##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q







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

For the quarterly period ended June 28, 2009

OR



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

For the transition period from  to

Commission File Number 000-17297





BTU INTERNATIONAL, INC.

(Exact name of Registrant as specified in its
charter)







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

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





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

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

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



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

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

Indicate the number of shares outstanding of the Registrants Common Stock, par value $.01 per share, as of the latest practicable date: As of August 5, 2009: 9,190,826 shares.









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##### Table of Contents

BTU INTERNATIONAL, INC.

TABLE OF CONTENTS



|                                                                                              |  |      
|--------------------------------------------------------------------------------------------- |  | -----
|PART I. FINANCIAL INFORMATION                                                                
|                                                                                              | 
|Item 1. Financial Statements (Unaudited)                                                      |  |      
|                                                                                              | 
|Unaudited Condensed Consolidated Balance Sheets                                               |  | 1    
|Unaudited Condensed Consolidated Statements of Operations                                     |  | 2    
|Unaudited Condensed Consolidated Statements of Stockholders Equity and Comprehensive Loss    |  | 3    
|Unaudited Condensed Consolidated Statements of Cash Flows                                     |  | 4-5  
|Notes to Unaudited Condensed Consolidated Financial Statements                                |  | 6-13 
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 14-18
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 18   
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 18-19
|                                                                                             
|PART II. OTHER INFORMATION                                                                   
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 19   
|                                                                                              | 
|Item 4. Submission of matters to a Vote of Security Holders                                   |  | 19-20
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 20   
|                                                                                              | 
|Signatures                                                                                    |  | 21   
|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)



|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                                                                                          |  | June 28,2009 |        |   | December 31,2008 |  
|Assets                                                                                                                                                                                                                    |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Current assets                                                                                                                                                                                                            |  |              |        |   |                  |   |        |  
|Cash and cash equivalents                                                                                                                                                                                                 |  | $            | 25,336 |   |                  | $ | 27,464 |  
|Accounts receivable, net                                                                                                                                                                                                  |  |              | 9,271  |   |                  |   | 15,450 |  
|Inventories, net                                                                                                                                                                                                          |  |              | 16,820 |   |                  |   | 19,044 |  
|Other current assets                                                                                                                                                                                                      |  |              | 891    |   |                  |   | 909    |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Total current assets                                                                                                                                                                                                      |  |              | 52,318 |   |                  |   | 62,867 |  
|                                                                                                                                                                                                                          |  |             
|Property, plant and equipment, net                                                                                                                                                                                        |  |              | 6,271  |   |                  |   | 6,886  |  
|                                                                                                                                                                                                                          |  |             
|Other assets, net                                                                                                                                                                                                         |  |              | 1,291  |   |                  |   | 1,562  |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Total assets                                                                                                                                                                                                              |  | $            | 59,880 |   |                  | $ | 71,315 |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Liabilities and stockholders equity                                                                                                                                                                                      |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Current liabilities                                                                                                                                                                                                       |  |              |        |   |                  |   |        |  
|Current portion of long-term debt                                                                                                                                                                                         |  | $            | 300    |   |                  | $ | 290    |  
|Accounts payable                                                                                                                                                                                                          |  |              | 3,745  |   |                  |   | 5,058  |  
|Other current liabilities                                                                                                                                                                                                 |  |              | 5,293  |   |                  |   | 7,399  |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Total current liabilities                                                                                                                                                                                                 |  |              | 9,338  |   |                  |   | 12,747 |  
|                                                                                                                                                                                                                          |  |             
|Long-term debt, less current portion                                                                                                                                                                                      |  |              | 8,837  |   |                  |   | 8,988  |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Total liabilities                                                                                                                                                                                                         |  |              | 18,175 |   |                  |   | 21,735 |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Commitments and contingencies                                                                                                                                                                                             |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Stockholders equity                                                                                                                                                                                                      |  |              |        |   |                  |   |        |  
|Preferred stock, $1.00 par value5,000,000 shares authorized; no shares issued or outstanding                                                                                                                             |  |              |       |   |                  |   |       |  
|Common stock, $0.01 par value25,000,000 shares authorized; 10,558,793 shares issued and 9,190,826 shares outstanding at June 28,
2009 and 10,557,291 shares issued and 9,353,187 shares outstanding at December 31, 2008 |  |              | 105    |   |                  |   | 105    |  
|Additional paid in capital                                                                                                                                                                                                |  |              | 46,075 |   |                  |   | 45,458 |  
|Retained earnings/(accumulated deficit)                                                                                                                                                                                   |  |              | (1,322 | ) |                  |   | 6,718  |  
|Treasury stock, at cost, 1,367,967 shares at June 28, 2009 and 1,204,104 shares at December 31, 2008                                                                                                                      |  |              | (4,990 | ) |                  |   | (4,391 | )
|Accumulated other comprehensive income                                                                                                                                                                                    |  |              | 1,837  |   |                  |   | 1,690  |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Total stockholders equity                                                                                                                                                                                                |  |              | 41,705 |   |                  |   | 49,580 |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  
|                                                                                                                                                                                                                          |  |             
|Total liabilities and stockholders equity                                                                                                                                                                                |  | $            | 59,880 |   |                  | $ | 71,315 |  
|                                                                                                                                                                                                                          |  |              |        |   |                  |   |        |  

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



1



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per
share data)

(unaudited)



|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|----------------------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | ------------- |  | - | ------------- | - |  | - | --------- | -
|                                                |  | Three Months Ended |           |   | Six Months Ended |  
|                                                |  | June 28, 2009      |           |   | June 29, 2008    |   |           | June 28, 2009 |  |   | June 29, 2008 |  
|                                                |  |                    |           |  
|Net sales                                       |  | $                  | 10,808    |   |                  | $ | 20,384    |               |  | $ | 20,614        |   |  | $ | 37,003    |  
|Costs of goods sold                             |  |                    | 7,179     |   |                  |   | 11,064    |               |  |   | 15,546        |   |  |   | 21,060    |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Gross profit                                    |  |                    | 3,629     |   |                  |   | 9,320     |               |  |   | 5,068         |   |  |   | 15,943    |  
|                                                |  |                    |           |  
|Operating expenses:                             |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|Selling, general and administrative             |  |                    | 4,770     |   |                  |   | 6,401     |               |  |   | 8,700         |   |  |   | 11,313    |  
|Research, development and engineering           |  |                    | 1,897     |   |                  |   | 1,787     |               |  |   | 3,875         |   |  |   | 3,390     |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Operating income (loss)                         |  |                    | (3,038    | ) |                  |   | 1,132     |               |  |   | (7,507        | ) |  |   | 1,240     |  
|                                                |  |                    |           |  
|Interest income                                 |  |                    | 64        |   |                  |   | 78        |               |  |   | 146           |   |  |   | 178       |  
|Interest expense                                |  |                    | (143      | ) |                  |   | (174      | )             |  |   | (298          | ) |  |   | (354      | )
|Foreign exchange loss                           |  |                    | (177      | ) |                  |   | (395      | )             |  |   | (235          | ) |  |   | (271      | )
|Other income, net                               |  |                    | 6         |   |                  |   |          |               |  |   | 35            |   |  |   |          |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Income (loss) before provision for income taxes |  |                    | (3,288    | ) |                  |   | 641       |               |  |   | (7,859        | ) |  |   | 793       |  
|                                                |  |                    |           |  
|Provision for income taxes                      |  |                    | 198       |   |                  |   | 353       |               |  |   | 181           |   |  |   | 406       |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Net income (loss)                               |  | $                  | (3,486    | ) |                  | $ | 288       |               |  | $ | (8,040        | ) |  | $ | 387       |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Income (loss) per share:                        |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|Basic                                           |  | $                  | (0.38     | ) |                  | $ | 0.03      |               |  | $ | (0.87         | ) |  | $ | 0.04      |  
|Diluted                                         |  | $                  | (0.38     | ) |                  | $ | 0.03      |               |  | $ | (0.87         | ) |  | $ | 0.04      |  
|                                                |  |                    |           |  
|Weighted average number of shares outstanding:  |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|Basic shares                                    |  |                    | 9,191,334 |   |                  |   | 9,375,097 |               |  |   | 9,237,090     |   |  |   | 9,365,175 |  
|Effect of dilutive options                      |  |                    |          |   |                  |   | 149,559   |               |  |   |              |   |  |   | 158,193   |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|                                                |  |                    |           |  
|Diluted shares                                  |  |                    | 9,191,334 |   |                  |   | 9,524,656 |               |  |   | 9,237,090     |   |  |   | 9,523,368 |  
|                                                |  |                    |           |   |                  |   |           |               |  |   |               |   |  |   |           |  

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



2



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS

FOR THE SIX MONTHS ENDED JUNE 28, 2009

(in thousands)

(unaudited)



|                             |  |              |  |                   |     |                               |   |          |                |   |             |                               |   |       |  |        |        |       |  |   |       |  |   |        |  
|---------------------------- |  | ------------ |  | ----------------- | --- | ----------------------------- | - | -------- | -------------- | - | ----------- | ----------------------------- | - | ----- |  | ------ | ------ | ----- |  | - | ----- |  | - | ------ | -
|                             |  | Common Stock |  | AdditionalPaid-In |     | RetainedEarnings/(Accumulated |   |          | Treasury Stock |   |             | AccumulatedOtherComprehensive |   |       | 
|                             |  | # of shares  |  | $                 |     | Capital                       |   | Deficit) |                |   | # of shares |                               | $ |       |  | Income |        | Total | 
|Balance at December 31, 2008 |  | 10,557       |  | $                 | 105 |                               | $ | 45,458   |                | $ | 6,718       |                               |   | 1,204 |  | $      | (4,391 | )     |  | $ | 1,690 |  | $ | 49,580 |  
|                             |  |              |  |                   |     |                               |   |         
|Net loss                     |  |             |  |                   |    |                               |   |         |                |   | (8,040      | )                             |   |      |  |        |       |       |  |   |      |  |   | (8,040 | )
|                             |  |              |  |                   |     |                               |   |         
|Exercise of stock options    |  | 2            |  |                   |    |                               |   | 5        |                |   |            |                               |   |      |  |        |       |       |  |   |      |  |   | 5      |  
|                             |  |              |  |                   |     |                               |   |         
|Purchase of treasury stock   |  |             |  |                   |    |                               |   |         |                |   |            |                               |   | 164   |  |        | (599   | )     |  |   |      |  |   | (599   | )
|                             |  |              |  |                   |     |                               |   |         
|Issuance of common stock     |  |             |  |                   |    |                               |   |         |                |   |            |                               |   |      |  |        |       |       |  |   |      |  |   |       |  
|                             |  |              |  |                   |     |                               |   |         
|Stock-based compensation     |  |             |  |                   |    |                               |   | 612      |                |   |            |                               |   |      |  |        |       |       |  |   |      |  |   | 612    |  
|                             |  |              |  |                   |     |                               |   |         
|Translation adjustment       |  |             |  |                   |    |                               |   |         |                |   |            |                               |   |      |  |        |       |       |  |   | 147   |  |   | 147    |  
|                             |  |              |  |                   |     |                               |   |          |                |   |             |                               |   |       |  |        |        |       |  |   |       |  |   |        |  
|                             |  |              |  |                   |     |                               |   |         
|Balance at June 28, 2009     |  | 10,559       |  | $                 | 105 |                               | $ | 46,075   |                | $ | (1,322      | )                             |   | 1,368 |  | $      | (4,990 | )     |  | $ | 1,837 |  | $ | 41,705 |  
|                             |  |              |  |                   |     |                               |   |          |                |   |             |                               |   |       |  |        |        |       |  |   |       |  |   |        |  



|                                             |  |                   |        |   |                 |   |        |                   |  |                 |     |  |   |      
|-------------------------------------------- |  | ----------------- | ------ | - | --------------- | - | ------ | ----------------- |  | --------------- | --- |  | - | -----
|                                             |  | Three MonthsEnded |        |   | Six MonthsEnded |   |        | Three MonthsEnded |  | Six MonthsEnded
|                                             |  | June 28, 2009     |        |   | June 28, 2008  
|Comprehensive loss is calculated as follows: |  |                   |        |   |                 |   |        |                   |  |                 |     |  |   |      
|Net loss                                     |  | $                 | (3,486 | ) |                 | $ | (8,040 | )                 |  | $               | 288 |  | $ | 387  
|Other comprehensive income:                  |  |                   |        |   |                 |   |        |                   |  |                 |     |  |   |      
|Foreign currency translation adjustment      |  |                   | 224    |   |                 |   | 147    |                   |  |                 | 339 |  |   | 1,173
|                                             |  |                   |        |   |                 |   |        |                   |  |                 |     |  |   |      
|                                             |  |                   |        |  
|Comprehensive loss                           |  | $                 | (3,262 | ) |                 | $ | (7,893 | )                 |  | $               | 627 |  | $ | 1,560
|                                             |  |                   |        |   |                 |   |        |                   |  |                 |     |  |   |      

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



3



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BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 28, 2009
AND JUNE 29, 2008

(in thousands)

(unaudited)



|                                                                              |  |              |        |   |              |   |        |  
|----------------------------------------------------------------------------- |  | ------------ | ------ | - | ------------ | - | ------ | -
|                                                                              |  | June 28,2009 |        |   | June 29,2008 |  
|Cash flows from operating activities:                                         |  |              |        |   |              |   |        |  
|Net income (loss)                                                             |  | $            | (8,040 | ) |              | $ | 387    |  
|Adjustments to reconcile net cash provided by (used in) operating activities: |  |              |        |   |              |   |        |  
|Depreciation                                                                  |  |              | 885    |   |              |   | 609    |  
|Amortization                                                                  |  |              | 261    |   |              |   | 261    |  
|Provision (recovery) for bad debt                                             |  |              | (26    | ) |              |   | 34     |  
|Provision for inventory obsolescense                                          |  |              | 1,230  |   |              |   | (69    | )
|Stock-based compensation                                                      |  |              | 612    |   |              |   | 543    |  
|Gain on foreign currency hedge                                                |  |              |       |   |              |   | (115   | )
|Net change in operating assets and liabilities:                               |  |              |        |   |              |   |        |  
|Accounts receivable                                                           |  |              | 6,280  |   |              |   | (702   | )
|Inventories                                                                   |  |              | 1,018  |   |              |   | (983   | )
|Other current assets                                                          |  |              | 40     |   |              |   | (283   | )
|Customer deposits                                                             |  |              | (659   | ) |              |   | 1,254  |  
|Other assets                                                                  |  |              | (7     | ) |              |   | 19     |  
|Accounts payable                                                              |  |              | (1,373 | ) |              |   | 1,717  |  
|Accrued expenses                                                              |  |              | (1,484 | ) |              |   | 202    |  
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Net cash provided by (used in) operating activities                           |  |              | (1,263 | ) |              |   | 2,874  |  
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Cash flows from (used in) investing activities:                               |  |              |        |   |              |   |        |  
|Purchases of property, plant and equipment                                    |  |              | (271   | ) |              |   | (990   | )
|Settlement of forward hedge contract                                          |  |              |       |   |              |   | 60     |  
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Net cash used in investing activities                                         |  |              | (271   | ) |              |   | (930   | )
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Cash flows from (used in) financing activities:                               |  |              |        |   |              |   |        |  
|Principal payments under loan and capital lease agreements                    |  |              | (141   | ) |              |   | (132   | )
|Purchases of treasury stock                                                   |  |              | (599   | ) |              |   |       |  
|Proceeds from the exercise of stock options                                   |  |              | 5      |   |              |   | 93     |  
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Net cash used in financing activities                                         |  |              | (735   | ) |              |   | (39    | )
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Effects of exchange rates on cash                                             |  |              | 141    |   |              |   | 619    |  
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Net increase (decrease) in cash and cash equivalents                          |  |              | (2,128 | ) |              |   | 2,524  |  
|Cash and cash equivalents, beginning of period                                |  |              | 27,464 |   |              |   | 25,065 |  
|                                                                              |  |              |        |   |              |   |        |  
|                                                                              |  |             
|Cash and cash equivalents, end of period                                      |  | $            | 25,336 |   |              | $ | 27,589 |  
|                                                                              |  |              |        |   |              |   |        |  

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 JUNE 28, 2009 AND JUNE
29, 2008

(in thousands)

(unaudited)



|                                                   |  |              |     |              |   |   
|-------------------------------------------------- |  | ------------ | --- | ------------ | - | --
|                                                   |  | June 28,2009 |     | June 29,2008
|Supplemental disclosures of cash flow information: |  |              |     |              |   |   
|Cash paid during the periods for:                  |  |              |     |              |   |   
|Interest                                           |  | $            | 185 |              | $ | 76
|Income taxes                                       |  |              | 57  |              |   | 17

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



5



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1) Basis of Presentation

The condensed consolidated balance sheet,
financial information and related disclosures as of and for the year ended December 31, 2008 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of
June 28, 2009 and June 29, 2008 and the related condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 28, 2009 and June 29, 2008 are unaudited. The condensed consolidated
statements of cash flows and statement of stockholders equity for the six months ended June 28, 2009 and June 29, 2008 are unaudited. In the opinion of management, all adjustments necessary for the fair presentation of such financial
statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for any other period or for the full year. These financial statements do not include all disclosures
associated with annual financial statements and, accordingly, should be read in conjunction with the footnotes contained in the Companys consolidated financial statements as of and for the year ended December 31, 2008, together with the
auditors report, included in the Companys Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.

Subsequent Events
 The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q on August 6, 2009. 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

(2) Summary of Significant Accounting Policies

The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 1 to the consolidated
financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission.

(3) Inventories, net



|                                          |  |                |        |                  |   |       
|----------------------------------------- |  | -------------- | ------ | ---------------- | - | ------
|                                          |  | June 28,2009   |        | December 31,2008
|                                          |  | (in thousands)
|                                          |  |               
|Raw materials and manufactured components |  | $              | 8,485  |                  | $ | 8,961 
|Work-in-process                           |  |                | 4,998  |                  |   | 7,021 
|Finished goods                            |  |                | 3,337  |                  |   | 3,062 
|                                          |  |                |        |                  |   |       
|                                          |  |               
|                                          |  | $              | 16,820 |                  | $ | 19,044
|                                          |  |                |        |                  |   |       



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



(4) Debt

Long-Term Debt
at June 28, 2009 and December 31, 2008 consisted of (in thousands):



|                                                  |  |              |       |                  |   |      
|------------------------------------------------- |  | ------------ | ----- | ---------------- | - | -----
|                                                  |  | June 28,2009 |       | December 31,2008
|                                                  |  |             
|Mortgage note payable, interest rate of 6.84%     |  | $            | 9,137 |                  | $ | 9,277
|Capital lease obligations, interest rate of 6.75% |  |              |      |                  |   | 1    
|                                                  |  |              |       |                  |   |      
|                                                  |  |             
|                                                  |  |              | 9,137 |                  |   | 9,278
|Lesscurrent maturities                           |  |              | 300   |                  |   | 290  
|                                                  |  |              |       |                  |   |      
|                                                  |  |             
|                                                  |  | $            | 8,837 |                  | $ | 8,988
|                                                  |  |              |       |                  |   |      

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 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.

On March 1, 2007, the Company entered into an amended revolving loan agreement with a bank
that allowed 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 could elect to borrow at interest rates related to
the banks prime rate or LIBOR. This loan agreement extended to December 31, 2010. At June 28, 2009, there were no borrowings outstanding under the loan agreement.

The loan agreement is subject to maintaining certain financial covenants. Due to the recorded losses in Q4 2008, Q1 2009 and Q2 2009, the Company is not in compliance with the required rolling four quarters minimum
debt coverage ratio in the loan agreement. Given the uncertainty surrounding the timing of an economic recovery from the global recession, the Company has suspended negotiations with the bank until a return to profitability is at hand. At such time,
the Company will work with the bank to obtain a waiver which may require modifications, agreeable to both parties, to the provisions of the existing loan agreement. There is no current debt outstanding against this line.

(5) Earnings Per Share (EPS)

Basic EPS is computed by dividing income
available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive potential common shares outstanding during the period,
using the treasury stock method. The number of common shares underlying options that were not included in the determination of diluted EPS, because their effect would be anti-dilutive, was 682,610 and 777,382 for the three and six months ended
June 28, 2009 and 338,838 and 365,931 for the three and six months ended June 29, 2008, respectively.



7



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



(6) Accounting for Stock-Based Compensation

The Companys stock option compensation expense was $310,126 and $608,571 respectively, for the three and six months ended June 28, 2009 and $306,283 and $536,183 for the three and six months ended
June 29, 2008, respectively. These amounts do not include expense related to restricted stock awards.

The fair value of each option is estimated on
the date of grant using the Black-Scholes option-pricing model. This model incorporates certain assumptions for inputs including a risk-free market interest rate, expected dividend yield of the underlying common stock, expected option life and
expected volatility in the market value of the underlying common stock. The Company is also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
Historical data was used to estimate pre-vesting forfeitures and record stock-based compensation expense only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by annualized estimated
forfeitures of 20% for the periods ended June 28, 2009 and June 29, 2008. We used the following assumptions for options issued in the following periods:



|                                             |  |                    |   |  |               |  
|-------------------------------------------- |  | ------------------ | - |  | ------------- | -
|                                             |  | Three months ended |  
|                                             |  | June 28, 2009      |   |  | June 29, 2008 |  
|Calculation of Fair ValuesAssumptions Used: |  |                    |   |  |               |  
|                                             |  |                   
|Expected Volatility                          |  | 65.57              | % |  | 66.46         | %
|Expected Life                                |  | 4.67               |   |  | 4.75          |  
|Risk-Free Interest Rate                      |  | 2.17               | % |  | 2.81          | %
|Expected Dividend Yield                      |  | None               |   |  | None          |  

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



8



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



The following table summarizes the stock option activity during the six months ended June 28, 2009.



|                                 |  |           |   |  |                               |       |                                 |      |                         |   |        
|-------------------------------- |  | --------- | - |  | ----------------------------- | ----- | ------------------------------- | ---- | ----------------------- | - | -------
|                                 |  | Shares    |   |  | Weighted-AverageExercisePrice |       | AverageRemainingContractualTerm |      | AggregateIntrinsicValue
|Options                          |  |           |   |  |                               |       |                                 |      |                         |   |        
|Outstanding at December 31, 2008 |  | 1,069,535 |   |  | $                             | 9.17  |                                 |      |                         |   |        
|Granted                          |  | 196,768   |   |  |                               | 4.06  |                                 |      |                         |   |        
|Exercised                        |  | (1,502    | ) |  |                               | 2.95  |                                 |      |                         |   |        
|Forfeited                        |  | (20,301   | ) |  |                               | 9.05  |                                 |      |                         |   |        
|Exchanged                        |  | (379,100  | ) |  |                               | 11.60 |                                 |      |                         |   |        
|Exchanged                        |  | 151,640   |   |  |                               | 4.06  |                                 |      |                         |   |        
|                                 |  |           |   | 
|Outstanding at June 28, 2009     |  | 1,017,040 |   |  | $                             | 6.53  |                                 | 4.82 |                         | $ | 323,424
|Exercisable at June 28, 2009     |  | 283,239   |   |  | $                             | 5.86  |                                 | 3.17 |                         | $ | 264,284

The weighted-average grant-date fair values of options granted during the six-month periods ended June 28,
2009 and June 29, 2008 were $4.06 and $5.55, respectively. The fair values of options exercised during the six-month periods ended June 28, 2009 and June 29, 2008 were $ 4,437 and $ 59,552, respectively.

As of June 28, 2009, there was $2,567,908 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 3.2 years. The total fair value of shares vested during the six-month period ended June 28, 2009 was $456,971.

Option Exchange Program

On April 27, 2009, the
Board of Directors approved, subject to stockholder approval, a one-time stock option exchange program (the Exchange Program). The Exchange Program was approved at the Annual Meeting of Stockholders held on May 15, 2009. The
Exchange Program permitted all current employees of the Company and its subsidiaries, excluding its Chief Executive Officer but including all other executive officers (each, an Eligible Employee and collectively, Eligible
Employees), who hold outstanding options under the 2003 Plan with an exercise price per share equal to or greater than $10.05 (the Threshold Price), to exchange outstanding stock options (Eligible Options) for a lesser
number of options (Replacement Options), with such number of Replacement Options issuable upon exchange calculated at 0.4 shares of Replacement Options for one share of Eligible Options. The exchange offer expired on May 16, 2009.
Pursuant to the Exchange Program, the Replacement Options have an exercise price of $4.06, which is equal to the last reported closing sales price for a share of the Companys common stock as of the last trading day immediately preceding the
date that the Replacement Option is granted, which was May 15, 2009. The total number of stock options eligible to be exchanged was 475,500. The actual options exchanged were 379,100 for 151,640 Replacement Options.



9



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



On the date of exchange, the estimated fair value of the Replacement Options did not exceed the fair
value of the exchanged stock options calculated immediately prior to the exchange. As such, there is no incremental fair value of the Replacement Options, and the Company will record the compensation expense related to the exchange. The Company will
recognize the remaining compensation expense related to the exchanged options over vesting period of the newly granted awards, not over the original vesting period of the original options. The Replacement Options become exercisable over a period of
three years, with one-third vesting on the first anniversary of the date the Replacement Options were granted and one-third vesting on each anniversary thereafter, so long as the option holder continues to be employed by the Company.

(7) Revenue Recognition

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 the three and six months ended June 29, 2008, there was $1,371,024 and $2,551,225, 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 16, 2009 with Securities and Exchange Commission.

(8) Fair Value Disclosures

At June 28, 2009, the Company had no financial assets that required valuation under SFAS No. 157.

On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements for Financial Assets and Liabilities. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements. 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). The following methods and assumptions
were used to estimate the value of each class of financial instruments for which it is practical to estimate that value.

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 and Capital Lease ObligationsThe fair value of long-term indebtedness as of
June 28, 2009 was approximately $8,837,000, based on the prevailing cost of capital to the Company. The current market rate approximates the rate of the mortgage note payable of 6.84%



10



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



(9) Product Warranty Costs

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

The following table reflects changes in
the Companys accrued warranty account during the six months ended June 28, 2009 (in thousands):



|                                      |  |                               |      |  
|------------------------------------- |  | ----------------------------- | ---- | -
|                                      |  | Six Months EndedJune 28, 2009 |     
|                                      | 
|Beginning balance, December 31, 2008  |  | $                             | 683  |  
|Plus: accruals related to new sales   |  |                               | 307  |  
|Less: warranty claims incurred        |  |                               | (227 | )
|Less: reversal of excess requirements |  |                               | (365 | )
|                                      |  |                               |      |  
|Ending balance, June 28, 2009         |  | $                             | 398  |  
|                                      |  |                               |      |  



11



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



(10) Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162 (SFAS
168). This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. This standard is not expected to materially impact the Companys results of operations, financial position
or related disclosures.

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised 2007),
Business Combinations (SFAS 141R). SFAS No. 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 No. 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income
tax expense. SFAS No. 141R is effective for fiscal years beginning after December 15, 2008, which is the Companys consolidated fiscal year beginning January 1, 2009, and will impact the accounting for any business combinations
entered into after the effective date. The adoption of this Standard has not had an impact on the Companys consolidated financial statements.

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

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



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##### Table of Contents

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of SFAS No. 133 (SFAS No. 161). SFAS No. 161 requires companies to disclose their objectives and strategies for using derivative instruments, whether or not their derivatives are designated as hedging
instruments. The new pronouncement requires disclosure of the fair value of derivative instruments by primary underlying risk exposures (e.g., interest rate, credit, foreign exchange rate, combination of interest rate and foreign exchange rate, or
overall price). It also requires detailed disclosures about the income statement impact of derivative instruments by designation as fair-value hedges, cash-flow hedges, or hedges of the foreign-currency exposure of a net investment in a foreign
operation. SFAS No. 161 will also require disclosure of information that will enable financial statement users to understand the level of derivative activity entered into by a company. The principles of SFAS No. 161 are applied on a
prospective basis and are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Early application is encouraged. For the Company, SFAS No. 161 became effective at the beginning of
the 2009 fiscal year. The adoption of this Standard did not have a material effect on the Companys disclosures as the Company did not have any derivative instruments at June 28, 2009.

(11) Segment Reporting

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

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

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



|              |  |              |       |                  |   |      
|------------- |  | ------------ | ----- | ---------------- | - | -----
|              |  | June 28,2009 |       | December 31,2008
|              |  |             
|North America |  | $            | 5,614 |                  | $ | 6,132
|Asia Pacific  |  |              | 657   |                  |   | 754  
|              |  |              |       |                  |   |      
|              |  |             
|              |  | $            | 6,271 |                  | $ | 6,886
|              |  |              |       |                  |   |      



13



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##### Table of Contents

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

OVERVIEW

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

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

The Company has been affected negatively by the global economic downturn. In our electronics market products, there
has been a significant reduction in demand, with some improvement in the second quarter of 2009. As for our alternative energy market, we have seen steady growth, until a decrease in revenue in the second quarter of 2009 vs. the first quarter of
2009.

RESULTS OF OPERATIONS

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



|                                                |  |                    |        |   |               |       |    |  |   |               |  |       |  
|----------------------------------------------- |  | ------------------ | ------ | - | ------------- | ----- | -- |  | - | ------------- |  | ----- | -
|                                                |  | Three Months Ended |       
|                                                |  | June 28, 2009      |        |   | June 29, 2008 |      
|                                                |  | ($ in thousands)   |       
|                                                |  |                    |        |   | % ofnet sales |       |    |  |   | % ofnet sales | 
|                                                |  |                    |        |  
|Net sales                                       |  | $                  | 10,808 |   |               | 100.0 | %  |  | $ | 20,384        |  | 100.0 | %
|Cost of goods sold                              |  |                    | 7,179  |   |               | 66.4  | %  |  |   | 11,064        |  | 54.3  | %
|                                                |  |                    |        |   |               |       |    |  |   |               |  |       |  
|Gross profit                                    |  |                    | 3,629  |   |               | 33.6  | %  |  |   | 9,320         |  | 45.7  | %
|                                                |  |                    |        |  
|Selling, general and administrative expenses    |  |                    | 4,770  |   |               | 44.1  | %  |  |   | 6,401         |  | 31.4  | %
|Research, development and engineering expenses  |  |                    | 1,897  |   |               | 17.6  | %  |  |   | 1,787         |  | 8.8   | %
|                                                |  |                    |        |   |               |       |    |  |   |               |  |       |  
|Operating income (loss)                         |  |                    | (3,038 | ) |               | (28.1 | )% |  |   | 1,132         |  | 5.6   | %
|                                                |  |                    |        |  
|Income (loss) before provision for income taxes |  |                    | (3,288 | ) |               | (30.4 | )% |  |   | 641           |  | 3.1   | %
|                                                |  |                    |        |   |               |       |    |  |   |               |  |       |  
|                                                |  |                    |        |  
|Net income (loss)                               |  | $                  | (3,486 | ) |               | (32.3 | )% |  | $ | 288           |  | 1.4   | %
|                                                |  |                    |        |   |               |       |    |  |   |               |  |       |  



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##### Table of Contents

|                                                |  |                  |        |   |               |       |    |  |   |               |  |       |               |  |         |   
|----------------------------------------------- |  | ---------------- | ------ | - | ------------- | ----- | -- |  | - | ------------- |  | ----- | ------------- |  | ------- | --
|                                                |  | Six Months Ended |        |   |               |      
|                                                |  | June 28, 2009    |        |   | June 29, 2008 |       |   
|                                                |  | ($ in thousands) |        |   |               |      
|                                                |  |                  |        |   | % ofnet sales |       |    |  |   | % ofnet sales |  |       | Percentchange | 
|                                                |  |                  |        |   |              
|Net sales                                       |  | $                | 20,614 |   |               | 100.0 | %  |  | $ | 37,003        |  | 100.0 | %             |  | (44.3   | )%
|Cost of goods sold                              |  |                  | 15,546 |   |               | 75.4  | %  |  |   | 21,060        |  | 56.9  | %             |  | (26.2   | )%
|                                                |  |                  |        |   |               |       |    |  |   |               |  |       |               |  |         |   
|Gross profit                                    |  |                  | 5,068  |   |               | 24.6  | %  |  |   | 15,943        |  | 43.1  | %             |  | (68.2   | )%
|                                                |  |                  |        |   |              
|Selling, general and administrative expenses    |  |                  | 8,700  |   |               | 42.2  | %  |  |   | 11,313        |  | 30.6  | %             |  | (23.1   | )%
|Research, development and engineering expenses  |  |                  | 3,875  |   |               | 18.8  | %  |  |   | 3,390         |  | 9.2   | %             |  | 14.3    | % 
|                                                |  |                  |        |   |               |       |    |  |   |               |  |       |               |  |         |   
|Operating income (loss)                         |  |                  | (7,507 | ) |               | (36.4 | )% |  |   | 1,240         |  | 3.4   | %             |  | (705.4  | )%
|                                                |  |                  |        |   |              
|Income (loss) before provision for income taxes |  |                  | (7,859 | ) |               | (38.1 | )% |  |   | 793           |  | 2.1   | %             |  | (1091.0 | )%
|                                                |  |                  |        |   |               |       |    |  |   |               |  |       |               |  |         |   
|                                                |  |                  |        |   |              
|Net income (loss)                               |  | $                | (8,040 | ) |               | (39.0 | )% |  | $ | 387           |  | 1.0   | %             |  | (2177.4 | )%
|                                                |  |                  |        |   |               |       |    |  |   |               |  |       |               |  |         |   

Net Sales Net sales decreased by 47% and 44% in the second quarter and six month period of 2009
respectively, as compared to the same periods in 2008. Despite increased electronic market revenue for the second quarter versus the first quarter of 2009, both the second quarter and six month year to date 2009 period have seen a decrease in net
sales versus the same periods in 2008. The decreases were the result of an approximately two thirds reduction in the demand for the Companys electronic market products. This reduction is the resulting from the macro global economic slowdown.
Partially offsetting these decreases are increases in the Companys alternative energy product sales, in the second quarter and the first six months of 2009 versus the same periods in 2008.

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 |  
|                  |  | June 28, 2009      |        |              | June 29, 2008    |   |   | June 28, 2009 |              |  | June 29, 2008 |  
|                  |  | $                  |        | % ofrevenues |                  |   | $ |               | % ofrevenues |  |               | $ |  | % ofrevenues |        |  | $    |   | % ofrevenues |  
|United States     |  | $                  | 3,701  |              | 34.3             | % |   | $             | 4,082        |  | 20.0          | % |  | $            | 5,639  |  | 27.4 | % |              | $ | 8,126  |  | 22.0 | %
|Europe, Near East |  |                    | 2,638  |              | 24.4             | % |   |               | 2,616        |  | 12.8          | % |  |              | 4,953  |  | 24.0 | % |              |   | 6,112  |  | 16.5 | %
|Asia Pacific      |  |                    | 4,402  |              | 40.7             | % |   |               | 12,794       |  | 62.8          | % |  |              | 9,044  |  | 43.9 | % |              |   | 21,366 |  | 57.7 | %
|Other Americas    |  |                    | 67     |              | 0.6              | % |   |               | 892          |  | 4.4           | % |  |              | 978    |  | 4.7  | % |              |   | 1,399  |  | 3.8  | %
|                  |  |                    |        |              |                  |   |   |               |              |  |               |   |  |              |        |  |      |   |              |   |        |  |      |  
|                  |  |                    |        |              |                  |   |   |              
|Total Revenue     |  | $                  | 10,808 |              |                  |   |   | $             | 20,384       |  |               |   |  | $            | 20,614 |  |      |   |              | $ | 37,003 |  |      |  
|                  |  |                    |        |              |                  |   |   |               |              |  |               |   |  |              |        |  |      |   |              |   |        |  |      |  

In the six months ended June 28, 2009 as compared to the same period in 2008, total revenue decreased in most
of the Companys geographical markets. This result is indicative of the global nature of the economic downturn. The most significant revenue decrease both in dollars and percentage is the Asia Pacific region, which is the primary market for our
electronic products.



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Gross Profit. The reduction in the first six months of 2009s gross profit percentage to 24.6 from 43.1 in
the first six months of 2008 was the result of several major factors. The deepening global recession reduced demand for the Companys electronic market products and put added pressure on our selling price. During the first half of 2009, the
Companys production facilities both in the United States and China were operating well below capacity which resulted in under-absorption of factory costs. Also, with the extended recession to date and the expectation of a slow economic
recovery, the Company, primarily for its electronic products inventory, increased inventory reserves by approximately $1.2 million. One additional factor suppressing the gross margin percentage in the first six months of 2009 was the first time
assembly and shipment of both new thin film and silicon solar systems.

Selling, General and Administrative (SG&A).SG&A expenses decreased
by $1.6 million or 25.5% from $6.4 million in Q2 2008 to $4.8 million in Q2 2009. Approximately half of this Q2 2009 decrease occurred in commission expense as the result of decreased revenue. The other half of the Q2 2009 reductions versus Q2 2008
occurred in each of the expense functions of service, sales, marketing and administration as the Company took several cost reduction actions to reduce costs as revenues declined. SG&A expenses for the first half of 2009 versus the same period in
2008 decreased by $2.6 million or 23.1%, primarily due to the lower commission on reduced sales and expense reductions in the Companys service, sales and administrative functions.

Research, Development and Engineering (RD&E)In Q2 and in the first six months of 2009, the Company increased its spending on RD&E as compared to the same periods in 2008 by $110,000 or 6.2% and
$485,000 or 14.3% respectively, increases were due primarily for development efforts towards next generation products for the alternative energy market.

Operating Income (Loss)The impact of the revenue decreases and its associated effect on gross margins in Q2 and the first six months of 2009 resulted in operating losses of $3.0 million and $7.5 million, respectively.

Foreign Exchange loss.The foreign exchange loss in Q2 2009 was $177,000 as compared to $395,000 in Q2 2008. For the first six months of 2009 and 2008 foreign
exchange losses were $ 235,000 and $271,000 respectively. 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.

Income Taxes. During the six months ended June 28, 2009, we recorded an income tax provision of approximately $181,000 as compared to $ 406,000 for the
six months ended June 29 2008. 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 corporate tax entity to the
consolidated tax provision. The portion of the consolidated tax provision for China withholding taxes are not related to pre-tax income. The China withholding taxes primarily result from corporate royalty charges based on our China manufacturing
subsidiary net sales.

The Company has federal and state net operating loss carry forwards of approximately $12 million against which it has recorded
a full valuation allowance because of uncertainty surrounding realization. Our statutory federal income tax rate is 34.0%.



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LIQUIDITY AND CAPITAL RESOURCES

As of June 28, 2009, the Company had $25.3 million in cash and cash equivalents, a decrease of $2.1 million versus $27.4 million at the end of 2008.

During the six months ended June 28, 2009, the Company used net cash resources of approximately $1.3 million for operating activities. The use of cash was primarily the result of a net loss of $8.0 million, a $1.4 million decrease in
accounts payable, and a $1.5 million decrease in accrued expenses; offset by a $6.3 million decrease in accounts receivable, adding back depreciation and amortization of $1.1 million and a $2.2 million decrease in inventory.

On March 1, 2007, the Company entered into an amended revolving loan agreement with a bank that allowed 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 could elect to borrow at interest rates related to the banks prime rate or LIBOR. This loan agreement extended to
December 31, 2010. At June 28, 2009, there were no borrowings outstanding under the loan agreement.

The loan agreement is subject to maintaining
certain financial covenants. Due to the recorded losses in Q4 2008, Q1 2009 and Q2 2009, the Company is not in compliance with the required rolling four quarters minimum debt coverage ratio in the loan agreement. Given the uncertainty surrounding
the timing of an economic recovery from the global recession, the Company has suspended negotiations with the bank until a return to profitability is at hand. At such time, the Company will work with the bank to receive a waiver which may require
modifications, agreeable to both parties, to the provisions of the existing loan agreement. There is no current debt outstanding against this line.

On
March 30, 2006, the Company entered into a mortgage note that is secured by its real property in Billerica, MA. The amount of the mortgage note executed was $10 million. The mortgage note requires monthly payments of $76,280, which includes
interest calculated at the rate of 6.84% per annum. This mortgage note payable has a balloon payment of $6.8 million due and payable at maturity on December 23, 2015. The mortgage note had an outstanding balance at June 28, 2009 of
approximately $9.1 million.

As of June 28, 2009, the Company has no material commitments relating to capital expenditures.

The Companys business forecasts project that our cash position and cash flow will be sufficient to meet our corporate, operating and capital requirements through
2010.

OTHER MATTERS

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

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



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FORWARD LOOKING STATEMENTS

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



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

We are exposed
to market risk from changes in interest rates primarily through our revolving loan agreement. As of June 28, 2009, we had no debt outstanding under our revolving loan agreement.

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



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

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

The Companys Management carried
out an evaluation, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of June 28, 2009, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Securities Exchange Act of
1934.

Based upon that evaluation, Management concluded based on the aforementioned material weaknesses as of the end of the period covered
by the 2008 Annual Report on Form 10-K and at the period ended June 28, 2009 that our disclosure controls and procedures did not operate effectively to ensure that information required to be disclosed by us in the reports we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Notwithstanding the ineffectiveness of our disclosure controls and procedures,
we believe the consolidated financial statements present fairly, in all material respects, our financial position or results of operations, and cash flows as of June 28, 2009 and June 29, 2008 and for the three and six month periods ended
June 28, 2009 and June 29, 2008.



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##### Table of Contents

2. Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the six months ended June 28, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3. Managements remediation initiatives.

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



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



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

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

PART II. OTHER INFORMATION



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

Risk factors are disclosed in the Companys 2008 Annual
Report on Form 10-K. During the quarter ended June 28, 2009, there were no material changes to the risk factors for the business.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

At
the Annual Meeting of Stockholders held on May 15, 2009, the Companys stockholders voted as follows:

To elect the following
nominees to the Board of Directors:

All received a plurality of the votes cast by stockholders entitled to vote thereon. These individuals will serve as
directors until the 2010 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified.



|                       |  |                  |  |                      
|---------------------- |  | ---------------- |  | ---------------------
|Nominee                |  | Total vote For |  | Total vote Withheld
|Paul J. van der Wansem |  | 8,672,164        |  | 269,935              
|G. Mead Wyman          |  | 8,053,483        |  | 888,616              
|John E. Beard          |  | 8,042,479        |  | 899,620              
|Joseph F. Wrinn        |  | 8,059915         |  | 882,184              
|J. Samuel Parkhill     |  | 8,055,190        |  | 886,909              



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The proposal to amend our 2003 Equity Incentive Plan to implement a stock option exchange program received a plurality of
the votes cast thereon.

To amend the Companys 2003 Equity Incentive Plan to increase the number of shares authorized for issuance:



|          |  |          
|--------- |  | ---------
|For       |  | 4,360,350
|Against   |  | 2,822,437
|Abstain   |  | 4,153    
|Non-Votes |  | 1,755,159



|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 6, 2009 |  | BY:                     |  | /s/ Paul J. van der Wansem                                                                           
|                     |  |                         |  | Paul J. van der Wansem                                                                               
|                     |  |                         |  | President, Chief Executive Officer                                                                   
|                     |  |                         |  | (principal executive officer) and Chairman of the Board of Directors                                 
|                     |  |                        
|DATE: August 6, 2009 |  | BY:                     |  | /s/ Peter J. Tallian                                                                                 
|                     |  |                         |  | Peter J. Tallian                                                                                     
|                     |  |                         |  | Chief Financial Officer and Principal Accounting
Officer (principal financial and accounting officer)



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