##### Table of Contents





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 March 29, 2009

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

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 $.01 per share, as of the latest practicable date: As of May 6, 2009: 9,189,324 shares.









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##### Table of Contents

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 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 |  | 12-15
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 15   
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 15-16
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |      
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 16   
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 16   
|                                                                                              | 
|Signatures                                                                                    |  | 17   
|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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##### Table of Contents

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)



|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                                                                                             |  | March 29,2009 |        |   | December 31,2008 |  
|                                                                                                                                                                                                                             | 
|Assets                                                                                                                                                                                                                       |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Current assets                                                                                                                                                                                                               |  |               |        |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                                                                                    |  | $             | 26,637 |   |                  | $ | 27,464 |  
|Accounts receivable, net                                                                                                                                                                                                     |  |               | 12,262 |   |                  |   | 15,450 |  
|Inventories, net                                                                                                                                                                                                             |  |               | 16,866 |   |                  |   | 19,044 |  
|Other current assets                                                                                                                                                                                                         |  |               | 802    |   |                  |   | 909    |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Total current assets                                                                                                                                                                                                         |  |               | 56,567 |   |                  |   | 62,867 |  
|                                                                                                                                                                                                                             |  |              
|Property, plant and equipment, net                                                                                                                                                                                           |  |               | 6,519  |   |                  |   | 6,886  |  
|                                                                                                                                                                                                                             |  |              
|Other assets, net                                                                                                                                                                                                            |  |               | 1,490  |   |                  |   | 1,562  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total assets                                                                                                                                                                                                                 |  | $             | 64,576 |   |                  | $ | 71,315 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Liabilities and stockholders equity                                                                                                                                                                                         |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Current liabilities                                                                                                                                                                                                          |  |               |        |   |                  |   |        |  
|Current portion of long-term debt                                                                                                                                                                                            |  | $             | 294    |   |                  | $ | 290    |  
|Accounts payable                                                                                                                                                                                                             |  |               | 3,791  |   |                  |   | 5,058  |  
|Other current liabilities                                                                                                                                                                                                    |  |               | 6,891  |   |                  |   | 7,399  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Total current liabilities                                                                                                                                                                                                    |  |               | 10,976 |   |                  |   | 12,747 |  
|                                                                                                                                                                                                                             |  |              
|Long-term debt, less current portion                                                                                                                                                                                         |  |               | 8,916  |   |                  |   | 8,988  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Total liabilities                                                                                                                                                                                                            |  |               | 19,892 |   |                  |   | 21,735 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|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; 10,557,291 shares issued and 9,199,056 shares outstanding at March 29, 2009
and 10,557,291 shares issued and 9,353,187 shares outstanding at December 31, 2008 |  |               | 105    |   |                  |   | 105    |  
|Additional paid in capital                                                                                                                                                                                                   |  |               | 45,760 |   |                  |   | 45,458 |  
|Retained earnings                                                                                                                                                                                                            |  |               | 2,164  |   |                  |   | 6,718  |  
|Treasury stock, at cost, 1,358,235 shares at March 29, 2009 and 1,204,104 shares at December 31, 2008                                                                                                                        |  |               | (4,959 | ) |                  |   | (4,391 | )
|Accumulated other comprehensive income                                                                                                                                                                                       |  |               | 1,614  |   |                  |   | 1,690  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Total stockholders equity                                                                                                                                                                                                   |  |               | 44,684 |   |                  |   | 49,580 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|                                                                                                                                                                                                                             |  |              
|Total liabilities and stockholders' equity                                                                                                                                                                                   |  | $             | 64,576 |   |                  | $ | 71,315 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  

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



1



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per
share data)

(unaudited)



|                                                |  |                    |           |   |                |   |           |  
|----------------------------------------------- |  | ------------------ | --------- | - | -------------- | - | --------- | -
|                                                |  | Three Months Ended |          
|                                                |  | March 29, 2009     |           |   | March 30, 2008 |  
|Net sales                                       |  | $                  | 9,806     |   |                | $ | 16,619    |  
|Costs of goods sold                             |  |                    | 8,367     |   |                |   | 9,996     |  
|                                                |  |                    |           |   |                |   |           |  
|                                                |  |                   
|Gross profit                                    |  |                    | 1,439     |   |                |   | 6,623     |  
|                                                |  |                   
|Operating expenses:                             |  |                    |           |   |                |   |           |  
|Selling, general and administrative             |  |                    | 3,930     |   |                |   | 4,912     |  
|Research, development and engineering           |  |                    | 1,977     |   |                |   | 1,603     |  
|                                                |  |                    |           |   |                |   |           |  
|                                                |  |                   
|Operating income (loss)                         |  |                    | (4,468    | ) |                |   | 108       |  
|                                                |  |                   
|Interest income                                 |  |                    | 82        |   |                |   | 100       |  
|Interest expense                                |  |                    | (155      | ) |                |   | (180      | )
|Foreign exchange gain/(loss)                    |  |                    | (59       | ) |                |   | 124       |  
|Other income                                    |  |                    | 29        |   |                |   |          |  
|                                                |  |                    |           |   |                |   |           |  
|                                                |  |                   
|Income (loss) before provision for income taxes |  |                    | (4,571    | ) |                |   | 152       |  
|                                                |  |                   
|Provision (benefit) for income taxes            |  |                    | (17       | ) |                |   | 53        |  
|                                                |  |                    |           |   |                |   |           |  
|                                                |  |                   
|Net income (loss)                               |  | $                  | (4,554    | ) |                | $ | 99        |  
|                                                |  |                    |           |   |                |   |           |  
|                                                |  |                   
|Income (loss) per share:                        |  |                    |           |   |                |   |           |  
|Basic                                           |  | $                  | (0.49     | ) |                | $ | 0.01      |  
|Diluted                                         |  | $                  | (0.49     | ) |                | $ | 0.01      |  
|                                                |  |                   
|Weighted average number of shares outstanding:  |  |                    |           |   |                |   |           |  
|Basic shares                                    |  |                    | 9,284,318 |   |                |   | 9,355,316 |  
|Effect of dilutive options                      |  |                    |          |   |                |   | 164,350   |  
|                                                |  |                    |           |   |                |   |           |  
|                                                |  |                   
|Diluted shares                                  |  |                    | 9,284,318 |   |                |   | 9,519,666 |  
|                                                |  |                    |           |   |                |   |           |  

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



2



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS ENDED MARCH 29, 2009

(in thousands)

(unaudited)



|                                             |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|-------------------------------------------- |  | ------------ |  | ----------------- | --- | -------- | - | ------------------------------- | -------------- | - | ----------- | ----------------------------- | - | ----- |  | ------ | ------ | - | ----- | - | ----- | - |  | - | ------ | -
|                                             |  | Common Stock |  | AdditionalPaid-In |     | Retained |   |                                 | Treasury Stock |   |             | AccumulatedOtherComprehensive |   |       |  |       
|                                             |  | # of shares  |  | $                 |     | Capital  |   | Earnings                        |                |   | # of shares |                               | $ |       |  | Income |        |   | Total |  
|Balance at December 31, 2008                 |  | 10,557       |  | $                 | 105 |          | $ | 45,458                          |                | $ | 6,718       |                               |   | 1,204 |  | $      | (4,391 | ) |       | $ | 1,690 |   |  | $ | 49,580 |  
|                                             |  |              |  |                   |     |          |   |                                
|Net loss                                     |  |             |  |                   |    |          |   |                                |                |   | (4,554      | )                             |   |      |  |        |       |   |       |   |      |   |  |   | (4,554 | )
|                                             |  |              |  |                   |     |          |   |                                
|Exercise of stock options                    |  |             |  |                   |    |          |   |                                |                |   |            |                               |   |      |  |        |       |   |       |   |      |   |  |   |       |  
|                                             |  |              |  |                   |     |          |   |                                
|Purchase of treasury stock                   |  |             |  |                   |    |          |   |                                |                |   |            |                               |   | 154   |  |        | (568   | ) |       |   |      |   |  |   | (568   | )
|                                             |  |              |  |                   |     |          |   |                                
|Issuance of common stock                     |  |             |  |                   |    |          |   |                                |                |   |            |                               |   |      |  |        |       |   |       |   |      |   |  |   |       |  
|                                             |  |              |  |                   |     |          |   |                                
|Stock-based compensation                     |  |             |  |                   |    |          |   | 302                             |                |   |            |                               |   |      |  |        |       |   |       |   |      |   |  |   | 302    |  
|                                             |  |              |  |                   |     |          |   |                                
|Translation adjustment                       |  |             |  |                   |    |          |   |                                |                |   |            |                               |   |      |  |        |       |   |       |   | (76   | ) |  |   | (76    | )
|                                             |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|                                             |  |              |  |                   |     |          |   |                                
|Balance at March 29, 2009                    |  | 10,557       |  | $                 | 105 |          | $ | 45,760                          |                | $ | 2,164       |                               |   | 1,358 |  | $      | (4,959 | ) |       | $ | 1,614 |   |  | $ | 44,684 |  
|                                             |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|                                             |  |              |  |                   |     |          |   |                                
|                                             |  |              |  |                   |     |          |   | Three MonthsEndedMarch 29, 2009 |                |   |             |                               |   |       |  |        |        |   |       |  
|Comprehensive loss is calculated as follows: |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |      
|Net loss                                     |  |              |  |                   |     |          |   |                                 |                | $ | (4,554      | )                             |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|Other comprehensive loss:                    |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|Foreign currency translation adjustment      |  |              |  |                   |     | (76      | ) |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |      
|                                             |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|                                             |  |              |  |                   |     |          |   |                                
|Comprehensive loss                           |  |              |  |                   |     |          |   |                                 |                | $ | (4,630      | )                             |   |       |  |        |        |   |       |   |       |   |  |   |        |  
|                                             |  |              |  |                   |     |          |   |                                 |                |   |             |                               |   |       |  |        |        |   |       |   |       |   |  |   |        |  

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 THREE MONTHS ENDED MARCH 29,
2009 AND MARCH 30, 2008

(in thousands)

(unaudited)



|                                                                              |  |               |        |   |               |   |        |  
|----------------------------------------------------------------------------- |  | ------------- | ------ | - | ------------- | - | ------ | -
|                                                                              |  | March 29,2009 |        |   | March 30,2008 |  
|Cash flows from operating activities:                                         |  |               |        |   |               |   |        |  
|Net income (loss)                                                             |  | $             | (4,554 | ) |               | $ | 99     |  
|Adjustments to reconcile net cash provided by (used in) operating activities: |  |               |        |   |               |   |        |  
|Depreciation and amortization                                                 |  |               | 631    |   |               |   | 428    |  
|Provision for bad debts                                                       |  |               | 20     |   |               |   | 24     |  
|Provision (recovery) for inventory obsolescense                               |  |               | 847    |   |               |   | (97    | )
|Stock-based compensation                                                      |  |               | 302    |   |               |   | 230    |  
|Gain on foreign currency hedge                                                |  |               |       |   |               |   | (364   | )
|Net change in operating assets and liabilities:                               |  |               |        |   |               |   |        |  
|Accounts receivable                                                           |  |               | 3,151  |   |               |   | (1,431 | )
|Inventories                                                                   |  |               | 1,318  |   |               |   | 32     |  
|Other current assets                                                          |  |               | 52     |   |               |   |       |  
|Customer deposits                                                             |  |               | 106    |   |               |   | 136    |  
|Other assets                                                                  |  |               | (5     | ) |               |   | (31    | )
|Accounts payable                                                              |  |               | (1,273 | ) |               |   | 996    |  
|Accrued expenses                                                              |  |               | (606   | ) |               |   | 1,463  |  
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Net cash provided by (used in) operating activities                           |  |               | (11    | ) |               |   | 1,485  |  
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Cash flows from (used in) investing activities:                               |  |               |        |   |               |   |        |  
|Purchases of property, plant and equipment                                    |  |               | (135   | ) |               |   | (374   | )
|Settlement of forward currency contract                                       |  |               |       |   |               |   | 60     |  
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Net cash used in investing activities                                         |  |               | (135   | ) |               |   | (314   | )
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Cash flows from (used in) financing activities:                               |  |               |        |   |               |   |        |  
|Principal payments under loan and capital lease agreements                    |  |               | (68    | ) |               |   | (64    | )
|Purchase of treasury stock                                                    |  |               | (568   | ) |               |   |        |  
|Proceeds from the exercise of stock options                                   |  |               |       |   |               |   | 21     |  
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Net cash used in financing activities                                         |  |               | (636   | ) |               |   | (43    | )
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Effects of exchange rates on cash                                             |  |               | (45    | ) |               |   | 480    |  
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Net increase (decrease) in cash and cash equivalents                          |  |               | (827   | ) |               |   | 1,608  |  
|Cash and cash equivalents, beginning of period                                |  |               | 27,464 |   |               |   | 25,065 |  
|                                                                              |  |               |        |   |               |   |        |  
|                                                                              |  |              
|Cash and cash equivalents, end of period                                      |  | $             | 26,637 |   |               | $ | 26,673 |  
|                                                                              |  |               |        |   |               |   |        |  

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 THREE MONTHS ENDED MARCH 29, 2009 AND
MARCH 30, 2008

(in thousands)

(unaudited)



|                                                   |  |               |     |               |   |   
|-------------------------------------------------- |  | ------------- | --- | ------------- | - | --
|                                                   |  | March 29,2009 |     | March 30,2008
|Supplemental disclosures of cash flow information: |  |               |     |               |   |   
|Cash paid during the periods for:                  |  |               |     |               |   |   
|Interest                                           |  | $             | 110 |               | $ | 76
|Income taxes                                       |  |               | 57  |               |   | 17

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



5



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##### Table of Contents

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, 2008 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of
March 29, 2009 and the related condensed consolidated statements of operations, cash flows, stockholders equity and comprehensive loss for the three months ended March 29, 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, 2008, 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,
2008 as filed with the Securities and Exchange Commission.

(3) Inventories, net



|                                          |  |                |        |                  |   |       
|----------------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                          |  | March 29,2009  |        | December 31,2008
|                                          |  | (in thousands)
|Raw materials and manufactured components |  | $              | 8,974  |                  | $ | 8,961 
|Work-in-process                           |  |                | 5,556  |                  |   | 7,021 
|Finished goods                            |  |                | 2,336  |                  |   | 3,062 
|                                          |  |                |        |                  |   |       
|                                          |  |               
|                                          |  | $              | 16,866 |                  | $ | 19,044
|                                          |  |                |        |                  |   |       

(4) Debt

Long-Term Debt at March 29, 2009 and December 31, 2008 consisted of:



|                                                  |  |                |       |                  |   |      
|------------------------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                                                  |  | March 29,2009  |       | December 31,2008
|                                                  |  | (in thousands)
|Mortgage note payable, interest rate of 6.84%     |  | $              | 9,210 |                  | $ | 9,277
|Capital lease obligations, interest rate of 6.75% |  |                |      |                  |   | 1    
|                                                  |  |                |       |                  |   |      
|                                                  |  |               
|                                                  |  |                | 9,210 |                  |   | 9,278
|Less - current maturities                         |  |                | 294   |                  |   | 290  
|                                                  |  |                |       |                  |   |      
|                                                  |  |               
|                                                  |  | $              | 8,916 |                  | $ | 8,988
|                                                  |  |                |       |                  |   |      

On March 30, 2006, the Company entered into a new mortgage note that is secured by our real property in
Billerica, MA, in the amount of $10 million. The mortgage note requires monthly payments of $76,280, which includes interest calculated at the rate of 6.84% per annum. This mortgage note payable has a balloon payment of $6.8 million
due and payable at maturity on December 23, 2015.



6



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



On March 1, 2007, the Company entered into an amended revolving loan agreement with a bank that allows for
unsecured aggregate borrowings, including letters of credit, up to a maximum of $15 million against a borrowing base of accounts receivable, inventory and fixed assets. The Company may elect to borrow at interest rates related to the banks
prime rate or LIBOR. This loan agreement extends to December 31, 2010. At March 29, 2009, there were no borrowings outstanding under the loan agreement.

This loan agreement is subject to maintaining certain financial covenants. Due to the recorded losses in Q4 2008 and Q1 2009, the Company is not in compliance with the required rolling four quarters minimum debt coverage ratio in the loan
agreement. Given the uncertainty surrounding the timing of an economic recovery from the global recession, the Company has suspended negotiations with the bank until a return to profitability is at hand. At such time, the Company will work with the
bank to obtain a waiver which may require modifications, agreeable to both parties, to the provisions of the existing loan agreement. There is no current debt outstanding against this line.

(5) Earnings Per Share (EPS)

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. The number of common shares underlying options that were not included in the determination of diluted EPS, because their effect would be anti-dilutive, was 880,361 and 658,445 for the three months ended
March 29, 2009 and March 30, 2008, respectively.

(6) Accounting for Stock-Based Compensation

The Companys stock option compensation expense was $298,445 and $230,000 for the three months ended March 29, 2009 and March 30, 2008, respectively. These
amounts do not include expense related to restricted stock awards.

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 forfeitures of 20% for the periods ended
March 29, 2009 and March 30, 2008. We used the following assumptions for options issued in the following periods:



|                                              |  |                    |   |  |               
|--------------------------------------------- |  | ------------------ | - |  | --------------
|Calculation of Fair Value - Assumptions Used: |  | Three months ended
|                                              |  | 29-Mar-09          |   |  | 30-Mar-08     
|Expected Volatility                           |  | 67.01              | % |  | 63.82%        
|Expected Life                                 |  | 4.75               |   |  | 4.50 - 4.75   
|Risk-Free Interest Rate                       |  | 2.14               | % |  | 2.08% to 2.62%
|Expected Dividend Yield                       |  | None               |   |  | None          

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.



7



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



The following table summarizes the stock option activity during the three months ended March 29, 2009:



|                                 |  |           |   |  |                               |       |                                 |      |                         |   |       
|-------------------------------- |  | --------- | - |  | ----------------------------- | ----- | ------------------------------- | ---- | ----------------------- | - | ------
|                                 |  | Shares    |   |  | Weighted-AverageExercisePrice |       | AverageRemainingContractualTerm |      | AggregateIntrinsicValue
|Options                          |  |           |   |  |                               |       |                                 |      |                         |   |       
|Outstanding at December 31, 2008 |  | 1,069,535 |   |  | $                             | 9.17  |                                 |      |                         |   |       
|Granted                          |  | 3,760     |   |  | $                             | 9.97  |                                 |      |                         |   |       
|Exercised                        |  | 0         |   |  | $                             |      |                                 |      |                         |   |       
|Forfeited                        |  | (11,000   | ) |  | $                             | 10.08 |                                 |      |                         |   |       
|                                 |  |           |   |  |                               |       |                                 |      |                         |   |       
|                                 |  |           |   | 
|Outstanding at March 29, 2009    |  | 1,062,295 |   |  | $                             | 9.17  |                                 | 4.82 |                         | $ | 63,998
|Exercisable at March 29, 2009    |  | 365,185   |   |  | $                             | 7.53  |                                 | 3.17 |                         | $ | 63,998

The weighted-average grant-date fair values of options granted during the three-month periods ended March 29,
2009 and March 30, 2008 were $9.17 and $5.32, respectively. The fair values of options exercised during the three-month periods ended March 29, 2009 and March 30, 2008 were $0 and $10,011, respectively.

As of March 29, 2009, there was $2,830,273 of total unrecognized compensation cost related to non-vested options granted under all of the Companys option
plans. That cost is expected to be recognized over a weighted average period of 2.8 years. The total fair value of shares vested during the three-month period ended March 29, 2009 was $121,510.

(7) Revenue Recognition

For the three months ended March 29, 2009,
there was $1,051,287 of revenue recognized using the percentage of completion method. For the three months ended March 30, 2008, there was $1,371,024 of revenue recognized using the percentage of completion method. Please see note 1 in the
notes to the Companys audited financial statement included in the Companys annual report on Form 10-K filed March 16, 2009 with Securities and Exchange Commission.

(8) Fair Value Disclosures

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 157, Fair Value Measurements for Financial Assets and Liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.



8



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under
existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

SFAS No. 157
emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As
a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent
of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the
hierarchy).

At March 29, 2009, the Company had no financial assets that required valuation under SFAS No. 157.

(9) Product Warranty Costs

The Company provides standard warranty coverage
for parts and 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 revenue. 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 three months ended March 29, 2009 (in thousands):



|                                                      |  |                                  |      |  
|----------------------------------------------------- |  | -------------------------------- | ---- | -
|                                                      |  | Three Months EndedMarch 29,
2009 |     
|                                                     
|Beginning balance, December 31, 2008                  |  | $                                | 683  |  
|Plus: accruals related to new sales                   |  |                                  | 125  |  
|Less: warranty claims incurred and reserve adjustment |  |                                  | (438 | )
|                                                      |  |                                  |      |  
|Ending balance, March 29, 2009                        |  | $                                | 370  |  
|                                                      |  |                                  |      |  



9



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



(10) Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R will significantly change the accounting for business combinations in a number of areas
including the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development, and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income
tax uncertainties in a business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is the Companys fiscal year beginning January 1, 2009, and
will impact the accounting for any business combinations entered into after the effective date. The adoption of this Standard has not had a significant impact on the Companys financial statements.

In April 2008, the FASB issued Staff Position No. FAS 142-3, or FSP FAS 142-3, Determination of the Useful Life of Intangible Assets, which
amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP
FAS 142-3 allows an entity to use its own historical experience in renewing or extending similar arrangements, adjusted for specified entity-specific factors, in developing assumptions about renewal or extension used to determine the useful life of
a recognized intangible asset and will be effective for fiscal years and interim periods beginning after December 15, 2008. Additional disclosures are required to enable financial statement users to assess the extent to which the expected
future cash flows associated with the asset are affected by the entitys intent and/or ability to renew or extend the arrangement. The guidance for determining the useful life of a recognized intangible asset is to be applied prospectively to
intangible assets acquired after the effective date. The disclosure requirements are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Management will comply with disclosure requirements
subsequent to the effective date of the standard as applicable.

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157) which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. On February 12, 2008,
the FASB issued FASB Staff Position (FSP) SFAS No. 157-2, Effective Date of SFAS No. 157. The FSP amends SFAS 157, to delay the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring basis (that is, at least annually) to fiscal years beginning after November 15, 2008. The adoption of SFAS 157 for non financial assets and liabilities
did not have a significant impact on our financial statements.

In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin (ARB) No. 51, which changes the accounting and reporting for minority interests. Minority interests will be
re-characterized as non-controlling interests and will be reported as a component of equity separate from the parents equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity
transactions. In addition, net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will
be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 will apply prospectively, except for the presentation and disclosure requirements, which will apply retrospectively. SFAS No. 160 is effective for periods
beginning on or after December 15, 2008 and will impact the accounting for non-controlling interests after the effective date, to the extent the company enters into an acquisition with a non-controlling interest the non-controlling interest.
The adoption of this Standard did not have an impact on the Companys financial statements.



10



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of SFAS
No. 133 (SFAS 161). SFAS 161 will require companies to disclose their objectives and strategies for using derivative instruments, whether or not their derivatives are designated as hedging instruments. The new pronouncement requires
disclosure of the fair value of derivative instruments by primary underlying risk exposures (e.g., interest rate, credit, foreign exchange rate, combination of interest rate and foreign exchange rate, or overall price). It also requires detailed
disclosures about the income statement impact of derivative instruments by designation as fair-value hedges, cash-flow hedges, or hedges of the foreign-currency exposure of a net investment in a foreign operation. SFAS 161 will also require
disclosure of information that will enable financial statement users to understand the level of derivative activity entered into by a company. The principles of SFAS 161 are applied on a prospective basis and are effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. For the Company, SFAS 161 became effective at the beginning of the 2009 fiscal year. The adoption of this Standard did not have a
material affect on the Companys disclosures as the Company did not have any derivative instruments at March 29, 2009.



|(11) | 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, energy generation and other industries. This business segment includes the supply of equipment used in a number of process steps to produce electronic devices such
as: solder reflow systems used for surface mount applications in printed circuit board assembly; integrated circuit packaging and sealing; and processing multi-chip modules. In addition, the thermal process equipment is used in several process steps
for alternative energy generation such as: metallization and diffusion of photovoltaic solar cells; sintering nuclear fuel for commercial power generation; and the doping and firing of solid oxide fuel cells. The business segments customers
are multi-national electronics manufacturers and electronic manufacturing service providers, as well as manufacturers of fuel and components used to generate energy.

Tangible Long-lived assets by geographic location are as follows (in thousands):



|              |  |               |       |                  |   |      
|------------- |  | ------------- | ----- | ---------------- | - | -----
|              |  | March 29,2009 |       | December 31,2008
|              |  |              
|United States |  | $             | 5,813 |                  | $ | 6,132
|Asia Pacific  |  |               | 706   |                  |   | 754  
|              |  |               |       |                  |   |      
|              |  | $             | 6,519 |                  | $ | 6,886
|              |  |               |       |                  |   |      



11



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##### Table of Contents

|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

OVERVIEW

BTU International, founded in 1950 and headquartered in Billerica, Massachusetts, is a supplier of advanced
thermal processing equipment to the energy generation market and electronics manufacturing market. We manufacture reflow furnaces for printed circuit board assembly as well as semiconductor wafer-level and die-level packaging equipment. In addition,
we participate in the fast growing alternative energy market for which we provide thermal process equipment for the manufacturing of solar cells, fuel cells and nuclear fuels.

Our customers in the energy generation market use our thermal systems to process silicon, ceramics and metal alloys which are used in solar cell, fuel cell and nuclear fuel manufacturing applications. Our customers
require high throughput, high yield and highly reliable thermal processing systems with tightly controlled temperature and atmospheric parameters. 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.

The Company has been affected negatively by the global economic downturn. In our electronics market products, there
has been a significant reduction in demand. As for our alternative energy market, we have seen steady growth, but not enough to offset the decline in our electronics market products.

RESULTS OF OPERATIONS

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



|                                                          |  |                    |        |   |                |       |    |  |   |               |  |       |  
|--------------------------------------------------------- |  | ------------------ | ------ | - | -------------- | ----- | -- |  | - | ------------- |  | ----- | -
|                                                          |  | Three Months Ended |       
|                                                          |  | March 29, 2009     |        |   | March 30, 2008 |      
|                                                          |  | ($ in thousands)   |       
|                                                          |  |                    |        |   | % ofnet sales  |       |    |  |   | % ofnet sales | 
|                                                          |  |                    |        |   |                |       |   
|Net sales                                                 |  | $                  | 9,806  |   |                | 100.0 | %  |  | $ | 16,619        |  | 100.0 | %
|Cost of goods sold                                        |  |                    | 8,367  |   |                | 85.3  | %  |  |   | 9,996         |  | 60.1  | %
|                                                          |  |                    |        |   |                |       |    |  |   |               |  |       |  
|Gross profit                                              |  |                    | 1,439  |   |                | 14.7  | %  |  |   | 6,623         |  | 39.9  | %
|                                                          |  |                    |        |  
|Selling, general and administrative expenses              |  |                    | 3,930  |   |                | 40.1  | %  |  |   | 4,912         |  | 29.6  | %
|Research, development and engineering expenses            |  |                    | 1,977  |   |                | 20.2  | %  |  |   | 1,603         |  | 9.6   | %
|                                                          |  |                    |        |   |                |       |    |  |   |               |  |       |  
|Operating income (loss)                                   |  |                    | (4,468 | ) |                | (45.6 | )% |  |   | 108           |  | 0.6   | %
|                                                          |  |                    |        |  
|Income (Loss) before provision (benefit) for income taxes |  |                    | (4,571 | ) |                | (46.6 | )% |  |   | 152           |  | 0.9   | %
|                                                          |  |                    |        |   |                |       |    |  |   |               |  |       |  
|                                                          |  |                    |        |  
|Net income (loss)                                         |  | $                  | (4,554 | ) |                | (46.4 | )% |  | $ | 99            |  | 0.6   | %
|                                                          |  |                    |        |   |                |       |    |  |   |               |  |       |  

Net Sales The net sales decreased by 41% or $6.8 million in Q1 2009 versus Q1 2008. The reduction from
$16.6 million to $9.8 million was due to an approximately 80% reduction in sales of the Companys electronic market products resulting from the macro global economic slowdown. This decrease was partially offset by continuing increased sales of
for our expanding product offerings designed for the alternative energy market, which increased nearly 50% in Q1 2009 compared to the same period in 2008.



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##### Table of Contents

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



|                  |  |                    |       |              |                |   |   |   |              |  |      |  
|----------------- |  | ------------------ | ----- | ------------ | -------------- | - | - | - | ------------ |  | ---- | -
|                  |  | Three Months Ended |      
|                  |  | March 29, 2009     |       |              | March 30, 2008 |  
|                  |  | $                  |       | % ofrevenues |                |   | $ |   | % ofrevenues | 
|                  |  |                    |      
|United States     |  | $                  | 1,938 |              | 19.8           | % |   | $ | 4,044        |  | 24.3 | %
|Europe, Near East |  |                    | 2,315 |              | 23.6           | % |   |   | 3,496        |  | 21.0 | %
|Asia Pacific      |  |                    | 4,642 |              | 47.3           | % |   |   | 8,572        |  | 51.6 | %
|Other Americas    |  |                    | 911   |              | 9.3            | % |   |   | 507          |  | 3.1  | %
|                  |  |                    |       |              |                |   |   |   |              |  |      |  
|Total Revenue     |  | $                  | 9,806 |              |                |   |   | $ | 16,619       |  |      |  
|                  |  |                    |       |              |                |   |   |   |              |  |      |  

In the first quarter of 2009 as compared to the same period in 2008, total revenue decreased in each of the
Companys three largest geographical markets. This result is indicative of the global nature of the economic downturn. The Q1 year to year increase in revenue for the Other Americas region represented one high value system shipment.

Gross Profit. The severe reduction in Q1 2009s gross profit percentage to 14.7 from 39.9 in Q1 2008 was the result of several major factors.
The deepening global recession extended and increased the reduced demand for the Companys electronic market products. This had a twofold impact on the Q1 2009 gross margin percentage. The Companys production facilities both in the United
States and China were operating well below capacity which resulted in under-absorption of factory costs of approximately one million dollars. Also, with the extended recession to date and the expectation of a slow economic recovery, the Company,
primarily for its electronic products inventory, increased inventory reserves by approximately $1 million . One additional factor suppressing the gross margin percentage in Q1 2009 was the first time assembly and shipment of both new thin film and
silicon solar systems.

Selling, General and Administrative (SG&A).SG&A expenses decreased by nearly $1 million or 20% from $4.9 million in
Q1 2008 to $3.9 million in Q1 2009. More than half of this Q1 2009 decrease occurred in commission expense as the result of decreased revenue and a shift in product mix. The other significant reduction, also related to the reduced Q1 2009 revenue
level, was for service and warranty costs, in particular a reduction in the Companys warranty provision. Also, the Company took several cost reduction actions during the first quarter.

Research, Development and Engineering.(RD&E)In the first quarter of 2009, the Company increased its spending on RD&E as compared to the same period in
2008 by $374,000 or 23.3% primarily due to development efforts towards new products for the alternative energy market.

Operating Income (Loss).As
a result of the worldwide economic downturn the Company reported a 41% decrease in revenue in Q1 2009 versus Q1 2008 due to a sharp decline in our electronics business, The impact of this revenue decrease and its associated effect on gross margins
resulted in an operating loss of $4.6 million.



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##### Table of Contents

Foreign Exchange (loss).The foreign exchange loss in Q1 2009 was $59,000 as compared to $100,000 in Q1 2008. The
Companys primary exposure to foreign exchange losses result from U.S. dollar denominated balance sheet accounts recorded at the Companys China operations.

Income Taxes. In the first quarter of 2009,we determined the effective income tax rate for each corporate entity and applied this rate to the year-to-date profits before income tax for each of our
forecasted total year profitable corporations to determine our estimated consolidated annual effective income tax rate. In addition, we calculated the estimated withholding tax on royalty and other taxable corporate services charged in the first
quarter of 2009 to our China operations. The sum of the income taxes (benefits) and the withholding taxes were recorded as our tax provision (benefit).

The net result of the Q1 2009 tax provisions, tax benefits and China withholding tax was a benefit of $17,000.

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 corporate tax entity to the consolidated tax provision. A significant
portion of the consolidated tax provision is China withholding taxes, which are not related to pre-tax income. The China withholding taxes primarily result from corporate royalty charges based on our China subsidiary net sales.

The Company has federal and state net operating loss carry forwards of approximately $10 million against which it has recorded a full valuation allowance because of
uncertainty surrounding realization. Our statutory federal income tax rate is 34.0%.

LIQUIDITY AND CAPITAL RESOURCES

As of March 29, 2009, the Company had $26.6 million in cash and cash equivalents, a decrease of $0.8 million versus $27.5 million at the end of 2008.

During the first quarter of 2009, despite the $4.6 million net loss, the cash flow from operating activities remained the same. This resulted from
positive cash flow from reductions in accounts receivable of $3.2 million, decrease in inventory of $1.3 million and other non-cash operating charges. $600,000 of cash was used to purchase treasury stock during the first quarter.

On March 1, 2007, the Company entered into an amended revolving loan agreement with a bank that allows for unsecured aggregate borrowings, including letters of
credit, up to a maximum of $15 million against a borrowing base of accounts receivable, inventory and fixed assets. The Company may elect to borrow at interest rates related to the banks prime rate or LIBOR. This loan agreement extends to
December 31, 2010. At March 29, 2009, there were no borrowings outstanding under the loan agreement.

This loan agreement is subject to
maintaining certain financial covenants. Due to the recorded losses in Q4 2008 and Q1 2009, the Company is not in compliance with the required rolling four quarters minimum debt coverage ratio in the loan agreement. Given the uncertainty surrounding
the timing of an economic recovery from the global recession, the Company has suspended negotiations with the bank until a return to profitability is at hand. At such time, the Company will work with the bank to receive a waiver which may require
modifications, agreeable to both parties, to the provisions of the existing loan agreement. There is no current debt outstanding against this line.

On
March 30, 2006, the Company entered into a mortgage note that is secured by its real property in Billerica, MA. The amount of the mortgage note executed was $10 million. The mortgage note requires monthly payments of $76,280, which includes
interest calculated at the rate of 6.84% per annum. This mortgage note payable has a balloon payment of $6.8 million due and payable at maturity on December 23, 2015. The mortgage note had an outstanding balance at March 29, 2009 of
approximately $9.2 million.

As of March 29, 2009, the Company has no material commitments relating to capital expenditures.

The Companys business forecasts project that our cash position and cash flow will be sufficient to meet our corporate, operating and capital requirements through
2009.



14



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##### Table of Contents

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.

In the first quarter of 2009, inflation had no material impact on our
business and financial results.

FORWARD LOOKING STATEMENTS

This Report, other than historical financial information, includes forward-looking statements that involve known and unknown risks and uncertainties, including quarterly fluctuations in results. In particular, our forecast of the
sufficiency of capital resources through 2010 is a forward-looking statement. Such statements are made pursuant to the safe harbor provisions under the securities laws, and are based on the assumptions and expectations of the
Companys management at the time such statements are made. Important factors that could cause actual results to differ include the cyclicality of our business; our shift of manufacturing to China; a failure to maintain cost reductions; risks
related to sales to the energy generation market; a failure to increase sales across our industries; a failure to effectively develop and market our products; changes in the economic, political, legal and business environments in the countries in
which we operate; a failure of our business systems; the time and costs related to complying with the requirements of the Sarbanes-Oxley Act; and the loss of key personnel. Actual results may vary materially. Accordingly, you should not place undue
reliance on any forward-looking statements. Unless otherwise required by law, the Company disclaims any obligation to revise or update such forward-looking statements in order to reflect future events or developments.



|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed
to market risk from changes in interest rates primarily through our revolving loan agreement. As of March 29, 2009, we had no debt outstanding under our revolving loan agreement.

A significant percentage of our consolidated revenues are derived from foreign sources. Accordingly, our financial results are impacted by changes in foreign currency exchange rates with respect to the U.S. dollar.



|Item 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

The Company maintains disclosure
controls and procedures that are designed to ensure that information required to be disclosed in the Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and
forms, and that such information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and
management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As described under Managements Annual Report on Internal Control over Financial Reporting in the
companys Form 10-K filed with the Securities and Exchange Commission on March 16, 2009  material weaknesses were identified in our internal control over financial reporting related to the Company having an insufficient number of
accounting personnel with an appropriate level of accounting knowledge and experience to prepare its financial statements in a timely and accurate manner, and the Companys review of intercompany account reconciliations and of intercompany
inventory receipts and coding of related invoices to the appropriate intercompany payable accounts was ineffective.



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The Companys Management carried out an evaluation, under the supervision and with the participation
of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934) as of March 29, 2009, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Securities Exchange Act of 1934.

Based upon that evaluation, Management concluded based on the aforementioned material weaknesses as of the end of the period covered by the 2008 Annual
Report on Form 10-K and at the period ended March 29, 2009 that our disclosure controls and procedures did not operate effectively to ensure that information required to be disclosed by us in the reports 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. Notwithstanding the ineffectiveness of our disclosure controls and procedures, we believe the
consolidated financial statements present fairly, in all material respects, our financial position or results of operations, and cash flows as of March 29, 2009 and March 30, 2008 and for the three months ended March 29, 2009 and
March 30, 2008.

2. Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 29, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3. Managements remediation initiatives.

Our remediation initiatives summarized below are intended to address our material weaknesses in internal control over financial
reporting.



| |  | We will continue to enhance our resources and underlying systems utilization in the area of financial reporting to improve the effectiveness and timeliness of the
close process.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We will transfer process oversight of the intercompany account reconciliation from the business unit to an independent corporate function. Further, we will enhance
our controls over the matching of intercompany receipts with intercompany shipment data.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Throughout our remediation
process, we continue to rely on extensive, temporary manual procedures and other measures as needed to assist us with meeting the objectives otherwise fulfilled by effective internal control over financial reporting.

PART II. OTHER INFORMATION



|Item 1A. | RISK FACTORS
|-------- | ------------

Risk factors are disclosed in the Companys 2008 Annual
Report on Form 10-K. During the quarter ended March 29, 2009, there were no material changes to the risk factors for the business.



|Item 6. | EXHIBITS
|------- | --------

(a) Exhibits

Exhibit 10.1 - Offer Letter John J. McCaffrey Jr.

Exhibit 10.2 - Retention Agreement John J. McCaffrey Jr.

Exhibit 10.3 - Amended Retention Agreement Thomas P. Kealy

Exhibit 10.4 - Offer Letter Peter J. Tallian

Exhibit 10.5 - Retention Agreement Peter J. Tallian

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: May 8, 2009 |  | 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: May 8, 2009 |  | BY:                     |  | /s/ Peter J. Tallian                             
|                  |  |                         |  | Peter J. Tallian                                 
|                  |  |                         |  | Chief Financial Officer and                      
|                  |  |                         |  | Principal Accounting Officer (principal          
|                  |  |                         |  | financial and accounting officer)                



17