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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended July 4, 2010

OR



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

For the transition period from  to

Commission File Number
000-17297





BTU INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|DELAWARE                                                       |  | 04-2781248                             
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification Number)
|                                                               | 
|23 Esquire Road, North Billerica,
Massachusetts                |  | 01862-2596                             
|(Address of principal executive offices)                       |  | (Zip Code)                             

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





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every interactive data file
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such
files.)    Yes   ̈    No   ̈

(Registrant is not subject to the requirements of Rule 405 of Regulation S-T at this time)

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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

Indicate the number of shares outstanding of the Registrants Common Stock, par value $.01 per share, as of the latest practicable date: As of
August 3, 2010: 9,282,979.









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BTU INTERNATIONAL, INC.

TABLE OF CONTENTS



|                              |  |                                                                                                     |  |      
|----------------------------- |  | --------------------------------------------------------------------------------------------------- |  | -----
|PART I. FINANCIAL INFORMATION
|                              |  |                                                                                                    
|Item 1.                       |  | Financial Statements (Unaudited)                                                                    |  |      
|                              |  | Unaudited Condensed Consolidated Balance Sheets                                                     |  | 1    
|                              |  | Unaudited Condensed Consolidated Statements of Operations                                           |  | 2    
|                              |  | Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) |  | 3    
|                              |  | Unaudited Condensed Consolidated Statements of Cash Flows                                           |  | 4-5  
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                      |  | 6-10 
|                              |  |                                                                                                    
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations               |  | 11-15
|                              |  |                                                                                                    
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 15   
|                              |  |                                                                                                    
|Item 4.                       |  | Controls and Procedures                                                                             |  | 15   
|                             
|PART II. OTHER INFORMATION   
|                              |  |                                                                                                    
|Item 1A.                      |  | Risk Factors                                                                                        |  | 15   
|                              |  |                                                                                                    
|Item 6.                       |  | Exhibits                                                                                            |  | 15   
|                              | 
|Signatures                    |  | 16                                                                                                 
|                              |  | EX-31.1 Section 302 Certification of C.E.O.                                                         |  |      
|                              |  | EX-31.2 Section 302 Certification of C.F.O.                                                         |  |      
|                              |  | EX-32.1 Section 906 Certification of C.E.O.                                                         |  |      
|                              |  | EX-32.2 Section 906 Certification of C.F.O.                                                         |  |      



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)



|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                                                                                           |  | July 4,2010 |        |   | December 31,2009 |  
|Assets                                                                                                                                                                                                                     |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Current assets                                                                                                                                                                                                             |  |             |        |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                                                                                  |  | $           | 19,197 |   |                  | $ | 25,397 |  
|Accounts receivable, net                                                                                                                                                                                                   |  |             | 16,583 |   |                  |   | 10,333 |  
|Inventories, net                                                                                                                                                                                                           |  |             | 13,534 |   |                  |   | 14,533 |  
|Other current assets                                                                                                                                                                                                       |  |             | 1,080  |   |                  |   | 1,283  |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Total current assets                                                                                                                                                                                                       |  |             | 50,394 |   |                  |   | 51,546 |  
|                                                                                                                                                                                                                           |  |            
|Property, plant and equipment, net                                                                                                                                                                                         |  |             | 5,925  |   |                  |   | 6,332  |  
|                                                                                                                                                                                                                           |  |            
|Other assets, net                                                                                                                                                                                                          |  |             | 752    |   |                  |   | 916    |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Total assets                                                                                                                                                                                                               |  | $           | 57,071 |   |                  | $ | 58,794 |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Liabilities and stockholders equity                                                                                                                                                                                       |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Current liabilities                                                                                                                                                                                                        |  |             |        |   |                  |   |        |  
|Current portion of long-term debt                                                                                                                                                                                          |  | $           | 320    |   |                  | $ | 310    |  
|Accounts payable                                                                                                                                                                                                           |  |             | 6,631  |   |                  |   | 5,527  |  
|Other current liabilities                                                                                                                                                                                                  |  |             | 5,211  |   |                  |   | 8,577  |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Total current liabilities                                                                                                                                                                                                  |  |             | 12,162 |   |                  |   | 14,414 |  
|                                                                                                                                                                                                                           |  |            
|Long-term debt, less current portion                                                                                                                                                                                       |  |             | 8,526  |   |                  |   | 8,687  |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Total liabilities                                                                                                                                                                                                          |  |             | 20,688 |   |                  |   | 23,101 |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Commitments and contingencies                                                                                                                                                                                              |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Stockholders equity                                                                                                                                                                                                       |  |             |        |   |                  |   |        |  
|Preferred stock, $1.00 par value - 5,000,000 shares authorized; no shares issued or outstanding                                                                                                                            |  |             |       |   |                  |   |       |  
|Common stock, $0.01 par value - 25,000,000 shares authorized; 10,650,946 shares issued and 9,282,979 shares outstanding at
July 4, 2010 and 10,619,589 shares issued and 9,251,622 shares outstanding at December 31, 2009 |  |             | 107    |   |                  |   | 106    |  
|Additional paid in capital                                                                                                                                                                                                 |  |             | 47,807 |   |                  |   | 47,054 |  
|Accumulated deficit                                                                                                                                                                                                        |  |             | (7,885 | ) |                  |   | (7,847 | )
|Treasury stock, at cost, 1,367,967 shares at July 4, 2010 and December 31, 2009                                                                                                                                            |  |             | (4,990 | ) |                  |   | (4,990 | )
|Accumulated other comprehensive income                                                                                                                                                                                     |  |             | 1,344  |   |                  |   | 1,370  |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Total stockholders equity                                                                                                                                                                                                 |  |             | 36,383 |   |                  |   | 35,693 |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  
|                                                                                                                                                                                                                           |  |            
|Total liabilities and stockholders equity                                                                                                                                                                                 |  | $           | 57,071 |   |                  | $ | 58,794 |  
|                                                                                                                                                                                                                           |  |             |        |   |                  |   |        |  

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



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)



|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|----------------------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | ------------ |  | - | ------------- | - |  | - | --------- | -
|                                                |  | Three Months Ended |           |   | Six Months Ended |  
|                                                |  | July 4, 2010       |           |   | June 28, 2009    |   |           | July 4, 2010 |  |   | June 28, 2009 |  
|Net sales                                       |  | $                  | 18,031    |   |                  | $ | 10,808    |              |  | $ | 35,223        |   |  | $ | 20,614    |  
|Costs of goods sold                             |  |                    | 10,339    |   |                  |   | 7,179     |              |  |   | 20,435        |   |  |   | 15,546    |  
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Gross profit                                    |  |                    | 7,692     |   |                  |   | 3,629     |              |  |   | 14,788        |   |  |   | 5,068     |  
|                                                |  |                    |           |  
|Operating expenses:                             |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|Selling, general and administrative             |  |                    | 5,237     |   |                  |   | 4,770     |              |  |   | 10,776        |   |  |   | 8,700     |  
|Research, development and engineering           |  |                    | 1,557     |   |                  |   | 1,897     |              |  |   | 3,195         |   |  |   | 3,875     |  
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Operating income (loss)                         |  |                    | 898       |   |                  |   | (3,038    | )            |  |   | 817           |   |  |   | (7,507    | )
|                                                |  |                    |           |  
|Interest income                                 |  |                    | 40        |   |                  |   | 64        |              |  |   | 41            |   |  |   | 146       |  
|Interest expense                                |  |                    | (152      | ) |                  |   | (143      | )            |  |   | (311          | ) |  |   | (298      | )
|Foreign exchange gain (loss)                    |  |                    | 40        |   |                  |   | (177      | )            |  |   | 106           |   |  |   | (235      | )
|Other income (expense)                          |  |                    | (7        | ) |                  |   | 6         |              |  |   | 10            |   |  |   | 35        |  
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Income (loss) before provision for income taxes |  |                    | 819       |   |                  |   | (3,288    | )            |  |   | 663           |   |  |   | (7,859    | )
|                                                |  |                    |           |  
|Provision for income taxes                      |  |                    | 564       |   |                  |   | 198       |              |  |   | 701           |   |  |   | 181       |  
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Net income (loss)                               |  | $                  | 255       |   |                  | $ | (3,486    | )            |  | $ | (38           | ) |  | $ | (8,040    | )
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|Net income (loss) per share:                    |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|Basic                                           |  | $                  | 0.03      |   |                  | $ | (0.38     | )            |  | $ | (0.00         | ) |  | $ | (0.87     | )
|Diluted                                         |  | $                  | 0.03      |   |                  | $ | (0.38     | )            |  | $ | (0.00         | ) |  | $ | (0.87     | )
|                                                |  |                    |           |  
|Weighted average number of shares outstanding:  |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|Basic shares                                    |  |                    | 9,269,675 |   |                  |   | 9,191,334 |              |  |   | 9,261,211     |   |  |   | 9,237,090 |  
|Effect of dilutive options                      |  |                    | 132,139   |   |                  |   |          |              |  |   |              |   |  |   |          |  
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Diluted shares                                  |  |                    | 9,401,814 |   |                  |   | 9,191,334 |              |  |   | 9,261,211     |   |  |   | 9,237,090 |  
|                                                |  |                    |           |   |                  |   |           |              |  |   |               |   |  |   |           |  

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



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BTU INTERNATIONAL, INC.

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

FOR THE SIX MONTHS ENDED July 4, 2010

(in thousands)

(unaudited)



|                             |  |              |  |         |     |              |   |           |                |   |             |               |   |       |  |             |        |   |       |   |       |   |  |   |        |  
|---------------------------- |  | ------------ |  | ------- | --- | ------------ | - | --------- | -------------- | - | ----------- | ------------- | - | ----- |  | ----------- | ------ | - | ----- | - | ----- | - |  | - | ------ | -
|                             |  |              |  |         |     |              |   | Retained  |                |   |             |               |   |       |  | Accumulated |        |   |       |  
|                             |  |              |  |         |     | Additional   |   | Earnings/ |                |   |             |               |   |       |  | Other       |        |   |       |  
|                             |  | Common Stock |  | Paid-In |     | (Accumulated |   |           | Treasury Stock |   |             | Comprehensive |   |       |  |            
|                             |  | # of shares  |  | $       |     | Capital      |   | Deficit)  |                |   | # of shares |               | $ |       |  | Income      |        |   | Total |  
|Balance at December 31, 2009 |  | 10,620       |  | $       | 106 |              | $ | 47,054    |                | $ | (7,847      | )             |   | 1,368 |  | $           | (4,990 | ) |       | $ | 1,370 |   |  | $ | 35,693 |  
|Net loss                     |  |             |  |         |    |              |   |          |                |   | (38         | )             |   |      |  |             |       |   |       |   |      |   |  |   | (38    | )
|Exercise of stock options    |  | 20           |  |         |    |              |   | 66        |                |   |            |               |   |      |  |             |       |   |       |   |      |   |  |   | 66     |  
|Issuance of common stock     |  | 11           |  |         | 1   |              |   | 55        |                |   |            |               |   |      |  |             |       |   |       |   |      |   |  |   | 56     |  
|Stock-based compensation     |  |             |  |         |    |              |   | 632       |                |   |            |               |   |      |  |             |       |   |       |   |      |   |  |   | 632    |  
|Translation adjustment       |  |             |  |         |    |              |   |          |                |   |            |               |   |      |  |             |       |   |       |   | (26   | ) |  |   | (26    | )
|                             |  |              |  |         |     |              |   |           |                |   |             |               |   |       |  |             |        |   |       |   |       |   |  |   |        |  
|Balance at July 4, 2010      |  | 10,651       |  | $       | 107 |              | $ | 47,807    |                | $ | (7,885      | )             |   | 1,368 |  | $           | (4,990 | ) |       | $ | 1,344 |   |  | $ | 36,383 |  
|                             |  |              |  |         |     |              |   |           |                |   |             |               |   |       |  |             |        |   |       |   |       |   |  |   |        |  



|                                                      |  |                  |     |                |               |     |                  |  |   |                |   |  |   |        |  
|----------------------------------------------------- |  | ---------------- | --- | -------------- | ------------- | --- | ---------------- |  | - | -------------- | - |  | - | ------ | -
|                                                      |  | ThreeMonthsEnded |     | SixMonthsEnded |               |     | ThreeMonthsEnded |  |   | SixMonthsEnded |  
|                                                      |  | July 4, 2010     |     |                | June 28, 2009 |    
|Comprehensive income (loss) is calculated as follows: |  |                  |     |                |               |     |                  |  |   |                |   |  |   |        |  
|Net income (loss)                                     |  | $                | 255 |                | $             | (38 | )                |  | $ | (3,486         | ) |  | $ | (8,040 | )
|Other comprehensive income (loss):                    |  |                  |     |                |               |     |                  |  |   |                |   |  |   |        |  
|Foreign currency translation adjustment               |  |                  | 43  |                |               | (26 | )                |  |   | 224            |   |  |   | 147    |  
|                                                      |  |                  |     |                |               |     |                  |  |   |                |   |  |   |        |  
|Comprehensive income (loss)                           |  | $                | 298 |                | $             | (64 | )                |  | $ | (3,262         | ) |  | $ | (7,893 | )
|                                                      |  |                  |     |                |               |     |                  |  |   |                |   |  |   |        |  

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 SIX MONTHS ENDED JULY 4, 2010 AND JUNE 28, 2009

(in thousands)

(unaudited)



|                                                                |  |             |        |   |              |   |        |  
|--------------------------------------------------------------- |  | ----------- | ------ | - | ------------ | - | ------ | -
|                                                                |  | July 4,2010 |        |   | June 28,2009 |  
|Cash flows from operating activities:                           |  |             |        |   |              |   |        |  
|Net loss                                                        |  | $           | (38    | ) |              | $ | (8,040 | )
|Adjustments to reconcile net cash used in operating activities: |  |             |        |   |              |   |        |  
|Depreciation and amortization                                   |  |             | 1,138  |   |              |   | 1,146  |  
|Provision (recovery) for bad debts                              |  |             | (47    | ) |              |   | (26    | )
|Provision for inventory obsolescence                            |  |             | 576    |   |              |   | 1,230  |  
|Stock-based compensation                                        |  |             | 632    |   |              |   | 612    |  
|Net change in operating assets and liabilities:                 |  |             |        |   |              |   |        |  
|Accounts receivable                                             |  |             | (6,140 | ) |              |   | 6,280  |  
|Inventories                                                     |  |             | 469    |   |              |   | 1,018  |  
|Other current assets                                            |  |             | 87     |   |              |   | 40     |  
|Customer deposits                                               |  |             | (2,503 | ) |              |   | (659   | )
|Other assets                                                    |  |             | (158   | ) |              |   | (7     | )
|Accounts payable                                                |  |             | 992    |   |              |   | (1,373 | )
|Accrued expenses                                                |  |             | (681   | ) |              |   | (1,484 | )
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Net cash used in operating activities                           |  |             | (5,673 | ) |              |   | (1,263 | )
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Cash flows used in investing activities:                        |  |             |        |   |              |   |        |  
|Purchases of property, plant and equipment                      |  |             | (370   | ) |              |   | (271   | )
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Net cash used in investing activities                           |  |             | (370   | ) |              |   | (271   | )
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Cash flows from (used in) financing activities:                 |  |             |        |   |              |   |        |  
|Principal payments under loan and capital lease agreements      |  |             | (151   | ) |              |   | (141   | )
|Issuance of common stock                                        |  |             | 56     |   |              |   |       |  
|Purchase of treasury stock                                      |  |             |       |   |              |   | (599   | )
|Proceeds from the exercise of stock options                     |  |             | 66     |   |              |   | 5      |  
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Net cash used in financing activities                           |  |             | (29    | ) |              |   | (735   | )
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Effects of exchange rates on cash                               |  |             | (128   | ) |              |   | 141    |  
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Net decrease in cash and cash equivalents                       |  |             | (6,200 | ) |              |   | (2,128 | )
|Cash and cash equivalents, beginning of period                  |  |             | 25,397 |   |              |   | 27,464 |  
|                                                                |  |             |        |   |              |   |        |  
|                                                                |  |            
|Cash and cash equivalents, end of period                        |  | $           | 19,197 |   |              | $ | 25,336 |  
|                                                                |  |             |        |   |              |   |        |  

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 SIX MONTHS ENDED JULY 4, 2010 AND JUNE 28, 2009

(in thousands)

(unaudited)



|                                                   |  |             |     |              |   |    
|-------------------------------------------------- |  | ----------- | --- | ------------ | - | ---
|                                                   |  | July 4,2010 |     | June 28,2009
|Supplemental disclosures of cash flow information: |  |             |     |              |   |    
|Cash paid during the periods for:                  |  |             |     |              |   |    
|Interest                                           |  | $           | 280 |              | $ | 185
|Income taxes                                       |  |             | 337 |              |   | 57 

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



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BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis
of Presentation

The condensed consolidated balance sheet, financial information and related disclosures as of and for the year ended
December 31, 2009 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of July 4, 2010 and the related condensed statements of operations and
comprehensive income (loss) for the three and six months ended July 4, 2010 are unaudited. The condensed consolidated statements of stockholders equity and consolidated statements of cash flows for the six months ended July 4, 2010
and June 28, 2009 are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are
not necessarily indicative of results for any other period or for the full year. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with the footnotes
contained in the Companys consolidated financial statements as of and for the year ended December 31, 2009, together with the auditors report, included in the Companys Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission.

(2) Summary of Significant Accounting Policies

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

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

(3) Inventories, net



|                                          |  |                |        |                  |   |       
|----------------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                          |  | July 4,2010    |        | December 31,2009
|                                          |  | (in thousands)
|Raw materials and manufactured components |  | $              | 7,160  |                  | $ | 6,051 
|Work-in-process                           |  |                | 4,236  |                  |   | 5,970 
|Finished goods                            |  |                | 2,138  |                  |   | 2,512 
|                                          |  |                |        |                  |   |       
|                                          |  | $              | 13,534 |                  | $ | 14,533
|                                          |  |                |        |                  |   |       



6



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



(4) Other Current Liabilities



|                                               |  |                |       |                  |   |      
|---------------------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                                               |  | July 4,2010    |       | December 31,2009
|                                               |  | (in thousands)
|Accrued commissions                            |  | $              | 814   |                  | $ | 1,176
|Accrued warranty                               |  |                | 513   |                  |   | 486  
|Accrued income taxes                           |  |                | 723   |                  |   | 774  
|Accrued audit                                  |  |                | 293   |                  |   | 366  
|Accrued legal                                  |  |                | 282   |                  |   | 265  
|Accrued bonus                                  |  |                | 274   |                  |   | 305  
|Accrued Atmoplas acquisition-related royalties |  |                | 200   |                  |   | 600  
|Payroll and payroll taxes                      |  |                | 909   |                  |   | 836  
|Accrued royalties                              |  |                | 29    |                  |   | 179  
|Accrued cost of sales                          |  |                | 136   |                  |   | 157  
|Customer deposits                              |  |                | 802   |                  |   | 3,310
|Other                                          |  |                | 236   |                  |   | 123  
|                                               |  |                |       |                  |   |      
|                                               |  | $              | 5,211 |                  | $ | 8,577
|                                               |  |                |       |                  |   |      

Warranty

The Company provides standard warranty coverage for labor for 12 months and special extended material-only coverage on certain other products. The
Company estimates and records an accrual for anticipated warranty claims based on 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 six months ended July 4, 2010:



|                                                      |  |                              |      |  
|----------------------------------------------------- |  | ---------------------------- | ---- | -
|                                                      |  | Six Months EndedJuly 4,
2010 |     
|                                                      |  | (in thousands)               |     
|Beginning balance, December 31, 2009                  |  | $                            | 486  |  
|Plus: accruals related to new sales                   |  |                              | 452  |  
|Less: warranty claims incurred and reserve adjustment |  |                              | (425 | )
|                                                      |  |                              |      |  
|Ending balance, July 4, 2010                          |  | $                            | 513  |  
|                                                      |  |                              |      |  

(5) Debt

Long-term debt at July 4, 2010 and December 31, 2009 consisted of:



|                                              |  |                |       |                  |   |      
|--------------------------------------------- |  | -------------- | ----- | ---------------- | - | -----
|                                              |  | July 4,2010    |       | December 31,2009
|                                              |  | (in thousands)
|Mortgage note payable, interest rate of 6.84% |  | $              | 8,846 |                  | $ | 8,997
|Less - current maturities                     |  |                | 320   |                  |   | 310  
|                                              |  |                |       |                  |   |      
|                                              |  | $              | 8,526 |                  | $ | 8,687
|                                              |  |                |       |                  |   |      

On March 30, 2006, the Company entered into a 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 include 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.



7



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The
bank agrees, at the Companys request, to issue letters of credit in the banks name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of July 4, 2010, the value of the
outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $ 479,648. This restricted cash value is included in the Companys balance sheet in other current assets.

(6) Net Income (loss) Per Share (EPS)

Basic EPS is computed by dividing net 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. Due to their antidilutive effect, approximately 334,852 and 513,308
options to purchase common stock were excluded from the calculation of diluted earnings per share for the three and six months ended July 4, 2010, respectively, and 682,610 and 777,382 options were excluded for the three and six months ended
June 28, 2009, respectively. However, these options could become dilutive in future periods.

(7) Accounting for Stock-Based
Compensation

The Companys stock option compensation expense was $ 315,463 and $632,253 for the three and six months ended
July 4, 2010 and $ 310,126 and $608,571 for the three and six months ended June 28, 2009, respectively. These amounts do not include expense related to restricted stock awards issued in 2009. No restricted stock has been issued during the
first six months of 2010.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. This
model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and expected volatility in the market value of the underlying common stock.
The Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting forfeitures and record
stock-based compensation expense only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by annualized estimated forfeiture rates of 4% and 5% for the three and six month periods ended
July 4, 2010 and June 28, 2009, respectively. We used the following assumptions for options granted in the following periods:



|                                              |  |                  |   |  |               |  
|--------------------------------------------- |  | ---------------- | - |  | ------------- | -
|                                              |  | Six months ended |  
|                                              |  | July 4, 2010     |   |  | June 28, 2009 |  
|Calculation of Fair Value - Assumptions Used: |  |                  |   |  |               |  
|Expected Volatility                           |  | 66.83            | % |  | 65.57         | %
|Expected Life                                 |  | 4.69             |   |  | 4.67          |  
|Risk-Free Interest Rate                       |  | 1.91             | % |  | 2.17          | %
|Expected Dividend Yield                       |  | 0                |   |  | 0             |  

Expected volatilities are
based on the historical volatility of the Companys common stock. The Company had significant historical data to help evaluate the expected lives of options in developing its assumption. The risk-free interest rate is based upon quoted market
yields for United States Treasury debt securities. The expected dividend yield is based upon the Companys history of having never issued a dividend and managements current expectation of future action surrounding dividends. The following
table summarizes the stock option activity during the six months ended July 4, 2010.



8



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



|                                 |  |           |   |  |                               |      |                                 |      |                         |   |          
|-------------------------------- |  | --------- | - |  | ----------------------------- | ---- | ------------------------------- | ---- | ----------------------- | - | ---------
|                                 |  | Shares    |   |  | Weighted-AverageExercisePrice |      | AverageRemainingContractualTerm |      | AggregateIntrinsicValue
|Options                          |  |           |   |  |                               |      |                                 |      |                         |   |          
|Outstanding at December 31, 2009 |  | 1,177,028 |   |  | $                             | 6.55 |                                 |      |                         |   |          
|Granted                          |  | 145,024   |   |  | $                             | 5.39 |                                 |      |                         |   |          
|Exercised                        |  | (20,229   | ) |  | $                             | 3.29 |                                 |      |                         |   |          
|Forfeited                        |  | (45,780   | ) |  | $                             | 6.91 |                                 |      |                         |   |          
|                                 |  |           |   |  |                               |      |                                 |      |                         |   |          
|                                 |  |           |   | 
|Outstanding at July 4, 2010      |  | 1,256,043 |   |  | $                             | 6.46 |                                 | 4.89 |                         | $ | 1,042,399
|Exercisable at July 4, 2010      |  | 521,424   |   |  | $                             | 7.65 |                                 | 3.45 |                         | $ | 537,195  

The weighted-average grant-date
fair values of options granted during the six-month periods ended July 4, 2010 and June 28, 2009 were $2.97 and $4.06, respectively. The aggregate fair value of options exercised during the six-month period ended July 4, 2010 and
June 28, 2009 was $39,566 and $4,437, respectively

As of July 4, 2010 there was $3,604,471 of total unrecognized compensation cost
related to non-vested options granted under the Companys option plans. That cost is expected to be recognized over a weighted average period of 2.23 years. The total fair value of options vested during the six-month period ended July 4,
2010 was $710,561.

(8) Revenue Recognition

For the three and six months ended July 4, 2010, there was $766,300 and $1,555,412, respectively, of revenue recognized using the percentage of
completion method. For the three and six months ended June 28, 2009, there was $1,838,326 and $2,889,613, respectively, of revenue recognized using the percentage of completion method. For additional information on the Companys revenue
recognition policies, please see note 1 in the notes to the Companys audited consolidated financial statements included in the Companys Annual Report on Form 10-K filed March 4, 2010 with the Securities and Exchange Commission.

(9) Fair Value of Financial Instruments

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



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



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



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

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



9



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(unaudited)



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

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

c. Long-term DebtThe fair value of long-term indebtedness as of July 4, 2010 was approximately $8,526,000. The current market interest
rate approximates the rate of the mortgage note payable of 6.84%.

(10) Contingent Liabilities

As an equipment manufacturer, the Company generates and disposes of small quantities of solid waste that is considered hazardous under EPA regulations.
Because the Company used a waste disposal firm that disposed the solid waste at a site that the EPA has designated as a Superfund site, the Company has been named by the EPA as one of the entities responsible for a portion of the expected clean-up
costs. Based on the Companys proportional responsibility, as negotiated with and agreed to by the EPA, the Companys liability related to this matter is $225,140. This amount is included in other current liabilities on the balance sheet
as of July 4, 2010. On October 2, 2009, in accordance with the agreement, the Company established a letter of credit for $225,140 to the benefit of the EPA for potential cash payments as settlements for the Companys proportional
liability.

(11) Recent Accounting Pronouncements

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

(12) Segment Reporting

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

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

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



|              |  |                |       |                  |   |      
|------------- |  | -------------- | ----- | ---------------- | - | -----
|              |  | July 4,2010    |       | December 31,2009
|              |  | (in thousands)
|United States |  | $              | 5,215 |                  | $ | 5,679
|Asia Pacific  |  |                | 710   |                  |   | 653  
|              |  |                |       |                  |   |      
|              |  | $              | 5,925 |                  | $ | 6,332
|              |  |                |       |                  |   |      



10



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##### Table of Contents

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

OVERVIEW

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

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

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

RESULTS OF OPERATIONS

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



|                                                |  |                    |        |                   |               |   |  |   |        |               |  |       |               |  |        |   
|----------------------------------------------- |  | ------------------ | ------ | ----------------- | ------------- | - |  | - | ------ | ------------- |  | ----- | ------------- |  | ------ | --
|                                                |  | Three Months Ended |        |                   |               |  
|                                                |  | July 4, 2010       |        |                   | June 28, 2009 |   |  |   |       
|                                                |  |                    |        | ( $ in thousands) |               |   |  |   |        |               | 
|                                                |  |                    |        | % ofNet Sales     |               |   |  |   |        | % ofNet Sales |  |       | PercentChange | 
|Net sales                                       |  | $                  | 18,031 |                   | 100.0         | % |  | $ | 10,808 |               |  | 100.0 | %             |  | 66.8   | % 
|Cost of goods sold                              |  |                    | 10,339 |                   | 57.3          | % |  |   | 7,179  |               |  | 66.4  | %             |  | 44.0   | % 
|                                                |  |                    |        |                   |               |   |  |   |        |               |  |       |               |  |        |   
|Gross profit                                    |  |                    | 7,692  |                   | 42.7          | % |  |   | 3,629  |               |  | 33.6  | %             |  | 112.0  | % 
|                                                |  |                    |        |                   |              
|Selling, general and administrative expenses    |  |                    | 5,237  |                   | 29.0          | % |  |   | 4,770  |               |  | 44.1  | %             |  | 9.8    | % 
|Research, development and engineering expenses  |  |                    | 1,557  |                   | 8.6           | % |  |   | 1,897  |               |  | 17.6  | %             |  | (17.9  | )%
|                                                |  |                    |        |                   |               |   |  |   |        |               |  |       |               |  |        |   
|Operating income (loss)                         |  |                    | 898    |                   | 5.0           | % |  |   | (3,038 | )             |  | (28.1 | )%            |  | (129.6 | )%
|                                                |  |                    |        |                   |              
|Income (loss) before provision for income taxes |  |                    | 819    |                   | 4.5           | % |  |   | (3,288 | )             |  | (30.4 | )%            |  | (124.9 | )%
|                                                |  |                    |        |                   |               |   |  |   |        |               |  |       |               |  |        |   
|                                                |  |                    |        |                   |              
|Provision for income taxes                      |  |                    | 564    |                   | 3.1           | % |  |   | 198    |               |  | 1.8   | %             |  | 184.8  | % 
|                                                |  |                    |        |                   |               |   |  |   |        |               |  |       |               |  |        |   
|                                                |  |                    |        |                   |              
|Net income (loss)                               |  | $                  | 255    |                   | 1.4           | % |  | $ | (3,486 | )             |  | (32.3 | )%            |  | (107.3 | )%
|                                                |  |                    |        |                   |               |   |  |   |        |               |  |       |               |  |        |   



11



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##### Table of Contents

|                                                |  |                  |        |   |                   |       |    |  |   |        |               |  |       |               |  |        |   
|----------------------------------------------- |  | ---------------- | ------ | - | ----------------- | ----- | -- |  | - | ------ | ------------- |  | ----- | ------------- |  | ------ | --
|                                                |  | Six Months Ended |        |   |                   |      
|                                                |  | July 4, 2010     |        |   | June 28, 2009     |       |    |  |  
|                                                |  |                  |        |   | ( $ in thousands) |       |    |  |   |        |               | 
|                                                |  |                  |        |   | % ofnet sales     |       |    |  |   |        | % ofnet sales |  |       | Percentchange | 
|Net sales                                       |  | $                | 35,223 |   |                   | 100.0 | %  |  | $ | 20,614 |               |  | 100.0 | %             |  | 70.9   | % 
|Cost of goods sold                              |  |                  | 20,435 |   |                   | 58.0  | %  |  |   | 15,546 |               |  | 75.4  | %             |  | 31.4   | % 
|                                                |  |                  |        |   |                   |       |    |  |   |        |               |  |       |               |  |        |   
|Gross profit                                    |  |                  | 14,788 |   |                   | 42.0  | %  |  |   | 5,068  |               |  | 24.6  | %             |  | 191.8  | % 
|                                                |  |                  |        |   |                  
|Selling, general and administrative expenses    |  |                  | 10,776 |   |                   | 30.6  | %  |  |   | 8,700  |               |  | 42.2  | %             |  | 23.9   | % 
|Research, development and engineering expenses  |  |                  | 3,195  |   |                   | 9.1   | %  |  |   | 3,875  |               |  | 18.8  | %             |  | (17.5  | )%
|                                                |  |                  |        |   |                   |       |    |  |   |        |               |  |       |               |  |        |   
|Operating income (loss)                         |  |                  | 817    |   |                   | 2.3   | %  |  |   | (7,507 | )             |  | (36.4 | )%            |  | (110.9 | )%
|                                                |  |                  |        |   |                  
|Income (loss) before provision for income taxes |  |                  | 663    |   |                   | 1.9   | %  |  |   | (7,859 | )             |  | (38.1 | )%            |  | (108.4 | )%
|                                                |  |                  |        |   |                   |       |    |  |   |        |               |  |       |               |  |        |   
|                                                |  |                  |        |   |                  
|Provision for income taxes                      |  |                  | 701    |   |                   | 2.0   | %  |  |   | 181    |               |  | 0.9   | %             |  | 287.3  | % 
|                                                |  |                  |        |   |                   |       |    |  |   |        |               |  |       |               |  |        |   
|                                                |  |                  |        |   |                  
|Net loss                                        |  | $                | (38    | ) |                   | (0.1  | )% |  | $ | (8,040 | )             |  | (39.0 | )%            |  | (99.5  | )%
|                                                |  |                  |        |   |                   |       |    |  |   |        |               |  |       |               |  |        |   

Net Sales. Net sales in the second quarter of 2010 increased by $7.2 million or 66.8% versus the same
quarter in 2009. For the Companys electronic market systems, the sales increase was $5.4 million or 110.6%; for alternative energy systems, sales increased by $1.6 million or 35.6%. Parts, service and other market systems increased by $0.2
million versus the prior period.

Net sales for the first six months 2010 versus the same period in 2009 increased by $14.6 million or 70.9%.
For the Companys electronic market systems, sales increased by $11.0 million or 155.5%; for alternative energy systems, sales increased by $3.8 million or 36.7%. Parts, service and other market systems decreased by $0.2 million. The
Companys six month 2010 alternative energy systems sales growth versus the same period in 2009 is the result of increased revenue for both nuclear and solar products. The substantial growth in the first six months of 2010, as compared to the
same period in 2009, for the Companys electronic market systems revenue, particularly in China, represents the continuing recovery of demand for our electronic products from the economic recession.

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



|                  |  |                    |        |              |                  |   |                  |              |              |  |               |   |  |              |        |  |      |   |              |   |        |  |      |  
|----------------- |  | ------------------ | ------ | ------------ | ---------------- | - | ---------------- | ------------ | ------------ |  | ------------- | - |  | ------------ | ------ |  | ---- | - | ------------ | - | ------ |  | ---- | -
|                  |  | Three Months Ended |        |              | Six Months Ended |  
|                  |  | July 4, 2010       |        |              | June 28, 2009    |   |                  | July 4, 2010 |              |  | June 28, 2009 |  
|                  |  | ($ in thousands)   |        |              |                  |   | ($ in thousands) |             
|                  |  | $                  |        | % ofRevenues |                  |   | $                |              | % ofRevenues |  |               | $ |  | % ofrevenues |        |  | $    |   | % ofrevenues |  
|United States     |  | $                  | 1,819  |              | 10.1             | % |                  | $            | 3,701        |  | 34.2          | % |  | $            | 2,967  |  | 8.4  | % |              | $ | 5,639  |  | 27.4 | %
|Europe, Near East |  |                    | 2,504  |              | 13.9             | % |                  |              | 2,638        |  | 24.4          | % |  |              | 6,586  |  | 18.7 | % |              |   | 4,953  |  | 24.0 | %
|Asia Pacific      |  |                    | 13,251 |              | 73.5             | % |                  |              | 4,402        |  | 40.7          | % |  |              | 24,647 |  | 70.0 | % |              |   | 9,044  |  | 43.9 | %
|Other Americas    |  |                    | 457    |              | 2.5              | % |                  |              | 67           |  | 0.6           | % |  |              | 1,023  |  | 2.9  | % |              |   | 978    |  | 4.7  | %
|                  |  |                    |        |              |                  |   |                  |              |              |  |               |   |  |              |        |  |      |   |              |   |        |  |      |  
|                  |  |                    |        |              |                  |   |                  |             
|Total Revenue     |  | $                  | 18,031 |              |                  |   |                  | $            | 10,808       |  |               |   |  | $            | 35,223 |  |      |   |              | $ | 20,614 |  |      |  
|                  |  |                    |        |              |                  |   |                  |              |              |  |               |   |  |              |        |  |      |   |              |   |        |  |      |  

The above geographical revenue breakdown between 2010 versus 2009, reflects the magnitude of the recovery in Asia
from the economic downturn.



12



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##### Table of Contents

Gross Profit . The second quarter 2010 gross profit of $7.7 million increased by $4.1 million or
112.0% versus the second quarter of 2009 primarily as a result of the 66.8% revenue increase. In the second quarter of 2010 as compared to the same period of 2009, gross profit as a percentage of sales increased to 42.7% as compared to 33.6%
reflecting the increased factory utilization primarily in our China facilities.

The gross profit for the first half of 2010 increased to
$14.8 million or by 191.8% versus $5.1 million for the same period in 2009. The gross profit as a percentage of sales for the first six months of 2010 increased to 42.0% from 24.6% for the first six months of 2009. These increases are due primarily
to the 70.9% revenue increase and improved factory utilization, primarily in China.

Selling, General and Administrative (SG&A).
SG&A second quarter expenses in 2010 versus the second quarter of 2009 increased by $0.4 million or 9.8% from $4.8 million to $5.2 million. SG&A expenses for the first six months of 2010 versus the same period in 2009 increased by $2.1
million or 23.9% from $8.7 million to $10.8 million. For both the second quarter and the first six months of 2010 as compared to the respective periods in 2009, the SG&A increase occurred primarily in commission expense resulting from increased
revenue in 2010 versus 2009.

Research, Development and Engineering (RD&E). RD&E expenses decreased by $0.3 million or 17.9%
from $1.9 million in the second quarter of 2009 to $1.6 million in the second quarter of 2010. RD&E expenses decreased by $0.7 million or 17.5% to $3.2 million for the first six months of 2010 as compared to $3.9 million for the same period in
2009. The reductions are the result of the Companys actions to reduce R&D prototype model costs, as new products were introduced.

Operating Income (Loss). The impact of the revenue increases and its associated increases on gross margins in the second quarter of 2010 and the
first six months of 2010 resulted in operating income for both periods as compared to operating losses for the same periods in 2009. Our Q2 results were favorably affected by a $265,000 accumulated credit from state unemployment taxes, which reduced
both costs of goods sold and selling, general and administrative expenses.

Interest Income (Expense). In both the second quarter and first
six months of 2010 as compared to the same periods in 2009, interest expense remained relatively stable. Interest income is minimal in 2010 due to market interest rates which were at low levels and lower cash balances.

Foreign Exchange loss. The foreign exchange gain in the second quarter of 2010 was $40,000 as compared to a loss of $177,000 in the second quarter
of 2009. For the first six months of 2010 the foreign exchange gain was $106,000 as compared to a loss of $235,000 for the same period in 2009. The Companys primary exposure to foreign exchange losses result from U.S. dollar denominated
balance sheet accounts recorded at the Companys China and UK operations and China RMB denominated balance sheet accounts recorded at the Companys U.S. headquarters.

Income Taxes.During the three and six months ended July 4, 2010, we recorded an income tax provision of approximately $564,000 and $701,000,
respectively as compared to $198,000 and $181,000 respectively for the three and six months ended June 28, 2009. The Companys income tax provision primarily relates to income and withholding taxes related to our China operations.

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



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The Company has federal and state net operating loss carry forwards of approximately $7.3 million
against which it has recorded a full valuation allowance because of uncertainty surrounding realization. Our statutory federal income tax rate is 34.0%. The Companys 2010 statutory income tax rate for its China manufacturing subsidiary is
22.0%.

LIQUIDITY AND CAPITAL RESOURCES

As of July 4, 2010, we had $19.2 million in cash and cash equivalents, a decrease of $6.2 million compared to $25.4 million at December 31,
2009.

During the six months ended July 4, 2010, the Company used net cash of approximately $5.7 million from operating activities. This
use of cash was primarily the result of an increase in accounts receivable of $6.1 million, a reduction in customer deposits of $2.5 million, a decrease in accrued expenses of $0.7 million; offset by depreciation and amortization of $1.1 million, an
increase in accounts payable of $1.0 million, stock based compensation of $0.6, and a decrease in net inventory of $1.0 million.

On
August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Companys request, to issue letters of credit in the banks name and the Company agrees to cash collateralize the letters
of credit via restricted cash deposits at the bank. At July 4, 2010, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $479,648. This restricted cash value is included
in the Companys balance sheet in other current assets.

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 July 4, 2010 of approximately $8.8 million.

As of July 4, 2010, the Company has no material commitments relating to capital expenditures. There were no significant changes in Company
commitments that were outlined in the Companys Form 10-K filing for 2009.

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

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

During the six months ended July 4, 2010, we believe that there have been no significant changes to the items that we disclosed as our critical
accounting policies and estimates in the Critical Accounting Policies and Significant Estimates section of Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the fiscal year ended December 31, 2009.

OTHER MATTERS

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

FORWARD LOOKING STATEMENTS

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



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vary materially. Unless otherwise required by law, we disclaim any obligation to revise or update this information in order to reflect future events or developments, whether or not anticipated.
Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.



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

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

As of July 4, 2010 and December 31, 2009, all of our long-term
debt obligations are fixed rate financial instruments. Therefore we are not exposed to interest rate risk resulting from the variable interest rate of our debt.



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

Controls and Procedures.

Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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

PART II. OTHER INFORMATION



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

Risk factors are disclosed
in the Companys 2009 Annual Report on Form 10-K. During the six months ended July 4, 2010, there were no material changes to the risk factors for the business.



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

(a) Exhibits

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: August 5, 2010 |  | BY:                     |  | /S/    PAUL J. VAN
DER WANSEM                                                                                                 
|                     |  |                         |  | Paul J. van der Wansem
President, Chief Executive Officer
(principal executive officer) and Chairman of the Board of Directors
|                     |  |                        
|DATE: August 5, 2010 |  | BY:                     |  | /S/     PETER J.
TALLIAN                                                                                                      
|                     |  |                         |  | Peter J. Tallian
Chief Financial Officer and Principal Accounting Officer
(principal financial and accounting officer)        



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