB denominated balance sheet accounts recorded at the Companys U.S. headquarters.

Income Taxes For the three
months ended October 3, 2010, we recorded an income tax provision of $557,000 as compared to $238,000 for the three months ended September 27, 2009. The Companys income tax provision primarily relates to income and withholding taxes
related to our China operations.

The significant fluctuations in the Companys quarterly tax rate, as a percent of
consolidated pre-tax income or loss, are the result of the varying ratio of the consolidated pre-tax profit or loss by tax entity to the consolidated tax provision. A significant portion of the consolidated tax provision relates to Chinese
withholding taxes which are not directly related to pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our Chinese manufacturing subsidiarys net sales.



13



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##### Table of Contents

RESULTS OF OPERATIONS

Nine months ended October 3, 2010 compared to the nine months ended September 27, 2009.

The following table sets forth, for the periods indicated, selected items in our statements of operations expressed as a percentage of net sales.

Summary Consolidated Statement of Operations



|                                                |  |                   |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|----------------------------------------------- |  | ----------------- | ------ | - | ------------------ |  | ----- | -- |  | - | ------------- | - |  | ------------- | ----- | -- |  |  | ------ | --
|                                                |  | Nine Months Ended |        |   |                    | 
|                                                |  | October 3, 2010   |        |   | September 27, 2009 |  |       |    | 
|                                                |  |                   |        |   | ($ in thousands)   |  |       |    |  |   |               |  
|                                                |  |                   |        |   | % ofnet sales      |  |       |    |  |   | % ofnet sales |   |  | Percentchange |      
|                                                |  |                   |        |   |                   
|Net sales                                       |  | $                 | 54,235 |   |                    |  | 100.0 | %  |  | $ | 33,023        |   |  |               | 100.0 | %  |  |  | 64.2   | % 
|Cost of goods sold                              |  |                   | 31,281 |   |                    |  | 57.7  | %  |  |   | 24,093        |   |  |               | 73.0  | %  |  |  | 29.8   | % 
|                                                |  |                   |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Gross profit                                    |  |                   | 22,954 |   |                    |  | 42.3  | %  |  |   | 8,930         |   |  |               | 27.0  | %  |  |  | 157.0  | % 
|                                                |  |                   |        |   |                   
|Selling, general and administrative expenses    |  |                   | 16,533 |   |                    |  | 30.5  | %  |  |   | 13,397        |   |  |               | 40.6  | %  |  |  | 23.4   | % 
|Research, development and engineering expenses  |  |                   | 4,813  |   |                    |  | 8.9   | %  |  |   | 5,286         |   |  |               | 16.0  | %  |  |  | (8.9   | )%
|                                                |  |                   |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Operating income (loss)                         |  |                   | 1,608  |   |                    |  | 3.0   | %  |  |   | (9,753        | ) |  |               | (29.5 | )% |  |  | (116.5 | )%
|                                                |  |                   |        |   |                   
|Income (loss) before provision for income taxes |  |                   | 1,200  |   |                    |  | 2.2   | %  |  |   | (10,241       | ) |  |               | (31.0 | )% |  |  | (111.7 | )%
|                                                |  |                   |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Provision for income taxes                      |  |                   | 1,258  |   |                    |  | 2.3   | %  |  |   | 419           |   |  |               | 1.3   | %  |  |  | 200.2  | % 
|                                                |  |                   |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   
|Net loss                                        |  | $                 | (58    | ) |                    |  | (0.1  | )% |  | $ | (10,660       | ) |  |               | (32.3 | )% |  |  | (99.5  | )%
|                                                |  |                   |        |   |                    |  |       |    |  |   |               |   |  |               |       |    |  |  |        |   

Net sales for the nine months year to date 2010 as compared to the nine months year to date 2009
increased by $21.2 million, or 64.2%. Net sales increases were $15.4 million, or 108.6%, for the Companys electronics market systems; $5.6 million, or 40.1%, for alternative energy systems; and $0.2 million, or 4.7%, for parts, other market
systems and service. The Companys nine month 2010 alternative energy systems sales growth as compared to the same period in 2009 is the result of increased demand for both solar and nuclear products. The substantial growth in the first nine
months of 2010, as compared to the same period in 2009, for the Companys electronic market systems revenue, particularly in Asia, represents the continuing recovery in demand for our electronic products from the economic recession.



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The following table sets forth, for the periods indicated, revenues from sales into select
geographies expressed in thousands of dollars and as a percentage of total revenues. The values shown represent the amount sold into each of the listed geographical areas.



|                  |  |                   |        |  |                    |  |      |   |  |   |              |  |  |  |      |  
|----------------- |  | ----------------- | ------ |  | ------------------ |  | ---- | - |  | - | ------------ |  |  |  | ---- | -
|                  |  | Nine Months Ended |       
|                  |  | October 3, 2010   |        |  | September 27, 2009 | 
|                  |  | ($ in thousands)  |       
|                  |  | $                 |        |  | % ofrevenues       |  |      | $ |  |   | % ofrevenues | 
|                  |  |                   |        | 
|United States     |  | $                 | 4,643  |  |                    |  | 8.6  | % |  | $ | 7,833        |  |  |  | 23.7 | %
|Europe, Near East |  |                   | 8,167  |  |                    |  | 15.1 | % |  |   | 6,994        |  |  |  | 21.2 | %
|Asia Pacific      |  |                   | 39,741 |  |                    |  | 73.3 | % |  |   | 16,908       |  |  |  | 51.2 | %
|Other Americas    |  |                   | 1,684  |  |                    |  | 3.1  | % |  |   | 1,288        |  |  |  | 3.9  | %
|                  |  |                   |        |  |                    |  |      |   |  |   |              |  |  |  |      |  
|Total Revenue     |  | $                 | 54,235 |  |                    |  |      |   |  | $ | 33,023       |  |  |  |      |  
|                  |  |                   |        |  |                    |  |      |   |  |   |              |  |  |  |      |  

The above geographical revenue breakdown for the first nine months of 2010 versus the same
period in 2009, reflects the magnitude of the recovery in Asia, where revenues more than doubled over the comparative periods.

Gross Profit. Gross profit for the first nine months of 2010 increased to $23.0 million, or 157.0%, as compared to $8.9 million for the same period in 2009. The gross profit as a percentage of
sales for the first nine months of 2010 increased to 42.3% from 27.0% for the first nine months of 2009. These increases are due primarily to the 64.2% revenue increase, improved factory utilization in both China and the USA and reduced inventory
write-downs.

Selling, General and Administrative (SG&A.) SG&A expenses for the first nine months of 2010 as
compared to the same period in 2009 increased by $3.1 million, or 23.4%, from $13.4 million to $16.5 million. This increase was primarily the result of increased commission expense from increased revenues of 64.2% for the first nine months of 2010
as compared to the same period in 2009.

Research, Development and Engineering (RD&E).RD&E expenses decreased
by $0.5 million, or 8.9 %, to $4.8 million for the first nine months of 2010, compared to $5.3 million for the same period in 2009. The reduction in R&D is the result of the Companys actions of reducing, Research and Development
prototype model costs, as new products were introduced in 2010.

Operating Income (Loss). The impact of the revenue
increase and the associated increase on gross margins in the first nine months of 2010 resulted in operating income as compared to an operating loss for the same period in 2009.

Interest Income (Expense). For the first nine months of 2010 as compared to the same period in 2009, interest expense remained
relatively stable. Interest income is minimal for the first nine months of 2010 due to lower interest rates and lower cash balances.

Foreign Exchange loss.The foreign exchange loss for the first nine months of 2010 was $9,000 as compared to a loss of $239,000 for the same period in 2009. The Companys primary exposure to
foreign exchange losses result from U.S. dollar denominated balance sheet accounts recorded at the Companys China and UK operations, and Chinese RMB denominated balance sheet accounts recorded at the Companys U.S. headquarters.

Income Taxes.During the nine months ended October 3, 2010, we recorded an income tax provision of $1.3 million
as compared to $0.4 million for the nine months ended September 27, 2009. The Companys income tax provision primarily relates to income and withholding taxes related to our China operations.

The significant fluctuations in the Companys quarterly tax rate, as a percent of consolidated pre-tax income or loss, are the
result of the varying ratio of the consolidated pre-tax profit or loss by tax entity to the consolidated tax provision. A significant portion of the consolidated tax provision relates to Chinese withholding taxes which are not directly related to
pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our Chinese manufacturing subsidiarys net sales.



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LIQUIDITY AND CAPITAL RESOURCES

As of October 3, 2010, we had $21.8 million in cash and cash equivalents, a decrease of $3.6 million, compared to $25.4 million at December 31,
2009.

During the nine months ended October 3, 2010, the Company used net cash of approximately $2.5 million in operating activities.
This use of cash was primarily the result of an increase in accounts receivable of $7.2 million and an increase in inventory of $2.8 million, offset by depreciation and amortization of $1.7 million, an increase in accounts payable of $3.6 million,
stock-based compensation expense of $1.0 million, a decrease of other assets of $0.1million, and an increase in other current liabilities of $1.1 million.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Companys request, to issue letters of credit in the banks name and the
Company agrees to cash collateralize the letters of credit via restricted cash deposits at the bank. As of October 3, 2010, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company
was $479,648. This restricted cash value is included in the Companys balance sheet in other current assets.

The Company has a mortgage
note that is secured by its real property in Billerica, MA. The original amount of the note was $10 million. This mortgage note payable has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9,
2010, the Company signed a Loan Modification Agreement with the same bank that that the mortgage was entered into on December 23, 2003 and amended on March 30, 2006 (see below). The 2010 modifications resulted in lowering the annual
interest rate from 6.84% to 5.50%, and lowering the monthly payment from $76,280 to $69,000. The mortgage note had an outstanding balance at October 3, 2010 of approximately $8.8 million.

As of October 3, 2010, the Company has no material commitments relating to capital expenditures. There were no significant changes in Company
commitments that were outlined in the Companys Form 10-K filing for 2009.

The Companys business forecasts project that our cash
position and cash flow will be sufficient to meet our corporate, operating and capital requirements for the next twelve months.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

During the nine months ended October 3, 2010, we believe that there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the
Critical Accounting Policies and Significant Estimates section of Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31,
2009.

OTHER MATTERS

Given that the Company invoices the vast majority of its sales in U.S. dollars, that the Company has a substantial manufacturing presence in China and that sales into China are primarily in U.S. dollars,
should the U.S. dollar decline in relation to the Chinese RMB, the Companys financial results will be adversely affected.

FORWARD LOOKING STATEMENTS

This Report contains express or implied forward-looking statements. The words or phrases will likely result, are expected to, will continue, is anticipated,
may, intends, believes, estimate, project or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Such statements are neither promises nor guarantees but rather are subject to risks and uncertainties described in this report, which could cause actual results to differ materially from those described in the forward-looking
statements. Such statements are made pursuant to the safe harbor provisions established by the federal securities laws, and are based on the assumptions and expectations of our management at the time such statements are made. Important
factors that could cause actual results to differ include, but are not limited to, the condition of the world economy, the timely availability and acceptance of new products in the electronics, semiconductor and alternative energy generation
industries, manufacturing problems with our foreign operations in China, the impact of competitive products and pricing, particularly from companies in Asia, and other risks detailed above under Risk Factors. Actual results may vary
materially. Unless otherwise required by law, we disclaim any obligation to revise or update this information in order to reflect future events or developments, whether or not anticipated. Accordingly, you should not place undue reliance on any
forward-looking statements, which speak only as of the date made.



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##### Table of Contents

|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

We have international subsidiaries in China, the United Kingdom, Singapore, the Philippines and Malaysia. These subsidiaries transact business in their functional or local currency. Therefore, we are
exposed to foreign currency exchange risks and fluctuations in foreign currencies, along with economic and political instability in the foreign countries in which we operate, all of which could adversely impact our results of operations and
financial condition.

As of October 3, 2010 and December 31, 2009, all of our long-term debt obligations are fixed
rate financial instruments. Therefore we are not exposed to interest rate risk resulting from the variable interest rate of our debt.



|Item 4. | Controls and Procedures
|------- | -----------------------

Controls and Procedures.

Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the
end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act 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 our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.

Internal Control over Financial Reporting. There have been no changes in our
internal control over financial reporting (as defined by Rule 13a-15(f)), that occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.



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##### Table of Contents



PART II. OTHER
INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------

Risk factors are disclosed
in the Companys 2009 Annual Report on Form 10-K. During the nine months ended October 3, 2010, there were no material changes to the risk factors for the business.



|Item 5. | Other Information
|------- | -----------------

On September 9,
2010, the Company signed a Loan Modification Agreement relating to the mortgage note secured by it property in Billerica, MA. The modifications resulted in a reduction of the annual interest rate from 6.84% to 5.50% and a reduction in the monthly
payment from $76,280 to $69,000.



|Item 6. | Exhibits
|------- | --------

(a) Exhibits

Exhibit 10.2 - Loan Modification Agreement

Exhibit 31.1 - Section 302 Certification

Exhibit 31.2 - Section 302
Certification

Exhibit 32.1 - Section 906 Certification

Exhibit 32.2 - Section 906 Certification



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SIGNATURES

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



|                       |  |                         |  |                                                                                                      
|---------------------- |  | ----------------------- |  | -----------------------------------------------------------------------------------------------------
|                       |  | BTU INTERNATIONAL, INC.
|                       |  |                        
|DATE: November 4, 2010 |  | BY:                     |  | /S/    PAUL J. VAN
DER WANSEM                                                                        
|                       |  |                         |  | Paul J. van der Wansem                                                                               
|                       |  |                         |  | President, Chief Executive Officer                                                                   
|                       |  |                         |  | (principal executive officer) and Chairman of the
Board of Directors                                 
|                       |  |                        
|DATE: November 4, 2010 |  | BY:                     |  | /S/    PETER J.
TALLIAN                                                                              
|                       |  |                         |  | Peter J. Tallian                                                                                     
|                       |  |                         |  | Chief Financial Officer and
Principal Accounting Officer (principal financial and accounting officer)



19