<PAGE>   1


                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
    ACT OF 1934

    For the quarterly period ended September 27, 1998

                                       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 0-17297

                             BTU INTERNATIONAL, INC.
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                            04-2781248
(State or Other Jurisdiction of                               (IRS Employer
Incorporation or Organization)                            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 the number of shares outstanding of the Registrant's Common Stock,
par value $.01 per share, as of the latest practicable date: As of November 6,
1998: 6,831,792 shares.



<PAGE>   2


                             BTU INTERNATIONAL, INC.

                                TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Condensed Consolidated Balance Sheets                                       1-2
Condensed Consolidated Statements of Operations                               3
Condensed Consolidated Statement of Stockholders' Investment                  4
Condensed Consolidated Statements of Cash Flows                               5
Notes to Condensed Consolidated Financial Statements                        6-7
Management's Discussion and Analysis of Financial Condition
   and Results of Operations                                               8-11

PART II. OTHER INFORMATION

Exhibits and Reports on Form 8-K                                             12
Signatures                                                                   13
Calculation of Net Income per Common and Common
   Equivalent Share                                                          14





<PAGE>   3


                             BTU INTERNATIONAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                     ASSETS
                                                           (Unaudited)
                                                          September 27,      December 31,
                                                              1998              1997
----------------------------------------------------------------------------------------
<S>                                                          <C>               <C>

Current assets
     Cash and cash equivalents                               $ 9,574           $11,873
     Accounts receivable, less reserves of
         $235 in 1998 and $160 in 1997                        12,646            12,334
     Inventories (Note 2)                                      9,757            10,028
     Other current assets                                      1,125             1,124
----------------------------------------------------------------------------------------
         Total current assets                                 33,102            35,359
----------------------------------------------------------------------------------------

Property, plant and equipment, at cost
     Land                                                        210               210
     Buildings and improvements                                5,963             5,949
     Machinery and equipment                                   6,745             5,783
     Furniture and fixtures                                      812               749
----------------------------------------------------------------------------------------
                                                              13,730            12,691
     Less-Accumulated depreciation                             8,856             8,077
----------------------------------------------------------------------------------------

         Net property, plant and equipment                     4,874             4,614

Other assets, net of accumulated amortization of $442
     in 1998 and $437 in 1997                                    441               406
----------------------------------------------------------------------------------------

                                                             $38,417           $40,379
========================================================================================
</TABLE>













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



                                        1

<PAGE>   4

                             BTU INTERNATIONAL, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (in thousands except share data)

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT

<TABLE>
<CAPTION>
                                                               (Unaudited)
                                                              September 27,     December 31,
                                                                  1998             1997
-------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>    

Current liabilities
     Current maturities of long-term debt and
         capital lease obligations (Note 3)                    $   230          $   224
     Accounts payable                                            5,287            6,013
     Other current liabilities                                   2,727            3,024
-------------------------------------------------------------------------------------------
         Total current liabilities                               8,244            9,261
-------------------------------------------------------------------------------------------

Long-term debt and capital lease obligations, less
     current maturities (Note 3)                                 5.197            5,313
Deferred income taxes                                            2,247            2,247
-------------------------------------------------------------------------------------------

                                                                15,688           16,821
-------------------------------------------------------------------------------------------

Stockholders' investment (Note 4)
     Series preferred stock, $1 par value-
         Authorized - 5,000,000 shares;
         Issued and outstanding - none                              --               --
     Common stock, $.01 par value-
         Authorized - 25,000,000 shares;
         Issued - 7,685,873 and 7,674,923 shares
         at September 27, 1998 and
         December 31, 1997, respectively                            77               77
     Additional paid-in capital                                 20,296           20,250
     Accumulated earnings                                        5,068            4,061
     Treasury stock- 840,081 and 355,281 shares
     at cost, at September 27, 1998 and
     December 31, 1997, respectively                            (3,016)          (1,183)
-------------------------------------------------------------------------------------------
                                                                22,425           23,205
     Accumulated Other Comprehensive Income                        304              353
-------------------------------------------------------------------------------------------

         Total stockholders' investment                         22,729           23,558
-------------------------------------------------------------------------------------------

                                                               $38,417          $40,379
===========================================================================================

</TABLE>


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


                                        2



<PAGE>   5


                             BTU INTERNATIONAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
  FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
                 (in thousands, except share and per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three Months Ended          Nine Months Ended  
                                                  ----------------------       --------------------
                                                  Sept. 27,     Sept. 28,      Sept. 27,    Sept 28,
                                                    1998           1997          1998         1997
----------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>            <C>          <C>      

Net sales                                       $  14,039      $  12,722      $  40,454    $  36,547
Cost of goods sold                                  8,472          7,557         24,167       21,423
----------------------------------------------------------------------------------------------------

         Gross profit                               5,567          5,165         16,287       15,124

Operating expenses:
     Selling, general and administrative            4,017          3,717         11,664       10,993
     Research, development and engineering            964            847          3,371        2,780
     Restructuring Charge                              --             --             --          530
----------------------------------------------------------------------------------------------------

         Income from operations                       586            601          1,252          821
----------------------------------------------------------------------------------------------------

     Interest income                                   97            126            309          321
     Interest expense                                (112)          (120)          (340)        (349)
     Other income (expense), net                       11             17             55         (236)
----------------------------------------------------------------------------------------------------

         Income before taxes                          582            624          1,276          557
         Income tax provision                         181            139            269           45
----------------------------------------------------------------------------------------------------

         Net income                             $     401      $     485      $   1,007    $     512

====================================================================================================
     Earnings Per Share:
         Basic                                  $    0.06      $    0.07      $    0.14    $    0.07
         Diluted                                $    0.06      $    0.07      $    0.14    $    0.07
====================================================================================================
     Weighted Average Number of
     Shares Outstanding:
         Basic                                  7,044,647      7,286,789      7,157,186    7,282,501
         Effect of Dilutive Options                15,598         98,756         43,764       31,392
----------------------------------------------------------------------------------------------------
         Diluted Shares                         7,060,245      7,385,545      7,200,950    7,313,893
====================================================================================================

</TABLE>




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



                                        3



<PAGE>   6

                             BTU INTERNATIONAL, INC.
          CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT
                  FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  ACCUMULATED
                                         ADDITIONAL                                  OTHER          TOTAL
                               COMMON     PAID-IN     ACCUMULATED    TREASURY    COMPREHENSIVE   STOCKHOLDERS'
                               STOCK      CAPITAL      EARNINGS        STOCK        INCOME        INVESTMENT
-------------------------------------------------------------------------------------------------------------
<S>                             <C>       <C>           <C>           <C>            <C>          <C>    
Balance, January 1, 1998        $77       $20,250       $4,061        $(1,183)       $353         $23,558

Net income                       --            --        1,007             --          --           1,007

Sale of common stock             --            46           --             --          --              46

Purchase of Treasury Stock       --            --           --         (1,833)         --          (1,833)

Translation Adjustment           --            --           --             --         (49)            (49)

-------------------------------------------------------------------------------------------------------------

Balance, September 27, 1998     $77       $20,296       $5,068        $(3,016)       $304         $22,729
=============================================================================================================

</TABLE>






















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



                                        4



<PAGE>   7

                             BTU INTERNATIONAL, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
       FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997
                                 (in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                         SEPTEMBER 27,    SEPTEMBER 28,
                                                                             1998            1997
------------------------------------------------------------------------------------------------------
<S>                                                                        <C>             <C>    

Cash flows from operating activities:
         Net income (loss)                                                 $ 1,007         $   512
         Adjustments to reconcile net income to net cash
           provided by (used in) operating activities -
           Depreciation and amortization                                       803             664
           Net changes in operating assets and liabilities-
              Accounts receivable                                             (312)            (72)
              Inventories                                                      271           1,075
              Other current assets                                              (1)            920
              Current maturities of long-term debt                               6              --
              Accounts payable                                                (726)            (66)
              Other current liabilities                                       (297)             88
              Other assets                                                     (35)            (39)
------------------------------------------------------------------------------------------------------

         Net cash provided by operating activities                             716           3,082
------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
         Purchases of property, plant and equipment, net                    (1,063)           (640)
------------------------------------------------------------------------------------------------------

         Net cash used in investing activities                              (1,063)           (640)
------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
         Principal payments under long-term debt and capital lease
           obligations                                                        (116)           (247)
         Proceeds from issuance of common stock                                 46              40
         Purchase of treasury stock                                         (1,833)             --
         Proceeds from mortgage refinance                                       --             122
------------------------------------------------------------------------------------------------------

         Net cash used in financing activities                              (1,903)            (85)
------------------------------------------------------------------------------------------------------
Effect of exchange rates on cash                                               (49)            (57)
------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                        (2,299)          2,300
Cash and cash equivalents, at beginning of the period                       11,873          10,218
------------------------------------------------------------------------------------------------------

Cash and cash equivalents, at end of the period                            $ 9,574         $12,518
======================================================================================================

Supplemental disclosures of cash flow information
         Cash paid during the periods for -
         Interest                                                          $   309         $   349
         Income taxes                                                           18            (546)



</TABLE>



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




                                        5


<PAGE>   8

                             BTU INTERNATIONAL, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1)  Basis for presentation

     The condensed consolidated balance sheet as of September 27, 1998, the
condensed consolidated statement of stockholders' investment for the nine months
ended September 27, 1998, the condensed consolidated statement of cash flows for
the nine months ended September 27, 1998 and September 28, 1997, and the related
condensed consolidated statements of operations for the three and nine months
ended September 27, 1998 and September 28, 1997 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 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 for the period ended December 31, 1997,
together with the auditors' report, included in the Company's "1997 Annual
Report," and filed in conjunction with Form 10K.


(2)  Inventories

     Inventories at September 27, 1998 and December 31, 1997 consisted of:


<TABLE>
<CAPTION>
                                                                                    $(000)       
                                                                         ------------------------------             
                                                                         September 27,     December 31,
                                                                             1998              1997
-------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>    

Raw materials and manufactured components                                   $4,791           $ 4,883
Work-in-process                                                              3,261             3,723
Finished goods                                                               1,705             1,422
-------------------------------------------------------------------------------------------------------
                                                                            $9,757           $10,028
=======================================================================================================


(3)  Debt

<CAPTION>
     Debt at September 27, 1998 and December 31,1997 consisted of:
                                                                                    $(000)    
                                                                         ------------------------------ 
                                                                         September 27,     December 31,
                                                                             1998             1997
-------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>   

Mortgage note payable                                                       $5,366           $5,519
Capital lease obligations, interest rates ranging from 6.9% to 
   11.0%, net of interest of $18,000 and $ 2,000 in 1998 and 
   1997, respectively                                                           61               18
-------------------------------------------------------------------------------------------------------
                                                                             5,427            5,537
Less-current maturities                                                        230              224
-------------------------------------------------------------------------------------------------------
                                                                            $5,197           $5,313
=======================================================================================================
</TABLE>


     The mortgage note payable is secured by the Company's land and building and
required monthly payments of $53,922, including interest at 8.125%. This
mortgage note payable has a balloon payment of $3,825,00 due and payable at
maturity on July 1, 2004.





                                        6

<PAGE>   9

                             BTU INTERNATIONAL, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)




(4)  Earnings Per Share

     Earnings per share is presented in compliance with the Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share." Under SFAS
No. 128, Earnings Per Share (EPS) is presented under two calculations, Basic and
Diluted. Basic EPS is computed by dividing income 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. Options outstanding which were not included in the
determination of diluted EPS because they were antidilutive, were 600,800 and
42,500 as of September 27, 1998 and December 31, 1997 respectively.



(5)  Comprehensive Income

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Statement is effective for fiscal years beginning
after December 31, 1997. As of September 27, 1998 the Company's only disclosure
requirement under this SFAS is Foreign currency translation adjustment, which is
currently reported in the equity section of the Balance Sheet. For the three and
nine months ended September 27, 1998 and September 28, 1997, comprehensive
income was as follows:

<TABLE>
<CAPTION>
                                              Three Months Ended            Nine Months Ended
                                             --------------------          --------------------
                                             Sept. 27,   Sept. 28,         Sept. 27,   Sept. 28,
                                               1998        1997              1998        1997
-----------------------------------------------------------------------------------------------
<S>                                            <C>         <C>              <C>          <C> 

Net income                                     $401        $485             $1,007       $512

Foreign currency translation adjustment          (4)        (28)               (49)       (57)            
                                               ------------------------------------------------

Comprehensive income                           $397        $457             $  958       $455
                                               ================================================

</TABLE>












                                        7



<PAGE>   10

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS

     Net Sales - In the third quarter of 1998, net sales increased by $1,317,000
to $14.0 million, an increase of 10.4% when compared to the third quarter of
1997. For the first nine months of 1998, net sales increased by $3,907,000 to
$40.5 million, an increase of 10.7% over the comparable 1997 period. The
increase in sales for both the third quarter and year to date 1998 versus 1997
reflects an increase in demand for our products primarily used by our large
multinational customers.

     During the third quarter and first nine months of 1998 as compared to the
same periods in 1997, sales in Asia Pacific decreased as a percentage of total
sales. The Asian sales do not include sales to a United States multinational
company that directed shipments to their Asian operations.

     Gross Profit - Gross profit increased by $402,000, or 7.8%, in the third
quarter of 1998, compared to the third quarter of 1997. Gross profit as a
percent of sales for the third quarter of 1998 decreased from 40.6% to 39.7%
compared to the third quarter 1997. For the first nine months of 1998, gross
profit increased by $1,163,000 or 7.7%, compared to the first nine months of
1997 but decreased as a percentage of sales from 41.4% to 40.3%. The increase in
gross profit dollars for both the third quarter and first nine months of 1998
was due to the increase in revenues. The decrease in gross margin percentage for
both the third quarter and year to date period was the result of product mix.

     Selling, General and Administrative - In the third quarter of 1998,
selling, general and administrative (SG&A) expenses increased by $300,000, or
8.1%, as compared to the same period in 1997. For the first nine months of 1998,
SG&A expenses increased by $671,000, or 6.1%, as compared to the same period in
1997. SG&A expenses, as a percentage of sales decreased by 0.6% for the third
quarter of 1998, and by 1.3% for the first nine month of 1998 as compared to the
same periods in 1997. These decreases in SG&A as a percentage of sales were
attained primarily due to the lowering of the overall commission percentage as
the Company has increased its direct sales activity in certain areas of the
world.

     Research, Development and Engineering - In the third quarter of 1998,
research, development and engineering expenses increased by $117,000, or 13.8%,
as compared to the third quarter of 1997. For the first nine months of 1998,
research, development and engineering expenses increased by $591,000, or 21.3%,
as compared to the first nine months of 1997. The increase in spending during
both the third quarter and first nine months of 1998 versus the same periods in
1997 was the result of a continued investment in new technologies and new
product development to support growing customer requirements. Included in the
1998 year to date number were costs related to a prototype, flat panel display
unit.

      Restructuring Charge - During the first quarter of 1997 the Company
incurred a restructuring charge of $530,000 related primarily to severance costs
incurred as a result of certain changes in the manner in which the Company
conducts its business. This charge represented one-time costs regarding actions
taken in response to a shift in the amount of out-sourced material and a change
to a direct approach to sales and service support in certain Far East
territories. This charge is reflected in the nine months ended September 28,
1997 Statement of Operations.

     Interest Income - In the third quarter and first nine months of 1998
interest income decreased by $29,000, or 23.0%, and $12,000 or 3.9%
respectively, as compared to the same periods in of 1997. The decrease in
interest income is due to the lower average investment balance in these
corresponding periods in 1998 versus 1997.

     Interest Expense - Interest expense decreased by $8,000, or 6.7%, for the
third quarter of 1998, and decreased by $12,000 or 2.6% for the first nine
months of 1998 as compared to the same periods in 1997. The decrease is related
to the lower interest rate on the mortgage that was refinanced in June 1997.






                                        8



<PAGE>   11

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)


     Income Taxes - In the third quarter of 1998 the Company recorded a tax
provision of $181,000 versus a tax provision of $139,000 for the third quarter
of 1997. For the first nine months of 1998 the Company recorded a tax provision
of $269,000 as compared to a tax provision of $45,000 for the first nine months
of 1997. For both the third quarter and year to date tax calculations in 1998
and 1997, the effective tax rates reflects the use of certain NOL carryforwards
available to the Company's U.K. subsidiary, which was profitable in the third
quarter and first nine months of 1998 and 1997. The Company's statutory US
Federal rate is 34%.



LIQUIDITY AND CAPITAL RESOURCES

      The Company has an unsecured revolving line of credit with a bank, which
allows for the aggregate of borrowings and/or letters of credit of up to
$14,000,000. Borrowings are available to the Company at either the Bank's base
rate or a Eurodollar rate, as elected by the Company. This loan agreement is
available to the Company until April 30, 2002, and is subject to certain
financial covenants. No amounts were outstanding under this loan agreement as of
September 27, 1998.

      The Company has a mortgage note, which is secured by its land and
building. The Mortgage note payable had an outstanding balance at September 27,
1998 of $5,366,000. The mortgage requires monthly payments of $53,922, including
interest at 8.125%. A final balloon payment of $3,825,000 is due at maturity on
July 1, 2004.

     For the nine months ending September 27, 1998 the Company's cash balance
decreased by $2,299,000. The major factors in this decrease were a capital
investment of $1,063,000 primarily to modernize our production facility and the
re-purchase of 484,8000 shares of the Company's common stock for $1,833,000.
These uses of cash were offset by a cash increase from operations of $716,000.

       The Company expects its current cash position, its ability to borrow
necessary funds, and cash flows from operations will be sufficient to meet its
corporate, operating and capital requirements into 1999.




Other matters

       The impact of inflation and the effect of foreign exchange rate changes
during 1998 has had an immaterial impact on the Company's business and financial
results.

YEAR 2000 

The Year 2000 "Y2K" problem results because some existing software and embedded
computer technology use only two-digits vs four-digits to identify the year.
Therefore, beginning in the year 2000, errors and failures may occur on date
sensitive systems because the computer devices will assume the year 1900.

Recently the Securities and Exchange Commission (SEC) has provided guidance to
all public companies regarding Y2K disclosure. The following provides more
detail regarding the Company's Y2K compliance than previous reports filed with
the SEC by the Company.

The Company is actively pursuing Y2K compliance through a focused cross
functional Y2K implementation team, with a Y2K coordinator, working worldwide
with regular management reviews in three major fronts (Customers, Internal,
Suppliers):





                                        9


<PAGE>   12

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)





1.   CUSTOMERS

A primary goal is to satisfy our customers needs to be Y2K compliant on BTU
products. All products (software and controls) presently being sold by the
Company are Y2K compliant. Regarding past sales, the Company has tested and
identified which of its software and controls products are and are not Y2K
compliant. These tests were performed using the industry standard SEMATECH YEAR
2000 Common Testing Scenarios V2.0. The summary results of the tests have been
compiled in matrix form and listed on the Company's worldwide web site. This
matrix provides our customers with the Y2K tested status of all of BTU's
software configurations; known Y2K issues and work-arounds; minimum hardware &
software configurations to be Y2K compliant; and upgrade kits availability. The
Company feels it is well positioned to satisfy its customers Y2K needs on BTU
products.

2.   INTERNAL

The efficient operation of the Company's business is dependent in part on its
computer software, computer hardware and internal control systems. These
systems are used, to varying degrees, in all areas of the Company's business.
The Company's management and Y2K team has investigated and identified potential
Y2K compliance problems in its internal operating systems. The present status
for Internal Y2K compliance is that the assessment is complete; the scope of
the effort and incremental out of pocket costs have been estimated to be
approximately $300,000; and an implementation plan is on-going with a
completion date of Q3 '99. Of the Y2K problem areas identified, 100% have a
definable solution; of these 22% were in compliance at September 27, 1998 and
the remaining 78% are at varying stages of working towards the defined Y2K
solution. The Company believes that all internal Y2K identified problems are
solvable and that the impact of Y2K compliance on the efficient operation of
the business will be minimal. In the event that an internal Y2K problem arises
in the year 2000, the Company has contingency plans as part of its disaster
recovery management system, to insure continued operation of the business with
minimal disruption.

3.   SUPPLIERS

An important factor of BTU's success in addressing Y2K compliance problems is
the ability of our key suppliers to solve their Y2K issues. 

The Company's Y2K team and the Materials management group have communicated via
a questionnaire with all our suppliers regarding their Y2K program status. To
date 58% of our key suppliers have responded with their Y2K implementation
plans. The Company's Purchasing management is working with the other key
suppliers to ensure Y2K compliance as early as possible.

In reviewing the significant supplier Y2K problems, the Company's Y2K
coordinator believes that all have known solutions that are solvable within the
required time frame to be Y2K compliant.

In each of the three significant fronts outlined above, the Company is leading
and managing its readiness for Y2K compliance. We expect to address our Y2K
problems within the fixed time frame and at costs that will not materially
impact the financial results of the Company.













                                       10


<PAGE>   13

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (continued)




RECENT ACCOUNTING DEVELOPMENTS

     In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1). SOP 98-1
requires computer software costs associated with internal use software to be
expensed as incurred until certain capitalization criteria are met. The Company
does not believe that adoption of SOP 98-1 will have a material impact on the
Company's financial statements.

     In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5). SOP 98-5 requires all costs
associated with pre-opening, pre-operating and organization activities to be
expensed as incurred. The Company will adopt SOP 98-5 beginning January 1, 1999.
The Company believes that adoption of SOP 98-5 will have no material impact on
the Company's financial statements.

FORWARD LOOKING STATEMENTS

        This report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements are based
on the Company's current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results of
operations to be materially different from those set forth in the
forward-looking statements. Important factors that could cause actual results to
differ include, among others, general market conditions governing supply and
demand, the timely availability and acceptance of new products, and the impact
of competitive products and pricing and other risks detailed in the Company's
SEC reports.




























                                       11



<PAGE>   14

PART II. OTHER INFORMATION


ITEM 4. SUBMISSION OF MATTERS TO VOTE SECURITY HOLDERS

          None

ITEM 5. OTHER INFORMATION

          Under recent changes to the Federal proxy rules, if a stockholder who
wishes to present a proposal at the Company's 1999 Annual Meeting that will not
be included in the Company's proxy statement fails to notify the Company by
March 10, 1999, then the proxies that management solicits for the 1999 Annual
Meeting will include discretionary authority to vote on the stockholder's
proposal, if it is properly brought before the meeting.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

                    Exhibit 11.0 - Calculation of net income per common and
                    common equivalent share.

          (b)  Reports on Form 8-K

                    No reports on Form 8-K were filed by the Company during the
                    period covered by this report.
























                                       12


<PAGE>   15


                                   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 10, 1998           BY: /s/ Paul J. van der Wansem
                                      ------------------------------------------
                                      Paul J. van der Wansem
                                      President, Chief Executive Officer
                                      (Principal executive officer) and Director



DATE: November 10, 1998           BY: /s/ Thomas P. Kealy
                                      ------------------------------------------
                                      Thomas P. Kealy
                                      Vice President, Corporate Controller and
                                      Chief Accounting Officer (Principal
                                      financial and accounting officer)






























                                       13