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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 March 30, 2008

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



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

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

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act).    Yes   ̈    No  x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ̈    No  x

Indicate the number of shares outstanding of the Registrants Common Stock, par value $.01 per share, as of the latest
practicable date: As of May 7, 2008: 9,361,815 shares.









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BTU INTERNATIONAL, INC.

TABLE OF CONTENTS



|                                                                                              |  |      
|--------------------------------------------------------------------------------------------- |  | -----
|PART I. FINANCIAL INFORMATION                                                                
|                                                                                              | 
|Item 1. Financial Statements (Unaudited)                                                      |  |      
|                                                                                              | 
|Unaudited Condensed Consolidated Balance Sheets                                               |  | 1    
|Unaudited Condensed Consolidated Statements of Operations                                     |  | 2    
|Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Income  |  | 3    
|Unaudited Condensed Consolidated Statements of Cash Flows                                     |  | 4-5  
|Notes to Unaudited Condensed Consolidated Financial Statements                                |  | 6-13 
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13-15
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 16   
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 16-17
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    |  |      
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 17   
|                                                                                              | 
|Item 5. Exhibits                                                                              |  |      
|                                                                                              | 
|Signatures                                                                                    |  | 17   
|EX-31.1 Section 302 Certification of C.E.O.                                                   |  |      
|EX-31.2 Section 302 Certification of C.F.O.                                                   |  |      
|EX-32.1 Section 906 Certification of C.E.O.                                                   |  |      
|EX-32.2 Section 906 Certification of C.F.O.                                                   |  |      



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)



|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                                                                                             |  | March 30,2008 |        |   | December 31,2007 |  
|Assets                                                                                                                                                                                                                       |  |               |        |   |                  |   |        |  
|Current assets                                                                                                                                                                                                               |  |               |        |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                                                                                    |  | $             | 26,673 |   |                  | $ | 25,065 |  
|Accounts receivable, net                                                                                                                                                                                                     |  |               | 20,451 |   |                  |   | 18,832 |  
|Inventories, net                                                                                                                                                                                                             |  |               | 17,167 |   |                  |   | 16,891 |  
|Other current assets                                                                                                                                                                                                         |  |               | 1,273  |   |                  |   | 787    |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total current assets                                                                                                                                                                                                         |  |               | 65,564 |   |                  |   | 61,575 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Property, plant and equipment, net                                                                                                                                                                                           |  |               | 5,634  |   |                  |   | 5,536  |  
|Other assets, net                                                                                                                                                                                                            |  |               | 2,165  |   |                  |   | 2,401  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total assets                                                                                                                                                                                                                 |  | $             | 73,363 |   |                  | $ | 69,512 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Liabilities and stockholders equity                                                                                                                                                                                         |  |               |        |   |                  |   |        |  
|Current liabilities                                                                                                                                                                                                          |  |               |        |   |                  |   |        |  
|Current portion of long-term debt                                                                                                                                                                                            |  | $             | 281    |   |                  | $ | 277    |  
|Accounts payable                                                                                                                                                                                                             |  |               | 6,803  |   |                  |   | 5,645  |  
|Other current liabilities                                                                                                                                                                                                    |  |               | 6,661  |   |                  |   | 5,088  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total current liabilities                                                                                                                                                                                                    |  |               | 13,745 |   |                  |   | 11,010 |  
|Long-term debt, less current portion                                                                                                                                                                                         |  |               | 9,199  |   |                  |   | 9,267  |  
|Other long-term liabilities                                                                                                                                                                                                  |  |               | 300    |   |                  |   | 300    |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total liabilities                                                                                                                                                                                                            |  |               | 23,244 |   |                  |   | 20,577 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|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; 10,509,593 shares issued and 9,360,583 shares outstanding at March 30, 2008
and 10,502,311 shares issued and 9,353,301 shares outstanding at December 31, 2007 |  |               | 105    |   |                  |   | 105    |  
|Additional paid in capital                                                                                                                                                                                                   |  |               | 44,297 |   |                  |   | 44,046 |  
|Retained earnings                                                                                                                                                                                                            |  |               | 7,913  |   |                  |   | 7,814  |  
|Treasury stock, at cost, 1,149,010 shares at March 30, 2008 and December 31, 2007                                                                                                                                            |  |               | (4,177 | ) |                  |   | (4,177 | )
|Accumulated other comprehensive income                                                                                                                                                                                       |  |               | 1,981  |   |                  |   | 1,147  |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total stockholders equity                                                                                                                                                                                                   |  |               | 50,119 |   |                  |   | 48,935 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  
|Total liabilities and stockholders equity                                                                                                                                                                                   |  | $             | 73,363 |   |                  | $ | 69,512 |  
|                                                                                                                                                                                                                             |  |               |        |   |                  |   |        |  

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



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)



|                                               |  |                    |           |   |              |   |           |  
|---------------------------------------------- |  | ------------------ | --------- | - | ------------ | - | --------- | -
|                                               |  | Three Months Ended |          
|                                               |  | March 30,2008      |           |   | April 1,2007 |  
|Net sales                                      |  | $                  | 16,619    |   |              | $ | 15,164    |  
|Costs of goods sold                            |  |                    | 9,996     |   |              |   | 8,600     |  
|                                               |  |                    |           |   |              |   |           |  
|Gross profit                                   |  |                    | 6,623     |   |              |   | 6,564     |  
|Operating expenses:                            |  |                    |           |   |              |   |           |  
|Selling, general and administrative            |  |                    | 4,912     |   |              |   | 4,543     |  
|Research, development and engineering          |  |                    | 1,603     |   |              |   | 1,371     |  
|                                               |  |                    |           |   |              |   |           |  
|Operating income                               |  |                    | 108       |   |              |   | 650       |  
|Interest income                                |  |                    | 100       |   |              |   | 266       |  
|Interest expense                               |  |                    | (180      | ) |              |   | (166      | )
|Foreign exchange gain (loss)                   |  |                    | 124       |   |              |   | (122      | )
|Other income                                   |  |                    |          |   |              |   | 106       |  
|                                               |  |                    |           |   |              |   |           |  
|Income before provision for income taxes       |  |                    | 152       |   |              |   | 734       |  
|Provision for income taxes                     |  |                    | (53       | ) |              |   | (75       | )
|                                               |  |                    |           |   |              |   |           |  
|Net income                                     |  | $                  | 99        |   |              | $ | 659       |  
|                                               |  |                    |           |   |              |   |           |  
|Income per share:                              |  |                    |           |   |              |   |           |  
|Basic                                          |  | $                  | 0.01      |   |              | $ | 0.07      |  
|Diluted                                        |  | $                  | 0.01      |   |              | $ | 0.07      |  
|Weighted average number of shares outstanding: |  |                    |           |   |              |   |           |  
|Basic shares                                   |  |                    | 9,355,316 |   |              |   | 9,218,358 |  
|Effect of dilutive options                     |  |                    | 164,350   |   |              |   | 194,142   |  
|                                               |  |                    |           |   |              |   |           |  
|Diluted shares                                 |  |                    | 9,519,666 |   |              |   | 9,412,500 |  
|                                               |  |                    |           |   |              |   |           |  

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

FOR THE THREE MONTHS ENDED March 30, 2008

(in thousands)

(unaudited)



|                             |  |              |  |                          |     |                  |   |                |  |   |                                     |  |       |       |   |        |   |  |   |       |  |   |       
|---------------------------- |  | ------------ |  | ------------------------ | --- | ---------------- | - | -------------- |  | - | ----------------------------------- |  | ----- | ----- | - | ------ | - |  | - | ----- |  | - | ------
|                             |  | Common Stock |  | AdditionalPaid-InCapital |     | RetainedEarnings |   | Treasury Stock |  |   | OtherAccumulatedComprehensiveIncome |  |      
|                             |  | # of shares  |  | $                        |     |                  |   | # of shares    |  | $ |                                     |  |       | Total
|Balance at December 31, 2007 |  | 10,502       |  | $                        | 105 |                  | $ | 44,046         |  | $ | 7,814                               |  | 1,149 |       | $ | (4,177 | ) |  | $ | 1,147 |  | $ | 48,935
|Net income                   |  |             |  |                          |    |                  |   |               |  |   | 99                                  |  |      |       |   |       |   |  |   |      |  |   | 99    
|Exercise of stock options    |  | 8            |  |                          |    |                  |   | 21             |  |   |                                    |  |      |       |   |       |   |  |   |      |  |   | 21    
|Stock-based compensation     |  |             |  |                          |    |                  |   | 230            |  |   |                                    |  |      |       |   |       |   |  |   |      |  |   | 230   
|Translation adjustment       |  |             |  |                          |    |                  |   |               |  |   |                                    |  |      |       |   |       |   |  |   | 834   |  |   | 834   
|                             |  |              |  |                          |     |                  |   |                |  |   |                                     |  |       |       |   |        |   |  |   |       |  |   |       
|Balance at March 30, 2008    |  | 10,510       |  | $                        | 105 |                  | $ | 44,297         |  | $ | 7,913                               |  | 1,149 |       | $ | (4,177 | ) |  | $ | 1,981 |  | $ | 50,119
|                             |  |              |  |                          |     |                  |   |                |  |   |                                     |  |       |       |   |        |   |  |   |       |  |   |       



|                                               |  |                                  |    
|---------------------------------------------- |  | -------------------------------- | ---
|                                               |  | Three Months EndedMarch 30, 2008
|Comprehensive income is calculated as follows: |  |                                  |    
|Net income                                     |  | $                                | 99 
|Other comprehensive income                     |  |                                  |    
|Foreign currency translation adjustment        |  |                                  | 834
|                                               |  |                                  |    
|Comprehensive income                           |  | $                                | 933
|                                               |  |                                  |    

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



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 30, 2008 AND APRIL 1, 2007

(in thousands)

(unaudited)



|                                                                    |  |               |        |   |              |   |        |  
|------------------------------------------------------------------- |  | ------------- | ------ | - | ------------ | - | ------ | -
|                                                                    |  | March 30,2008 |        |   | April 1,2007 |  
|Cash flows from operating activities:                               |  |               |        |   |              |   |        |  
|Net income                                                          |  | $             | 99     |   |              | $ | 659    |  
|Adjustments to reconcile net cash provided by operating activities: |  |               |        |   |              |   |        |  
|Depreciation and amortization                                       |  |               | 428    |   |              |   | 341    |  
|Provision for bad debt                                              |  |               | 24     |   |              |   | (32    | )
|Provision for inventory                                             |  |               | (97    | ) |              |   | 36     |  
|Stock-based compensation                                            |  |               | 230    |   |              |   | 128    |  
|Gain on foreign currency hedge                                      |  |               | (364   | ) |              |   |       |  
|Net change in operating assets and liabilities:                     |  |               |        |   |              |   |        |  
|Accounts receivable                                                 |  |               | (1,431 | ) |              |   | 1,610  |  
|Inventories                                                         |  |               | 32     |   |              |   | 1,268  |  
|Other current assets                                                |  |               |       |   |              |   | 463    |  
|Other assets                                                        |  |               | (31    | ) |              |   | 58     |  
|Customer deposits                                                   |  |               | 136    |   |              |   | 642    |  
|Accounts payable                                                    |  |               | 996    |   |              |   | (833   | )
|Accrued expenses                                                    |  |               | 1,463  |   |              |   | (1,489 | )
|                                                                    |  |               |        |   |              |   |        |  
|Net cash provided by operating activities                           |  |               | 1,485  |   |              |   | 2,851  |  
|                                                                    |  |               |        |   |              |   |        |  
|Cash flows from investing activities:                               |  |               |        |   |              |   |        |  
|Purchases of property, plant and equipment                          |  |               | (374   | ) |              |   | (506   | )
|Settlement of forward hedge contract                                |  |               | 60     |   |              |   |       |  
|                                                                    |  |               |        |   |              |   |        |  
|Net cash used in investing activities                               |  |               | (314   | ) |              |   | (506   | )
|                                                                    |  |               |        |   |              |   |        |  
|Cash flows from financing activities:                               |  |               |        |   |              |   |        |  
|Principal payments under loan and capital lease agreements          |  |               | (64    | ) |              |   | (62    | )
|Proceeds from the exercise of stock options                         |  |               | 21     |   |              |   | 189    |  
|                                                                    |  |               |        |   |              |   |        |  
|Net cash provided by (used in) financing activities                 |  |               | (43    | ) |              |   | 127    |  
|                                                                    |  |               |        |   |              |   |        |  
|Effects of exchange rates on cash                                   |  |               | 480    |   |              |   | 114    |  
|                                                                    |  |               |        |   |              |   |        |  
|Net increase in cash and cash equivalents                           |  |               | 1,608  |   |              |   | 2,586  |  
|Cash and cash equivalents, beginning of period                      |  |               | 25,065 |   |              |   | 25,100 |  
|                                                                    |  |               |        |   |              |   |        |  
|Cash and cash equivalents, end of period                            |  | $             | 26,673 |   |              | $ | 27,686 |  
|                                                                    |  |               |        |   |              |   |        |  

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



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

FOR THE THREE MONTHS ENDED MARCH 30, 2008 AND
APRIL 1, 2007

(in thousands)

(unaudited)



|                                                   |  |               |    |              |   |      |  
|-------------------------------------------------- |  | ------------- | -- | ------------ | - | ---- | -
|                                                   |  | March 30,2008 |    | April 1,2007 |  
|Supplemental disclosures of cash flow information: |  |               |    |              |   |      |  
|Cash paid (received) during the periods for:       |  |               |    |              |   |      |  
|Interest                                           |  | $             | 76 |              | $ | (111 | )
|Income taxes                                       |  |               | 17 |              |   | 57   |  

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



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BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis for Presentation

The condensed consolidated balance sheet, financial information and related disclosures as of and for the year ended December 31, 2007 have been derived from our
consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of March 30, 2008 and the related condensed consolidated statements of stockholders equity and comprehensive income
for the three months ended March 30, 2008 are unaudited. The condensed consolidated statements of operations and of cash flows for the three months ended March 30, 2008 and April 1, 2007 are also 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, 2007, 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) Inventories (in thousands):



|                                          |  |               |        |                  |   |       
|----------------------------------------- |  | ------------- | ------ | ---------------- | - | ------
|                                          |  | March 30,2008 |        | December 31,2007
|Raw materials and manufactured components |  | $             | 10,396 |                  | $ | 11,439
|Work-in-process                           |  |               | 5,196  |                  |   | 3,718 
|Finished goods                            |  |               | 1,575  |                  |   | 1,734 
|                                          |  |               |        |                  |   |       
|                                          |  | $             | 17,167 |                  | $ | 16,891
|                                          |  |               |        |                  |   |       

(3) Debt

Long-Term Debt at March 30, 2008 and December 31, 2007 consisted of (in thousands):



|                                                  |  |               |       |                  |   |      
|------------------------------------------------- |  | ------------- | ----- | ---------------- | - | -----
|                                                  |  | March 30,2008 |       | December 31,2007
|Mortgage note payable, interest rate of 6.84%     |  | $             | 9,475 |                  | $ | 9,538
|Capital lease obligations, interest rate of 6.75% |  |               | 5     |                  |   | 6    
|                                                  |  |               |       |                  |   |      
|                                                  |  |               | 9,480 |                  |   | 9,544
|Less - current maturities                         |  |               | 281   |                  |   | 277  
|                                                  |  |               |       |                  |   |      
|                                                  |  | $             | 9,199 |                  | $ | 9,267
|                                                  |  |               |       |                  |   |      

On March 30, 2006, we entered into a new mortgage note that is secured by our real property in Billerica, MA,
in the amount of $10 million. The mortgage note requires monthly payments of $76,280, which includes interest calculated at the rate of 6.84% per annum. This mortgage note payable has a balloon payment of $6.8 million due and payable
at maturity on December 23, 2015. The mortgage note had an outstanding balance at March 30, 2008 of approximately $9.5 million.

On March 1,
2007, the Company entered into an amended revolving loan agreement with a bank that allows for unsecured aggregate borrowings, including letters of credit, up to a maximum of $15 million against a borrowing base of accounts receivable, inventory and
fixed assets. The Company may elect to borrow at interest rates related to the banks prime rate or LIBOR. This loan agreement extends to December 31, 2010.



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BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



As of March 30, 2008, the borrowing base would support the maximum borrowings of $15 million, and there were no
borrowings outstanding under the loan agreement.

(4) Earnings Per Share (EPS)

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of
common and dilutive potential common shares outstanding during the period, using the treasury stock method. The number of common shares underlying options that were not included in the determination of diluted EPS, because their effect would be
anti-dilutive, was 658,445 and 148,921 for the three months ended March 30, 2008 and April 1, 2007, respectively. The Company has elected to adopt the Alternative Transition method provided by the FASB Staff Position 123(R)-3 for
calculating the tax effects of stock-based compensation expense pursuant to Financial Accounting Standards Board Statement 123R, Share-Based Payment (SFAS 123R).

(5) Accounting for Stock-Based Compensation

Effective January 1, 2006, the Company adopted the provisions of Financial Accounting
Standards Board Statement 123R, Share-Based Payment (SFAS 123R). This statement establishes standards for accounting for transactions in which an entity exchanges its equity instruments for goods or services. The Company has elected to adopt the
standard using the modified prospective application under which compensation cost is recognized on or after the required effective date for the fair value of all future share-based award grants and for the portion of outstanding awards at the date
of adoption of this statement for which the requisite service has not been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for pro forma disclosures. The Companys stock option compensation expense was
$230,000 and $128,000 for the three months ended March 30, 2008 and April 1, 2007, respectively.

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. We used the following assumptions for options issued in the following period:



|                                               |  |                    |  |         
|---------------------------------------------- |  | ------------------ |  | --------
|                                               |  | Three Months Ended
|                                               |  | 30-Mar-08          |  | 1-Apr-07
|Calculation of Fair Values - Assumptions Used: |  |                    |  |         
|Expected Volatility                            |  | 63.83%             |  | 60.00%  
|Expected Life - Years                          |  | 4.50 to 4.75       |  | 3.00    
|Risk-Free Interest Rate                        |  | 2.08% to 2.62%     |  | 4.54%   
|Expected Dividend Yield                        |  | None               |  | None    

Expected volatilities are based on the historical volatility of the Companys common stock. The Company had
significant historical data to help evaluate the expected lives of options in developing its assumption. The risk-free interest rate is based upon quoted market yields for Unites 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.



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BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



The following table summarizes the stock option activity during the three months ended March 30, 2008:

2008 Option Activity:



|                                 |  |         |   |  |                               |       |                                 |      |                         |   |          
|-------------------------------- |  | ------- | - |  | ----------------------------- | ----- | ------------------------------- | ---- | ----------------------- | - | ---------
|                                 |  | Shares  |   |  | Weighted-AverageExercisePrice |       | AverageRemainingContractualTerm |      | AggregateIntrinsicValue
|Options                          |  |         |   |  |                               |       |                                 |      |                         |   |          
|Outstanding at December 31, 2007 |  | 756,466 |   |  | $                             | 6.66  |                                 |      |                         |   |          
|Granted                          |  | 150,695 |   |  | $                             | 10.04 |                                 |      |                         |   |          
|Exercised                        |  | (8,191  | ) |  | $                             | 2.23  |                                 |      |                         |   |          
|Forfeited                        |  | (8,463  | ) |  | $                             | 12.22 |                                 |      |                         |   |          
|                                 |  |         |   |  |                               |       |                                 |      |                         |   |          
|Outstanding at March 30, 2008    |  | 890,507 |   |  | $                             | 9.74  |                                 | 5.15 |                         | $ | 1,310,416
|Exercisable at March 30, 2008    |  | 242,987 |   |  | $                             | 5.61  |                                 | 3.34 |                         | $ | 1,052,889

The weighted-average grant-date fair value of options granted during the three month period ended March 30,
2008 and April 1, 2007 was $5.32 and $4.38, respectively. The fair value of options exercised during the three month period ended March 30, 2008 and April 1, 2007 was $10,011 and $669,009, respectively.

As of March 30, 2008, there was $2,784,459 of total unrecognized compensation cost related to non-vested options granted under all of the Companys option
plans. That cost is expected to be recognized over a weighted average period of 2.4 years. The total fair value of shares vested during the three-month period ended March 30, 2008 was $84,425.

On March 18, 2008, the Compensation Committee of the Board of Directors adopted a 2008 Key Employee Incentive Compensation Plan (the Plan).
Approximately 20 key employees, including all of the Companys executive officers, will participate in the Plan. Participants are eligible to earn a 2008 bonus equal to a percentage of their annual base salary ranging from 10% to 80%. The
achievement of the bonus will be based solely on meeting targets in two performance measures: 1) net income per share, before tax, from continuing operations and 2) bookings and revenue for solar equipment. Any bonus earned under the Plan will be
paid in the form of stock options issued under the Companys 2003 Equity Incentive Plan. An initial option representing one-half of the maximum will be awarded currently, but the number of shares subject to the options will be reduced if the
Companys aggregate performance against the targets for 2008 is less then 100%. If aggregate performance exceeds 100%, participants will be entitled to an additional option award in 2009. In addition to the performance vesting, the options will
be subject to time-based vesting requirements as set forth in the Plan.

As of March 30, 2008, there was $15,000 of unrecognized compensation costs
related to restricted stock grants which were issued in a prior year. These grants have a remaining life of one year.



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



(6) Revenue Recognition

The Company recognizes revenue in accordance with the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as updated by SEC SAB No. 104,
Revenue Recognition. Under these guidelines, revenue is recognized when persuasive evidence of an arrangement exists, shipment has occurred or services rendered, the price is fixed or determinable and payment is reasonably assured. Under
these requirements, when the terms of sale include customer acceptance provisions, and compliance with those provisions has not been previously demonstrated, revenues are recognized upon acceptance. Furthermore, revenues for products that require
installation for which the installation is essential to functionality and is not deemed inconsequential or perfunctory are recognized upon completion of installation. Revenues for products sold where installation is not essential to functionality
and is deemed inconsequential or perfunctory are recognized upon shipment with estimated installation and warranty costs accrued.

Applying the
requirements of SAB No. 104 to future sales arrangements used in the Companys equipment sales may result in the deferral of the revenue for some equipment sales.

The Company also has certain sales transactions for projects that are not completed within the normal operating cycle of the business. These contracts are accounted for on a percentage completion basis. Under the
percentage completion method, revenues are recognized based upon the ratio of costs incurred to the total estimated costs. Revisions in costs and profit estimates are reflected in the period in which the facts causing the revisions become known.
Provisions for total estimated losses on uncompleted contracts, if any, are made in the period in which such losses are determined.



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



For the three months ended March 30, 2008, there was $1,371,024 of revenue recognized using the percentage of
completion method. For the three months ended April 1, 2007, there was $0 of revenue recognized using the percentage of completion method.

The
Company accounts for shipping and handling costs billed to customers in accordance with the Emerging Issues Task Force (EITF) Issue 00-10 Accounting for Shipping and Handling Fees and Cost. Amounts billed to customers for shipping
and handling costs are recorded as revenues with the associated costs reported as cost of goods sold.

(7) Fair Value Disclosures

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements. SFAS No. 157
defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing
accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a
fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157
establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the
hierarchy) and the reporting entitys own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted
prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entitys own
assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within
which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Companys assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment, and considers factors specific to the asset or liability.

As of March 30, 2008 the Company held a non-deliverable
forward hedge foreign currency contract. At December 31, 2007, the Company held a forward hedge contract which had been marked-to-market and carried in other current assets at $34 thousand, and an unrealized gain of $34 thousand was recorded in
2007. That contract expired in January 2008, during which time the decline of the US dollar against the Chinese RMB generated a further gain in 2008 of $30 thousand. A new contract was entered into in January of 2008 which generated an additional
gain of $334 thousand in the first quarter of 2008. Of the total gain recognized related to this currency hedge of $364 thousand in the first quarter of 2008, $334 thousand was unrealized as of March 30, 2008.



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



Assets Measured at Fair Value on a Recurring Basis at March 30, 2008

(Unaudited, dollars in thousands)



|                                 |  |                                                             |   |                                            |   |                                         |  |                         |   |  |   |    
|-------------------------------- |  | ----------------------------------------------------------- | - | ------------------------------------------ | - | --------------------------------------- |  | ----------------------- | - |  | - | ---
|Description                      |  | Quoted Prices inActive Marketsfor IdenticalAssets (Level I) |   | SignificantOtherObservableInputs (Level 2) |   | SignificantUnobservableInputs (Level 3) |  | Balance atMarch 30,2008
|Derivative financial instruments |  | $                                                           |  |                                            | $ | 334                                     |  | $                       |  |  | $ | 334



|* | Included in Other current assets in the accompanying consolidated balance sheet.
|- | ----------------------------------------------------------------------------------

The market value of the non-deliverable forward hedge contract is determined by reference to widely published exchange rates, thus is established using Level II criteria.

Currently, the Company uses non-deliverable forward hedge contracts to manage its foreign currency risk with respect to the Chinese RMB. The valuation of these
instruments is determined using widely published foreign exchange rates. To comply with the provisions of SFAS No. 157, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the
respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting accounts. Although the
Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of
current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 30, 2008, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its
derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in
Level 2 of the fair value hierarchy.

In February 2008, the FASB proposed a one-year deferral of fair value measurement requirements for nonfinancial
assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis. Accordingly, the Companys adoption of this standard in 2008 was limited to financial assets and liabilities, which affects the
valuation of the Companys derivative contracts.

On January 1, 2008, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of SFAS No. 115. The new statement allows entities to choose, at specified election dates, to measure
eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a Company elects the fair value option for an eligible item, changes in that items fair value in subsequent reporting
periods must be recognized in current earnings. The Company has not elected to measure any assets or liabilities not otherwise required to be measured at fair value. The adoption of SFAS No. 159 did not have a material impact on its financial
condition or results of operations.

(8) Product Warranty Costs

The Company provides standard warranty coverage for parts and labor for 12 months and special extended material only coverage on certain other products. The Company sets aside a reserve for anticipated warranty claims based on revenue.
The reserve for warranty covers the estimated costs of material, labor and travel. Actual warranty claims incurred are charged to expense. Factors that affect the Companys product warranty liability include the number of installed units, the
anticipated cost of warranty repairs and historical and anticipated rates of warranty claims.

The following table reflects changes in the Companys
accrued warranty account during the three months ended March 30, 2008 (in thousands):



|                                      |  |                    |      |   |               |   |      |  
|------------------------------------- |  | ------------------ | ---- | - | ------------- | - | ---- | -
|                                      |  | Three Months Ended |     
|                                      |  | March 30, 2008     |      |   | April 1, 2007 |  
|Beginning balance, December 31, 2007  |  | $                  | 638  |   |               | $ | 748  |  
|Plus: accruals related to new sales   |  |                    | 216  |   |               |   | 201  |  
|Less: warranty claims incurred        |  |                    | (189 | ) |               |   | (140 | )
|Less: reversal of excess requirements |  |                    | (86  | ) |               |   |     |  
|                                      |  |                    |      |   |               |   |      |  
|Ending balance, March 30, 2008        |  | $                  | 579  |   |               | $ | 809  |  
|                                      |  |                    |      |   |               |   |      |  

(9) Recent Accounting Pronouncements



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



In February 2008, the FASB issued FASB Staff Position on Statement 157 Effective Date of FASB
Statement No. 157 (FSP 157-2). FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed on a recurring basis, to fiscal years beginning after
November 15, 2008. The adoption of FSP 157-2 is not expected to have a significant impact on our financial statements.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of
contingent consideration, contingencies, acquisition costs, in-process research and development, and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a
business combination after the measurement period will impact income taxes. SFAS 141R is effective for fiscal years beginning after December 15, 2008, which is the Companys fiscal year beginning January 1, 2009, and will impact the
accounting for any business combinations entered into after the effective date.

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



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)



(10) Segment Reporting

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

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

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



|              |  |               |       |                  |   |      
|------------- |  | ------------- | ----- | ---------------- | - | -----
|              |  | March 30,2008 |       | December 31,2007
|North America |  | $             | 6,977 |                  | $ | 7,176
|Asia Pacific  |  |               | 822   |                  |   | 761  
|              |  |               |       |                  |   |      
|              |  | $             | 7,799 |                  | $ | 7,937
|              |  |               |       |                  |   |      



|(11) | Subsequent Events:
|---- | ------------------

None



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

OVERVIEW

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

Our customers require high throughput, high yield and highly reliable thermal processing systems with tightly controlled temperature and atmospheric parameters. Our convection solder reflow systems are used to attach
electronic components to the printed circuit boards, primarily in the advanced high-density surface mount segments of this market. In the semiconductor market, we participate in both wafer level and die level packaging, where our thermal processing
systems are used to connect and seal integrated circuits into a package. Our customers in the energy generation market use our thermal systems to process silicon, ceramics and metal alloys which are used in solar cell, fuel cell and nuclear fuel
manufacturing applications.



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##### Table of Contents

RESULTS OF OPERATIONS

The
following table sets forth, for the periods indicated, selected items in our statements of operations (in thousands) expressed as a percentage of net sales and percent change:



|                                             |  |                    |        |              |               |   |            |   |              |  |       |   |  |       |   
|-------------------------------------------- |  | ------------------ | ------ | ------------ | ------------- | - | ---------- | - | ------------ |  | ----- | - |  | ----- | --
|                                             |  | Three Months Ended |        |              | Percentchange |  
|                                             |  | March 30, 2008     |        |              | April 1, 2007 |   |           
|                                             |  | $thousands         |        | % ofrevenues |               |   | $thousands |   | % ofrevenues |  |      
|Net sales                                    |  | $                  | 16,619 |              | 100.0         | % |            | $ | 15,164       |  | 100.0 | % |  | 9.6   | % 
|Cost of goods sold                           |  |                    | 9,996  |              | 60.1          | % |            |   | 8,600        |  | 56.7  | % |  | 16.2  | % 
|                                             |  |                    |        |              |               |   |            |   |              |  |       |   |  |       |   
|Gross profit                                 |  |                    | 6,623  |              | 39.9          | % |            |   | 6,564        |  | 43.3  | % |  | 0.9   | % 
|                                             |  |                    |        |              |              
|Selling, general and administrative expenses |  |                    | 4,912  |              | 29.6          | % |            |   | 4,543        |  | 30.0  | % |  | 8.1   | % 
|Research, development and engineering        |  |                    | 1,603  |              | 9.6           | % |            |   | 1,371        |  | 9.0   | % |  | 16.9  | % 
|                                             |  |                    |        |              |               |   |            |   |              |  |       |   |  |       |   
|Operating income                             |  |                    | 108    |              | 0.7           | % |            |   | 650          |  | 4.3   | % |  | (83.4 | )%
|Income before provision for income taxes     |  |                    | 152    |              | 0.9           | % |            |   | 734          |  | 4.8   | % |  | (79.3 | )%
|                                             |  |                    |        |              |               |   |            |   |              |  |       |   |  |       |   
|Net income                                   |  | $                  | 99     |              | 0.6           | % |            | $ | 659          |  | 4.3   | % |  | (85.0 | )%
|                                             |  |                    |        |              |               |   |            |   |              |  |       |   |  |       |   

Net Sales. Despite a decline in sales in the Companys electronic markets, net sales increased $1.5
million, or 10% in the first quarter of 2008 compared to the same period in 2007 due to increased demand for our products designed for the alternative energy markets.

The following table sets forth, for the periods indicated, select geographical data (in thousands) expressed in dollars and percents of net sales.



|                  |  |                    |        |              |               |   |   |   |              |  |      |  
|----------------- |  | ------------------ | ------ | ------------ | ------------- | - | - | - | ------------ |  | ---- | -
|                  |  | Three Months Ended |       
|                  |  | March 30, 2008     |        |              | April 1, 2007 |  
|                  |  | $                  |        | % ofrevenues |               |   | $ |   | % ofrevenues | 
|United States     |  | $                  | 4,044  |              | 24.3          | % |   | $ | 2,566        |  | 16.9 | %
|Europe, Near East |  |                    | 3,496  |              | 21.0          | % |   |   | 3,166        |  | 20.9 | %
|Asia Pacific      |  |                    | 8,572  |              | 51.6          | % |   |   | 7,989        |  | 52.7 | %
|Other Americas    |  |                    | 507    |              | 3.1           | % |   |   | 1,443        |  | 9.5  | %
|                  |  |                    |        |              |               |   |   |   |              |  |      |  
|                  |  | $                  | 16,619 |              |               |   |   | $ | 15,164       |  |      |  
|                  |  |                    |        |              |               |   |   |   |              |  |      |  

Revenue growth in the first quarter of 2008 was significantly higher in the United States compared to the same
period of the prior year. Revenues in the United States increased as compared to the prior year first quarter, driven primarily by increased product sales into the alternative energy markets.

Gross Profit. The decrease in the gross profit percentage for the first three months of 2008 versus the same periods in 2007, from 43.3% to 39.9%, was due
primarily to under-absorbed manufacturing overhead at our Billerica facility.

Selling, General and Administrative.The increase in selling, general
and administrative expenses in the first quarter of 2008 versus the same period in 2007 is reflective of the Companys expansion in the alternative energy markets for both staffing and product-line expenses.

Research, Development and Engineering.In the first three months of 2008 the Company has increased its spending on RD&E versus the same period in 2007
primarily for its development efforts towards new products for our alternative energy markets.

Operating Income.The decrease in operating income
was the result of lower gross margin percentages in the first quarter of 2008 compared to the comparable period of 2007, as well as increases in selling, general and administrative costs and research, development, and engineering costs, as described
above.

Foreign Exchange (loss).The $0.1 million foreign exchange gain for the quarter ending March 30, 2008 is due to $0.3 million in foreign
currency transaction losses offset by $0.4 million in gains on foreign currency hedges in the quarter.

Income Taxes.We estimated our annual tax
rate and recorded the resulting provision. The Company has federal and state net operating loss carry forwards of approximately $6 million. The Company has recorded a full valuation allowance to offset the deferred tax asset arising as a result
of these loss carry forwards because of uncertainty surrounding realization. Our statutory federal income tax rate is 34.0%.



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

As of March 30, 2008, the Company had $26.7 million in cash and cash equivalents.

During the three months ended March 30, 2008,
the Company generated net cash resources of approximately $1.5 million from operating activities. This source of cash was primarily the result of an increase in accounts payable and accrued expenses of $2.5 million, net profit of $0.1 million,
non-cash stock-based compensation of $0.2 million, depreciation and amortization of $0.4 million, and was offset by an increase in accounts receivable of $1.4 million, and an unrealized gain on a foreign currency hedge of $0.4 million.

On March 30, 2006, the Company entered into a new mortgage note that is secured by its real property in Billerica, MA. The amount of the mortgage
note executed was $10 million. The mortgage note requires monthly payments of $76,280, which includes interest calculated at the rate of 6.84% per annum. This mortgage note payable has a balloon payment of $6.8 million due and payable at
maturity on December 23, 2015. The mortgage note had an outstanding balance at March 30, 2008 of approximately $9.5 million.

On March 1,
2007, the Company entered into an amended revolving loan agreement with a bank that allows for unsecured aggregate borrowings, including letters of credit, up to a maximum of $15 million against a borrowing base of accounts receivable, inventory and
fixed assets. The Company may elect to borrow at interest rates related to the banks prime rate or LIBOR. This loan agreement extends to December 31, 2010 and is subject to maintaining certain financial covenants, in which the Company is
in full compliance. At March 30, 2008, the borrowing base would support the maximum borrowings of $15 million, and there were no borrowings outstanding under the loan agreement.

As of March 30, 2008, the Company has no material commitments relating to capital expenditures.

The Companys
business forecasts project that our cash position, cash flow and our working capital line of credit will be sufficient to meet our corporate, operating and capital requirements through 2008.

OTHER MATTERS

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

The impact of inflation in the first quarter of 2008 had no material impact on our business and financial
results vs. costs in the fourth quarter of 2007.

FORWARD LOOKING STATEMENTS

This Report, other than historical financial information, includes forward-looking statements that involve known and unknown risks and uncertainties, including quarterly fluctuations in results. In particular, our
forecast of the sufficiency of capital resources through 2008 is a forward-looking statement. Such statements are made pursuant to the safe harbor provisions under the securities laws, and are based on the assumptions and expectations of
the Companys management at the time such statements are made. Important factors that could cause actual results to differ include the cyclicality of our business; our shift of manufacturing to China; a failure to maintain cost reductions;
risks related to sales to the energy generation market; a failure to increase sales across our industries; a failure to effectively develop and market our products; changes in the economic, political, legal and business environments in the countries
in which we operate; a failure of our business systems; the time and costs related to complying with the requirements of the Sarbanes-Oxley Act; and the loss of key personnel. Actual results may vary materially. Accordingly, you should not place
undue reliance on any forward-looking statements. Unless otherwise required by law, the Company disclaims any obligation to revise or update such forward-looking statements in order to reflect future events or developments.



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##### Table of Contents

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

As of
March 30, 2008, we do not believe that we have any material market risk exposure with respect to derivative or other financial instruments.



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

1. Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the
Companys Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Companys management,
including its Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

The Companys management carried out an evaluation, under the supervision and with the
participation of the Chief Executive Officer and the Chief Accounting Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934) as of March 30, 2008, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Securities Exchange Act of 1934.

Based upon that evaluation, Management concluded as of March 30, 2008 that our disclosure controls and procedures were effective.

2. Internal Control over Financial Reporting

The
Management of the Company is responsible for establishing and maintaining adequate internal control over its financial reporting. The Companys internal control over financial reporting is a process designed under the supervision of the
Companys Chief Executive Officer and Chief Accounting Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Companys financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis.

The Companys Management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2007
based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework.

Managements assessment of the effectiveness of the Companys internal control over financial reporting as of December 31, 2007, had identified no material weaknesses in the Companys internal
control over financial reporting. As a result, Management concluded that the Companys internal control over financial reporting was effective as of December 31, 2007. Management believes that the consolidated financial statements
included in the Annual Report on Form 10-K fairly present, in all material respects, the Companys financial position, results of operations and cash flows for the periods presented.

Vitale, Caturano & Company, Ltd. (VCC), our independent registered public accounting firm has audited the effectiveness of our internal
control over financial reporting as of December 31, 2007 and has issued their report which is included in the 2007 Annual Report on Form 10-K.



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##### Table of Contents

3. Changes in Internal Control over Financial Reporting

PART II. OTHER INFORMATION

Effective January 1, 2008, the Company, at its Billerica, Massachusetts headquarters, moved most
accounting processes to a new enterprise reporting programming environment. Many of the financial processes and procedures related to producing financial statements and disclosures prior to that date have changed as a result. Management is engaged
in re-documenting these processes and developing testing procedures to be able to demonstrate the effectiveness of the new controls as required by the Sarbanes-Oxley Act of 2002.



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

Risk factors are disclosed in the Companys 2007 Annual
Report on Form 10-K. During the quarter ended March 30, 2008, there were no material changes to the risk factors for the business.



|Item 5. | 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

SIGNATURES

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



|                  |  |                         |  |                                                                                                               
|----------------- |  | ----------------------- |  | --------------------------------------------------------------------------------------------------------------
|                  |  | BTU INTERNATIONAL, INC.
|                  |  |                        
|DATE: May 9, 2008 |  | BY:                     |  | /s/ Paul J. van der Wansem                                                                                    
|                  |  |                         |  | Paul J. van der Wansem                                                                                        
|                  |  |                         |  | President, Chief Executive Officer (principal executive officer) and Chairman of the Board of Directors       
|                  |  |                        
|DATE: May 9, 2008 |  | BY:                     |  | /s/ Thomas P. Kealy                                                                                           
|                  |  |                         |  | Thomas P. Kealy                                                                                               
|                  |  |                         |  | Vice President, Corporate Controller and Chief Accounting Officer (principal financial and accounting officer)



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