10-Q

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 September 30, 2012

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  x    No  ¨

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

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

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

Indicate the number of shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, as of the latest practicable date: As of October 29, 2012: 9,515,967 shares.

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 Comprehensive Loss	3
Unaudited Condensed Consolidated Statement of Stockholders’ Equity	3
Unaudited Condensed Consolidated Statements of Cash Flows	4
Notes to Unaudited Condensed Consolidated Financial Statements	5-9
Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	14
Item 4. Controls and Procedures	14
PART II. OTHER INFORMATION
Item 6. Exhibits	15
Signatures	16

PART I. FINANCIAL STATEMENTS

Item 1. Financial Statements

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

	September 30, 2012			December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	21,029		$	18,948
Accounts receivable, net		10,425			12,422
Inventories		13,783			17,510
Other current assets		3,771			2,064
Total current assets		49,008			50,944
Property, plant and equipment, net		4,973			5,650
Other assets, net		81			124
Total assets	$	54,062		$	56,718
Liabilities and stockholders’ equity
Current liabilities
Current portion of long-term debt	$	395		$	379
Accounts payable		6,737			3,527
Deferred revenue		1,237			494
Accrued expenses		4,347			4,910
Total current liabilities		12,716			9,310
Long-term debt, less current portion		7,663			7,956
Total liabilities		20,379			17,266
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; 10,883,934 shares issued and 9,515,967 shares outstanding at September 30, 2012 and 10,867,778 shares issued and 9,499,811 shares outstanding at December 31, 2011		109			109
Additional paid in capital		51,382			50,646
Accumulated deficit		(14,942	)		(8,388	)
Treasury stock, at cost, 1,367,967 shares at September 30, 2012 and December 31, 2011		(4,990	)		(4,990	)
Accumulated other comprehensive income		2,124			2,075
Total stockholders’ equity		33,683			39,452
Total liabilities and stockholders’ equity	$	54,062		$	56,718

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

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2012			October 2, 2011			September 30, 2012			October 2, 2011
Net sales	$	14,137		$	16,865		$	45,007		$	61,250
Costs of goods sold		10,018			10,506			30,903			36,509
Gross profit		4,119			6,359			14,104			24,741
Operating expenses:
Selling, general and administrative		4,925			6,013			15,578			17,921
Research, development and engineering		1,333			1,914			4,121			5,545
Restructuring		—			352			176			352
Operating income (loss)		(2,139	)		(1,920	)		(5,771	)		923
Interest income		10			21			47			54
Interest expense		(114	)		(119	)		(346	)		(372	)
Foreign exchange loss		(3	)		(23	)		(56	)		(172	)
Other income		1			6			2			231
Income (loss) before provision for income taxes		(2,245	)		(2,035	)		(6,124	)		664
Provision for income taxes		153			179			430			1,063
Net loss	$	(2,398	)	$	(2,214	)	$	(6,554	)	$	(399	)
Loss per share:
Basic	$	(0.25	)	$	(0.23	)	$	(0.69	)	$	(0.04	)
Diluted	$	(0.25	)	$	(0.23	)	$	(0.69	)	$	(0.04	)
Weighted average number of shares outstanding:
Basic shares		9,515,967			9,462,281			9,506,926			9,418,708
Effect of dilutive options		—			—			—			—
Diluted shares		9,515,967			9,462,281			9,506,926			9,418,708

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

2

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,			October 2,			September 30,			October 2,
	2012			2011			2012			2011
Comprehensive loss is calculated as follows:
Net loss	$	(2,398	)	$	(2,214	)	$	(6,554	)	$	(399	)
Other comprehensive income:
Foreign currency translation adjustment		47			71			49			364
Comprehensive loss	$	(2,351	)	$	(2,143	)	$	(6,505	)	$	(35	)

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(in thousands)

(unaudited)

					Additional										Accumulated Other
	Common Stock				Paid-In		Accumulated			Treasury Stock					Comprehensive
	shares		$		Capital		Deficit			shares		$			Income		Total
Balance at December 31, 2011		10,868	$	109	$	50,646	$	(8,388	)		1,368	$	(4,990	)	$	2,075	$	39,452
Net loss		—		—		—		(6,554	)		—		—			—		(6,554	)
Exercise of stock options		3		—		9		—			—		—			—		9
Issuance of common stock		13		—		29		—			—		—			—		29
Stock-based compensation		—		—		698		—			—		—			—		698
Translation adjustment		—		—		—		—			—		—			49		49
Balance at September 30, 2012		10,884	$	109	$	51,382	$	(14,942	)		1,368	$	(4,990	)	$	2,124	$	33,683

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

3

BTU INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND OCTOBER 2, 2011

($ in thousands)

(unaudited)

	September 30, 2012			October 2, 2011
Cash flows from operating activities:
Net loss	$	(6,554	)	$	(399	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,255			1,377
Provision for bad debts		339			155
Provision for inventory obsolescence		2,718			685
Stock-based compensation		698			975
Deferred taxes		(143	)		—
Net change in operating assets and liabilities:
Accounts receivable		1,659			3,628
Inventories		651			(3,906	)
Other current assets		(1,579	)		(135	)
Deferred revenue		743			(710	)
Other assets		—			200
Accounts payable		3,212			(3,934	)
Accrued expenses		(566	)		(1,115	)
Net cash provided by (used in) operating activities		2,433			(3,179	)
Cash flows used in investing activities:
Purchases of property, plant and equipment		(198	)		(620	)
Net cash used in investing activities		(198	)		(620	)
Cash flows from financing activities:
Principal payments under loan and capital lease agreements		(277	)		(264	)
Issuance of common stock		29			50
Proceeds from the exercise of stock options		9			520
Net cash provided by (used in) financing activities		(239	)		306
Effects of exchange rates on cash		85			129
Net increase (decrease) in cash and cash equivalents		2,081			(3,364	)
Cash and cash equivalents, beginning of period		18,948			22,753
Cash and cash equivalents, end of period	$	21,029		$	19,389
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest	$	299		$	307
Income taxes		230			1,213

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

4

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, 2011 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of September 30, 2012 and the related condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2012 and October 2, 2011 are unaudited. The condensed consolidated statement of stockholders’ equity and consolidated cash flows for the nine months ended September 30, 2012 and October 2, 2011 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, 2011, together with the auditors’ report, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC).

(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, 2011 as filed with the SEC.

In June 2011, the Financial Accounting Standards Board (FASB) issued guidance amending the presentation requirements for comprehensive income. For public entities, this guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early adoption permitted. Subsequently, in December 2011, the FASB deferred the effective date of the portion of the June 2011 accounting standards update requiring separate presentation of reclassifications out of accumulated other comprehensive income. Upon adoption on January 1, 2012, we had the option to report total comprehensive income, including components of net income and components of other comprehensive income, as a single continuous statement or in two separate but consecutive statements. We elected to present comprehensive income in two separate but consecutive statements as part of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Other than a change in presentation, the implementation of this accounting pronouncement did not have a material impact on our financial statements.

Subsequent Events – The Company evaluated subsequent events through the time of issuance of these condensed consolidated financial statements. In October 2012, the Company eliminated 13 positions due to the continued slowdown in orders from customers in the solar industry. The Company expects to incur $250,000 in charges in the fourth quarter of 2012 related to this restructuring action, primarily for severance and benefits. We are not aware of any significant events that occurred subsequent to the balance sheet date, but prior to the filing of this report that would have a material impact on our condensed consolidated financial statements.

(3) Inventories

	September 30, 2012		December 31, 2011
	($ in thousands)
Raw materials and manufactured components	$	6,922	$	7,614
Work-in-process		2,277		5,363
Finished goods		4,584		4,533
Total inventory	$	13,783	$	17,510

5

BTU INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(4) Accrued Expenses

	September 30, 2012		December 31, 2011
	( $ in thousands)
Accrued commissions	$	968	$	1,194
Accrued warranty		428		497
Accrued taxes		1,467		1,175
Accrued audit		344		373
Accrued legal		240		246
Accrued bonus		52		167
Payroll and payroll taxes		494		764
Accrued cost of sales		266		216
Accrued restructuring costs		24		192
Other		64		86
	$	4,347	$	4,910

Warranty

The Company provides standard warranty coverage for labor for 12 months and special extended material-only coverage on certain products. The Company estimates and records an accrual for anticipated warranty claims based on sales. 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 nine months ended September 30, 2012 (in thousands):

	Nine Months Ended
	September 30, 2012
Beginning balance, December 31, 2011	$	497
Plus: accruals related to new sales		433
Less: warranty claims incurred and reserve adjustment		(502	)
Ending balance, September 30, 2012	$	428

Restructuring

In September 2011, the Company eliminated 17 positions and recorded restructuring charges of $401,000 in the year ended December 31, 2011. The decision to eliminate 17 positions was made due to the slowdown in orders from customers in the solar industry. Due to the continued slowdown in the solar industry, the Company eliminated a combined 18 positions and recorded restructuring charges of $176,000 during the nine months ended September 30, 2012.

The restructuring charge consisted of primarily severance and benefits.

6

The following table reflects changes in the reserves for restructuring charges for the nine months ended September 30, 2012 (in thousands):

	Nine Months Ended
	September 30, 2012
Beginning balance, December 31, 2011	$	192
Plus: charges to costs and expenses		176
Less: cash payments		(344	)
Ending balance, September 30, 2012	$	24

(5) Debt

Long-term debt at September 30, 2012 and December 31, 2011 consisted of:

	September 30, 2012		December 31, 2011
	($ in thousands)
Mortgage note payable, interest rate of 5.50%	$	8,058	$	8,335
Less - current portion of long-term debt		395		379
Long-Term debt, less current portion	$	7,663	$	7,956

On March 30, 2006, the Company entered into a mortgage note that is secured by our real property in Billerica, Massachusetts, in the amount of $10 million. This mortgage note payable has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in a reduction of the annual interest rate from 6.84% to 5.50% and a reduction in the monthly payment from $76,280 to $69,000.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of September 30, 2012, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Company’s balance sheet in other current assets.

(6) Net Loss Per Share

Basic EPS is computed by dividing net income (loss) 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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units (RSUs). Diluted EPS equals basic EPS when the Company reports a net loss because the assumed exercise or conversion of potentially dilutive securities would be anti-dilutive. Due to their anti-dilutive effect, approximately 1,308,864 and 1,277,016 potentially dilutive securities were excluded from the calculation of diluted income (loss) per share for the three and nine months ended September 30, 2012, respectively, and 681,605 and 331,900 were excluded for the three and nine months ended October 2, 2011, respectively. These potentially dilutive securities could become dilutive in future periods.

(7) Accounting for Stock-Based Compensation

The Company’s stock option compensation expense was $180,321 and $678,577 for the three and nine months ended September 30, 2012, respectively and $305,969 and $948,195 for the three and nine months ended October 2, 2011, respectively. These amounts do not include expense related to restricted stock awards or the employee stock purchase plan.

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 stock-based compensation expense was recorded only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by an annualized estimated forfeiture rate of 4%.

7

Calculation of Fair Value - Assumptions Used:

	Nine months ended
	September 30, 2012			October 2, 2011
Expected Volatility		66.85	%		63.03	%
Expected Life (in years)		4.21			4.53
Risk-Free Interest Rate		0.59	%		1.58	%
Expected Dividend Yield		0			0

Expected volatilities are based on the historical volatility of the Company’s common stock. The Company had used 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 paid a dividend and management’s current expectation to retain any excess cash for use in the business.

The following table summarizes the stock option activity during the nine months ended September 30, 2012:

				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Options
Outstanding at December 31, 2011		1,299,358		$	6.72
Granted		112,335		$	3.01
Exercised		(3,250	)	$	3.00
Forfeited/Cancelled		(117,117	)	$	5.48
Outstanding at September 30, 2012		1,291,326		$	6.52		3.93	$	—
Exercisable at September 30, 2012		757,066		$	7.44		3.06	$	—

The weighted-average grant date fair values of options granted during the nine-month periods ended September 30, 2012 and October 2, 2011 were $1.54 and $4.49, respectively. The aggregate fair value of options exercised during the nine-month periods ended September 30, 2012 and October 2, 2011 was $6,179 and $381,534, respectively.

As of September 30, 2012, there was $1,051,630 of total unrecognized compensation cost related to non-vested options granted under the Company’s option plans. That cost is expected to be recognized over a weighted-average period of 1.98 years. The total fair value of options vested during the nine-month period ended September 30, 2012 was $801,779.

In June 2012, the Company granted 10,200 restricted stock units to various employees. The fair value of the restricted stock units at the date of the grant was $3.03. These stock units vest over a two-year term. The Company has recorded compensation expense of $4,633 during the nine-month period ended September 30, 2012 related to this grant. As of September 30, 2012, there was $23,801 of unrecognized compensation costs related to these grants. These grants have a remaining life of 1.68 years.

(8) Revenue Recognition

For the three and nine months ended September 30, 2012, there was $794,990 and $1,173,427, respectively, of revenue recognized using the percentage of completion method. For the three and nine months ended October 2, 2011, there was $831,179 and $2,285,094, respectively, of revenue recognized using the percentage of completion method.

(9) Fair Value of Financial Instruments

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

• Level 1 – Valuation is based upon quoted market price for identical instruments traded in active markets.

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

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

8

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

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the instruments’ short-term nature. Long-term debt is also reported at carrying value and approximates fair value as the interest rate on the mortgage note payable of 5.5% approximates the current market interest rate.

(10) Segment Reporting

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

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

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

	September 30, 2012		December 31, 2011
	($ in thousands)
United States	$	4,150	$	4,741
Asia Pacific		823		909
	$	4,973	$	5,650

(11) Legal Proceedings

On October 25, 2011, one of the Company’s overseas customers filed an appeal with the Grenoble Court of Appeals, Grenoble, France, seeking to overturn a decision of the lower court denying its request to nominate an expert to examine allegations that furnaces it had purchased from the Company in 2006 had not functioned properly. The Company is preparing a response to deny this customer’s allegations and is vigorously contesting this matter. On July 6, 2011, in a separate proceeding involving this customer, the Company filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce in Paris, France asking the arbitrators to certify that the customer is barred from receiving any remedy. In addition the Company has filed claims for reimbursements of work performed, as well as reimbursements of legal costs related to the arbitration proceedings. The customer has filed a counterclaim for damages. Each party has nominated an arbitrator and these two arbitrators have selected a neutral arbitrator who will act as the chairman of the tribunal. The Company strongly believes that the equipment the customer purchased met all applicable specifications, that there is no basis for a valid warranty claim and that the risk that a loss has occurred with respect to this matter although reasonably possible, is not material to the Company’s consolidated financial statements. An estimate or a range of any possible loss cannot be made at this juncture due to the early stage of the proceedings. However, because litigation is inherently uncertain and unpredictable and excessive outcomes do occur, we could incur a judgment or enter into a settlement or revise our estimate of the outcome of this matter in a way that could result in a material adverse effect on the Company’s results of operations and financial condition.

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

BTU International, Inc. (“BTU”), founded in 1950 and headquartered in North Billerica, Massachusetts, is a global supplier and technology leader of advanced thermal processing equipment and processes to the electronic manufacturing and alternative energy markets. BTU equipment is used in the production of printed circuit board assemblies and semiconductor packaging as well as in solar cell, nuclear fuel and fuel cell manufacturing.

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

In 2004, we began manufacturing and material sourcing operations in leased facilities in Shanghai, China. In addition, we expanded our product development capability in China, creating a global engineering team. This team commercially introduced our latest PYRAMAX™ and TRITAN™ products and continues to collaborate with our U.S. headquarters on additional product initiatives.

RESULTS OF OPERATIONS

Three months ended September 30, 2012 compared to the three months ended October 2, 2011.

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

Summary Condensed Consolidated Statements of Operations

	Three Months Ended
	September 30, 2012						October 2, 2011
	( $ in thousands)
				% of						% of			Percent
				Net Sales						Net Sales			Change
Net sales	$	14,137			100.0	%	$	16,865			100.0	%		(16.2	)%
Cost of goods sold		10,018			70.9	%		10,506			62.3	%		(4.6	)%
Gross profit		4,119			29.1	%		6,359			37.7	%		(35.2	)%
Selling, general and administrative expenses		4,925			34.8	%		6,013			35.7	%		(18.1	)%
Research, development and engineering expenses		1,333			9.4	%		1,914			11.3	%		(30.4	)%
Restructuring		—			0.0	%		352			2.1	%		(100.0	)%
Operating loss		(2,139	)		(15.1	)%		(1,920	)		(11.4	)%		11.4	%
Loss before provision for income taxes		(2,245	)		(15.9	)%		(2,035	)		(12.1	)%		10.3	%
Provision for income taxes		153			1.1	%		179			1.1	%		(14.5	)%
Net loss	$	(2,398	)		(17.0	)%	$	(2,214	)		(13.1	)%		8.3	%

Net Sales. Net sales for the third quarter of 2012 were $14.1 million representing a decrease of $2.7 million, or 16.2%, as compared to the same period in the prior year. Net sales for the Company’s electronic market systems increased by $0.7 million, or 7.0%, as compared to the same period in the prior year. Net sales for the Company’s alternative energy systems decreased by $2.5 million, or 52.5%, as compared to the same period in the prior year. Net sales for the Company’s other market systems, parts and service sales decreased by $0.9 million, or 34.0%. The electronic market systems increase represents an increase in demand for Surface Mount Technology systems and the recognition of $0.8 million under the percentage of completion method. The Company’s alternative energy systems third quarter 2012 sales decrease as compared to the same period in the prior year is due to the continued weakness of the worldwide solar industry which started in the second quarter of 2011. The decrease in sales in the other market systems and parts and service is due to the cyclical nature of the parts and service business.

As a result of the weakness in capital spending in the solar industry, we expect minimal revenue from solar products over the immediate future.

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

10

	Three Months Ended
	September 30, 2012					October 2, 2011
	($ in thousands)
			% of					% of
	$		Revenues			$		Revenues
United States	$	1,377		9.8	%	$	2,084		12.4	%
Europe, Near East		3,355		23.7	%		2,393		14.2	%
Asia Pacific		9,107		64.4	%		11,289		66.9	%
Other Americas		298		2.1	%		1,099		6.5	%
Total Revenue	$	14,137				$	16,865

Gross Profit. The third quarter of 2012 gross profit of $4.1 million decreased by $2.2 million compared to the third quarter of 2011 due primarily to the 16.2% decrease in net sales. In the third quarter of 2012, gross profit as a percentage of sales decreased to 29.1% as compared to 37.7% in the same period in 2011, due primarily to lower volume, product mix and overhead under absorption at our factories combined with higher inventory reserves. Our results of operations in future quarters could also be affected by further inventory write-downs. The Company assesses inventory at each period end and records inventory write-downs as appropriate based on market conditions.

Selling, General and Administrative (SG&A). SG&A third quarter 2012 expenses of $4.9 million decreased by $1.1 million compared to the same period in the prior year. The decrease is primarily due to the lower commission on reduced sales and cost reduction actions taken in the Company’s service, marketing and administrative functions. Our results of operations in future quarters could also be affected by further reductions in operating expenses.

Research, Development and Engineering (RD&E). RD&E third quarter 2012 expenses of $1.3 million decreased by $0.6 million, or 30.4%, from the same period in the prior year as a result of headcount reductions and expense reductions in the Company’s RD&E functions.

Restructuring. The Company recorded a restructuring charge of $352,000 in the three months ended October 2, 2011. This restructuring action was taken due to the slowdown in the Company’s solar market product line. No such restructuring charge occurred in the third quarter 2012.

Operating Loss. The 16.2% net sales decrease and its associated negative effect on gross profit combined with higher inventory reserves resulted in an operating loss in the third quarter of 2012 of $2.1 million as compared to an operating loss of $1.9 million for the same period in 2011, although the Company recorded a restructuring charge subsequent to quarter end that will have an impact of approximately $250,000 in the fourth quarter.

Interest Income (Expense). In the third quarter of 2012 as compared to the same period in 2011, net interest expense remained relatively flat at $0.1 million.

Foreign Exchange Loss. The foreign exchange loss in the third quarter of 2012 was $3,000 as compared to a loss of $23,000 in the same period in the prior year. The net exchange loss is primarily the result of foreign currency exposure in the Company’s foreign operations.

Income Taxes. For the three months ended September 30, 2012 and October 2, 2011, the Company recorded an income tax provision of $0.2 million. The Company’s income tax provision primarily relates to withholding taxes generated from activities in 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 different statutory tax rates in each of the Company’s non-U.S. locations and the fluctuations of pre-tax income (loss) generated in these jurisdictions. A portion of the consolidated annual tax provision relates to Chinese withholding taxes which are not directly related to pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our China manufacturing subsidiary net sales. U.S. taxes have had no impact to the rate fluctuation as the U.S. Company operates at a loss.

11

RESULTS OF OPERATIONS

Nine months ended September 30, 2012 compared to the nine months ended October 2, 2011.

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

Summary Consolidated Statements of Operations

	Nine Months Ended
	September 30, 2012						October 2, 2011
				( $ in thousands)
				% of						% of			Percent
				net sales						net sales			change
Net sales	$	45,007			100.0	%	$	61,250			100.0	%		(26.5	)%
Cost of goods sold		30,903			68.7	%		36,509			59.6	%		(15.4	)%
Gross profit		14,104			31.3	%		24,741			40.4	%		(43.0	)%
Selling, general and administrative expenses		15,578			34.6	%		17,921			29.3	%		(13.1	)%
Research, development and engineering expenses		4,121			9.2	%		5,545			9.1	%		(25.7	)%
Restructuring		176			0.4	%		352			0.6	%		(50.0	)%
Operating income (loss)		(5,771	)		(12.8	)%		923			1.5	%		(725.2	)%
Income (loss) before provision for income taxes		(6,124	)		(13.6	)%		664			1.1	%		(1022.3	)%
Provision for income taxes		430			1.0	%		1,063			1.7	%		(59.5	)%
Net loss	$	(6,554	)		(14.6	)%	$	(399	)		(0.7	)%		1542.6	%

Net Sales. Net sales decreased $16.2 million, or 26.5%, in the first nine months as compared to the same period in the prior year. Net sales for the Company’s electronics systems increased $5.1 million, or 18.4% as compared to the same period in the prior year. The Company’s alternative energy market systems net sales decreased $18.9 million, or 75.6% as compared to the same period in the prior year. Net sales for the Company’s other market systems, parts and service sales decreased by $2.4 million, or 28.1%. The electronic market systems increase represents an increase in demand for Surface Mount Technology and semiconductor packaging systems in addition to recognizing $0.9 million revenue under the percentage of completion method. The Company’s alternative energy systems third quarter 2012 sales decrease as compared to the same period in the prior year is due to the continued weakness of the worldwide solar industry which started in the second quarter of 2011. The decrease in sales in the other market systems and parts and service was the result of two large systems orders in the nine months ended October 2, 2011 and no similar market system orders in the comparable 2012 period. We expect the solar market slowdown to continue into 2013.

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

	Nine Months Ended
	September 30, 2012					October 2, 2011
	($ in thousands)
			% of					% of
	$		revenues			$		revenues
United States	$	6,008		13.3	%	$	8,290		13.5	%
Europe, Near East		6,673		14.8	%		4,406		7.2	%
Asia Pacific		31,133		69.2	%		45,424		74.2	%
Other Americas		1,193		2.7	%		3,130		5.1	%
Total Revenue	$	45,007				$	61,250

Gross Profit . The gross profit of $14.1 million for the first nine months of 2012 decreased $10.6 million, or 43.0%, as compared to the same period in the prior year. The gross profit as a percentage of sales for the first nine months of 2012 decreased to 31.3% from 40.4% for the first nine months of 2011. The gross margin percentage in the first nine months of 2012 was negatively impacted by lower volume, product mix and overhead under absorption at our factories combined with higher inventory reserves.

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Selling, General and Administrative (SG&A). SG&A expenses of $15.6 million for the first nine months of 2012 decreased by $2.3 million, or 13.1%, as compared to the same period in the prior year. The decrease is primarily due to the lower commission on reduced sales and cost reduction actions taken in the Company’s service, marketing and administrative functions.

Research, Development and Engineering (RD&E). RD&E expenses of $4.1 million for the first nine months of 2012 decreased by $1.4 million, or 25.7%, as compared to the same period in the prior year. The decreases are the result of headcount reductions and expense reductions in the Company’s RD&E functions.

Restructuring. The Company recorded a restructuring charge of $176,000 for the first nine months of 2012 compared to $352,000 for the same period in 2011. Similar to 2011, the restructuring action taken in 2012 is related to severance and benefit charges due to the continued decline in the Company’s solar market product sales.

Operating Income(Loss). The impact of the revenue decreases and its associated negative impact on gross margins, as well as inventory reserves, in the first nine months of 2012 resulted in operating loss of $5.8 million as compared to operating income of $0.9 million in the same period in 2011.

Interest Income (Expense). For the first nine months of 2012 as compared to the same period in 2011, net interest expense remained relatively stable at $0.3 million.

Foreign Exchange Loss. The foreign exchange loss for the first nine months of 2012 was $56,000 as compared to a loss of $172,000 for the same period in 2011. The net exchange loss is primarily the result of foreign currency exposure in the Company’s foreign operations.

Income Taxes. During the nine months ended September 30, 2012, the Company recorded an income tax provision of $0.4 million as compared to $1.1 million for the nine months ended October 2, 2011. The Company’s income tax provision primarily relates to withholding taxes related to our China operations.

The significant fluctuation in the Company’s quarterly tax rate, as a percent of consolidated pre-tax income or loss, is the result of the different statutory tax rates in each of the Company’s non-U.S. locations and the fluctuations of pre-tax income (loss) generated in these jurisdictions. A portion of the consolidated annual tax provision relates to Chinese withholding taxes which are not directly related to pre-tax income in China. China withholding taxes primarily result from corporate royalty charges based on our China manufacturing subsidiary net sales. U.S. taxes have had no impact to the rate fluctuation as the U.S. Company operates at a loss.

Our statutory federal income tax rate is 34.0%. The Company’s statutory income tax rate for its China manufacturing subsidiary is 25.0% in 2012 and 24% in 2011.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2012, we had $21.0 million in cash and cash equivalents, an increase of $2.1 million, compared to $18.9 million at December 31, 2011.

During the nine months ended September 30, 2012, the Company generated net cash of approximately $2.4 million from operating activities. This generation of cash was the result of an increase in accounts payable of $3.2 million, a decrease in net accounts receivable of $2.0 million, a decrease in net inventory of $3.4 million, an increase in deferred revenue of $0.7 million, non-cash expenses for depreciation and amortization of $1.3 million, stock-based compensation of $0.7 million, offset by a net loss of $6.6 million, an increase in other current assets of $1.6 million and a decrease in accrued expenses of $0.6 million.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize the letters of credit via restricted cash deposits at the bank. As of September 30, 2012, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Company’s balance sheet in other current assets.

The Company has a mortgage note that is secured by its real property in Billerica, MA. The original amount of the note was $10 million. This mortgage note has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in lowering the annual interest rate from 6.84% to 5.50%, and lowering the monthly payment from $76,280 to $69,000. The mortgage note had an outstanding balance on September 30, 2012, of approximately $8.1 million.

As of September 30, 2012, the Company has no material commitments relating to capital expenditures. There were no significant changes in the Company’s commitments from those that were outlined in the “Contractual Obligations” section of the Company’s 2011 annual report on Form 10-K.

At the end of the third quarter, approximately 11% of our outstanding receivables were from Chinese solar cell manufacturers. This industry has been significantly affected by the global downturn in the solar sector and by issues such as manufacturing overcapacity and the potential

13

imposition of U. S. tariffs. Substantially all of our receivables from these customers are backed by letters of credit from Chinese banks and we believe we are due payment. If we are unable to realize on the letters of credit, it could have a material adverse effect on the collectability of these receivables.

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

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

During the nine months ended September 30, 2012, there have been no significant changes to the items that we disclosed as our critical accounting policies and estimates in the “Critical Accounting Policies and Significant Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

RISK FACTOR

During the nine months ended September 30, 2012, there have been no significant changes to the items that we disclosed as risk factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

FORWARD LOOKING STATEMENTS

This Report contains forward-looking statements about the sufficiency of our cash position and cash flows. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “may,” “intends,” “believes,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are neither promises nor guarantees but rather are subject to risks and uncertainties described in this report and other reports we have filed with the SEC, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements are made pursuant to the “safe harbor” provisions established by the federal securities laws, and are based on the assumptions and expectations of our management at the time such statements are made. Important factors that could cause actual results to differ include, but are not limited to, the condition of the world economy, the timely availability and acceptance of new products in the electronics, semiconductor and alternative energy generation industries, manufacturing problems with our foreign operations in China, the impact of competitive products and pricing, particularly from companies in Asia, and other risks detailed under the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. Actual results may vary materially. Unless otherwise required by law, we disclaim any obligation to revise or update this information in order to reflect future events or developments, whether or not anticipated. Accordingly, you should not place undue reliance on any forward-looking statements, which speak only as of the date made.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

As of September 30, 2012 and December 31, 2011, all of our long-term debt obligations are fixed rate financial instruments. Therefore, we are not exposed to interest rate risk resulting from the variable interest rates.

Item 4. Controls and Procedures

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

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

14

PART II. OTHER INFORMATION

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

Exhibit 101.INS - XBRL Instance Document.

Exhibit 101.SCH - XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL - XBRL Taxonomy Calculation Linkbase Document.

Exhibit 101.DEF - XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 101.LAB - XBRL Taxonomy Label Linkbase Document.

Exhibit 101.PRE - XBRL Taxonomy Presentation Linkbase Document.

15

SIGNATURES

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

	BTU INTERNATIONAL, INC.
DATE: November 5, 2012	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: November 5, 2012	BY:	/S/    PETER J. TALLIAN
		Peter J. Tallian
		Chief Financial Officer and Principal Accounting Officer (principal financial and accounting officer)

16

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paul J. van der Wansem, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BTU International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2012

/s/ Paul J. van der Wansem

Paul J. van der Wansem

President, Chief Executive Officer and Chairman of the Board of Directors (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter J. Tallian, certify that:

1. I have reviewed this quarterly report on Form 10-Q of BTU International, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2012

/s/ Peter J. Tallian

Peter J. Tallian

Chief Financial Officer and Principal Accounting Officer (principal financial and accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as President and Chief Executive Officer of BTU International, Inc. (the “Company”), does hereby certify that to his knowledge:

1. the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods covered by the Report.

/s/ Paul J. van der Wansem

Paul J. van der Wansem

President, Chief Executive Officer and Chairman of the Board of Directors (principal executive officer)

Dated: November 5, 2012

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as Chief Financial Officer and Principal Accounting Officer of BTU International, Inc. (the “Company”), does hereby certify that to his knowledge:

1. the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods covered by the Report.

/s/ Peter J. Tallian

Peter J. Tallian

Chief Financial Officer and Principal Accounting Officer (principal financial and accounting officer)

Dated: November 5, 2012

XML

Segment Reporting (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of tangible long-lived assets by geographic location
Tangible long-lived assets, net	$ 4,973	$ 5,650
United States [Member]
Schedule of tangible long-lived assets by geographic location
Tangible long-lived assets, net	4,150	4,741
Asia Pacific [Member]
Schedule of tangible long-lived assets by geographic location
Tangible long-lived assets, net	$ 823	$ 909

XML

Net Loss Per Share (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Net Loss Per Share (Textual) [Abstract]
Potentially dilutive securities excluded from diluted income (loss) per share	1,308,864	681,605	1,277,016	331,900

XML

Summary of Significant Accounting Policies (Details) (USD $)	1 Months Ended		9 Months Ended
	Oct. 31, 2012 Position	Sep. 30, 2011 Position	Sep. 30, 2012 Position
Summary of Significant Accounting (Textual) [Abstract]
Number of positions eliminated	13	17	18
Severance and benefits charges			$ 250,000

XML

Revenue Recognition (Details) (Percentage of completion method [Member], USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Percentage of completion method [Member]
Revenue Recognition (Textual) [Abstract]
Revenue recognized	$ 794,990	$ 831,179	$ 1,173,427	$ 2,285,094

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

(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, 2011 as filed with the SEC.

In June 2011, the Financial Accounting Standards Board (FASB) issued guidance amending the presentation requirements for comprehensive income. For public entities, this guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early adoption permitted. Subsequently, in December 2011, the FASB deferred the effective date of the portion of the June 2011 accounting standards update requiring separate presentation of reclassifications out of accumulated other comprehensive income. Upon adoption on January 1, 2012, we had the option to report total comprehensive income, including components of net income and components of other comprehensive income, as a single continuous statement or in two separate but consecutive statements. We elected to present comprehensive income in two separate but consecutive statements as part of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Other than a change in presentation, the implementation of this accounting pronouncement did not have a material impact on our financial statements.

Subsequent Events – The Company evaluated subsequent events through the time of issuance of these condensed consolidated financial statements. In October 2012, the Company eliminated 13 positions due to the continued slowdown in orders from customers in the solar industry. The Company expects to incur $250,000 in charges in the fourth quarter of 2012 related to this restructuring action, primarily for severance and benefits. 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.

XML

Accrued Expenses (Details 2) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Schedule of changes in the reserves for restructuring charges
Beginning balance, December 31, 2011	$ 192
Plus: charges to costs and expenses	176
Less: cash payments	(344)
Ending balance, September 30, 2012	$ 24

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Accrued Expenses (Details 1) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Schedule of changes in the Company's accrued warranty account
Beginning balance, December 31, 2011	$ 497
Plus: accruals related to new sales	433
Less: warranty claims incurred and reserve adjustment	(502)
Ending balance, September 30, 2012	$ 428

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Accrued Expenses (Details Textual) (USD $) In Thousands, unless otherwise specified	1 Months Ended		3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 31, 2012 Position	Sep. 30, 2011 Position	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012 Position	Oct. 02, 2011	Dec. 31, 2011
Accrued Expenses (Textual) [Abstract]
Number of positions eliminated	13	17			18
Restructuring charges				$ 352	$ 176	$ 352	$ 401
Term of standard warranty coverage for labor					The Company provides standard warranty coverage for labor for 12 months

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Debt (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of long-term debt
Mortgage note payable, interest rate of 5.50%	$ 8,058	$ 8,335
Less - current portion of long-term debt	395	379
Long-term debt, less current portion	$ 7,663	$ 7,956

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Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

(1) Basis of Presentation

The condensed consolidated balance sheet, financial information and related disclosures as of and for the year ended December 31, 2011 have been derived from our consolidated financial statements, which have been audited as of that date. The condensed consolidated balance sheet as of September 30, 2012 and the related condensed statements of operations and comprehensive loss for the three and nine months ended September 30, 2012 and October 2, 2011 are unaudited. The condensed consolidated statement of stockholders’ equity and consolidated cash flows for the nine months ended September 30, 2012 and October 2, 2011 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, 2011, together with the auditors’ report, included in the Company’s Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC).

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Debt (Details Textual) (USD $)	9 Months Ended
	Sep. 30, 2012	Mar. 30, 2006
Debt (Additional Textual) [Abstract]
Mortgage note amount		$ 10,000,000
Mortgage note payable balloon payment		6,700,000
Mortgage note payable maturity date	Dec. 23, 2015
Loan Modification Agreement date	Sep. 09, 2010
Letters of credit outstanding	225,140
Pre Loan Modification Agreement [Member]
Debt (Textual) [Abstract]
Monthly installment payment	76,280
Mortgage note annual interest rate	6.84%
Post Loan Modification Agreement [Member]
Debt (Textual) [Abstract]
Monthly installment payment	$ 69,000
Mortgage note annual interest rate	5.50%

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Legal Proceedings (Details)	9 Months Ended
	Sep. 30, 2012
Legal Proceedings (Textual) [Abstract]
Date of appeal filed by overseas customers	2011-10-25

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets
Cash and cash equivalents	$ 21,029	$ 18,948
Accounts receivable, net	10,425	12,422
Inventories	13,783	17,510
Other current assets	3,771	2,064
Total current assets	49,008	50,944
Property, plant and equipment, net	4,973	5,650
Other assets, net	81	124
Total assets	54,062	56,718
Current liabilities
Current portion of long-term debt	395	379
Accounts payable	6,737	3,527
Deferred revenue	1,237	494
Accrued expenses	4,347	4,910
Total current liabilities	12,716	9,310
Long-term debt, less current portion	7,663	7,956
Total liabilities	20,379	17,266
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; 10,883,934 shares issued and 9,515,967 shares outstanding at September 30, 2012 and 10,867,778 shares issued and 9,499,811 shares outstanding at December 31, 2011	109	109
Additional paid in capital	51,382	50,646
Accumulated deficit	(14,942)	(8,388)
Treasury stock, at cost, 1,367,967 shares at September 30, 2012 and December 31, 2011	(4,990)	(4,990)
Accumulated other comprehensive income	2,124	2,075
Total stockholders' equity	33,683	39,452
Total liabilities and stockholders' equity	$ 54,062	$ 56,718

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Condensed Consolidated Statement of Stockholders' Equity (Unaudited) (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Treasury Stock	Accumulated Other Comprehensive Income
Beginning Balance at Dec. 31, 2011	$ 39,452	$ 109	$ 50,646	$ (8,388)	$ (4,990)	$ 2,075
Beginning Balance (in shares) at Dec. 31, 2011		10,868			1,368
Net loss	(6,554)			(6,554)
Exercise of stock options (in shares)	(3,250)	3
Exercise of stock options	9		9
Issuance of common stock (in shares)		13
Issuance of common stock	29		29
Stock-based compensation	698		698
Translation adjustment	49					49
Ending Balance at Sep. 30, 2012	$ 33,683	$ 109	$ 51,382	$ (14,942)	$ (4,990)	$ 2,124
Ending Balance (in shares) at Sep. 30, 2012		10,884			1,368

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Accounting for Stock-Based Compensation (Details 1) (USD $)	9 Months Ended
	Sep. 30, 2012
Summary of stock option activity
Shares, Outstanding at December 31, 2011	1,299,358
Shares, Granted	112,335
Shares, Exercised	(3,250)
Shares, Forfeited/Cancelled	(117,117)
Shares, Outstanding at September 30, 2012	1,291,326
Shares, Exercisable at September 30, 2012	757,066
Weighted-Average Exercise Price, Outstanding at December 31, 2011	$ 6.72
Weighted-Average Exercise Price, Granted	$ 3.01
Weighted-Average Exercise Price, Exercised	$ 3.00
Weighted-Average Exercise Price, Forfeited/Cancelled	$ 5.48
Weighted-Average Exercise Price, Outstanding at September 30, 2012	$ 6.52
Weighted-Average Exercise Price, Exercisable at September 30, 2012	$ 7.44
Average Remaining Contractual Term, Outstanding at September 30, 2012	3 years 11 months 5 days
Average Remaining Contractual Term, Exercisable at September 30, 2012	3 years 22 days
Aggregate Intrinsic Value, Outstanding at September 30, 2012
Aggregate Intrinsic Value, Exercisable at September 30, 2012

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Debt (Tables)

9 Months Ended

Sep. 30, 2012

Debt [Abstract]

Schedule of long-term debt

	September 30, 2012		December 31, 2011
	($ in thousands)
Mortgage note payable, interest rate of 5.50%	$	8,058	$	8,335
Less - current portion of long-term debt		395		379
Long-Term debt, less current portion	$	7,663	$	7,956

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Accounting for Stock-Based Compensation (Details Textual) (USD $)	3 Months Ended		9 Months Ended		1 Months Ended	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011	Jun. 30, 2012 Restricted stock units [Member]	Sep. 30, 2012 Restricted stock units [Member]
Accounting for Stock-Based Compensation (Textual) [Abstract]
Stock option compensation expense	$ 180,321	$ 305,969	$ 698,000	$ 975,000		$ 4,633
Restricted stock granted to employees					10,200
Fair value of grant					$ 3.03
Expected period of stock vest					2 years
Unrecognized compensation grants						23,801
Remaining life of grants						1 year 8 months 5 days
Accounting for Stock-Based Compensation (Additional Textual) [Abstract]
Annualized estimated forfeiture rate			4.00%
Weighted-average grant date fair values of options			$ 1.54	$ 4.49
Aggregate fair value of options exercised			6,179	381,534
Total unrecognized compensation cost related to non-vested options granted	1,051,630		1,051,630
Cost expected to be recognized over a weighted-average period			1 year 11 months 23 days
Total fair value of options vested			$ 801,779

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Schedule of tangible long-lived assets by geographic location

	September 30, 2012		December 31, 2011
	($ in thousands)
United States	$	4,150	$	4,741
Asia Pacific		823		909
	$	4,973	$	5,650

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Condensed Consolidated Statements of Cash flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011
Cash flows from operating activities:
Net loss	$ (6,554,000)	$ (399,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,255,000	1,377,000
Provision for bad debts	339,000	155,000
Provision for inventory obsolescence	2,718,000	685,000
Stock-based compensation	698,000	975,000
Deferred taxes	(143,000)
Net change in operating assets and liabilities:
Accounts receivable	1,659,000	3,628,000
Inventories	651,000	(3,906,000)
Other current assets	(1,579,000)	(135,000)
Deferred revenue	743,000	(710,000)
Other assets		200,000
Accounts payable	3,212,000	(3,934,000)
Accrued expenses	(566,000)	(1,115,000)
Net cash provided by (used in) operating activities	2,433,000	(3,179,000)
Cash flows used in investing activities:
Purchases of property, plant and equipment	(198,000)	(620,000)
Net cash used in investing activities	(198,000)	(620,000)
Cash flows from financing activities:
Principal payments under loan and capital lease agreements	(277,000)	(264,000)
Issuance of common stock	29,000	50,000
Proceeds from the exercise of stock options	9,000	520,000
Net cash provided by (used in) financing activities	(239,000)	306,000
Effects of exchange rates on cash	85,000	129,000
Net increase (decrease) in cash and cash equivalents	2,081,000	(3,364,000)
Cash and cash equivalents, beginning of period	18,948,000	22,753,000
Cash and cash equivalents, end of period	21,029,000	19,389,000
Cash paid during the periods for:
Interest	299,000	307,000
Income taxes	$ 230,000	$ 1,213,000

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Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Condensed Consolidated Balance Sheets [Abstract]
Preferred stock, par value	$ 1.00	$ 1.00
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	10,883,934	10,867,778
Common stock, shares outstanding	9,515,967	9,499,811
Treasury stock, shares	1,367,967	1,367,967

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Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment Reporting

(10) Segment Reporting

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

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

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

	September 30, 2012		December 31, 2011
	($ in thousands)
United States	$	4,150	$	4,741
Asia Pacific		823		909
	$	4,973	$	5,650

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 29, 2012
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	BTUI
Entity Registrant Name	BTU INTERNATIONAL INC
Entity Central Index Key	0000840883
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock Shares Outstanding		9,515,967

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Legal Proceedings

9 Months Ended

Sep. 30, 2012

Legal Proceedings [Abstract]

Legal Proceedings

(11) Legal Proceedings

On October 25, 2011, one of the Company’s overseas customers filed an appeal with the Grenoble Court of Appeals, Grenoble, France, seeking to overturn a decision of the lower court denying its request to nominate an expert to examine allegations that furnaces it had purchased from the Company in 2006 had not functioned properly. The Company is preparing a response to deny this customer’s allegations and is vigorously contesting this matter. On July 6, 2011, in a separate proceeding involving this customer, the Company filed a request for arbitration with the International Court of Arbitration of the International Chamber of Commerce in Paris, France asking the arbitrators to certify that the customer is barred from receiving any remedy. In addition the Company has filed claims for reimbursements of work performed, as well as reimbursements of legal costs related to the arbitration proceedings. The customer has filed a counterclaim for damages. Each party has nominated an arbitrator and these two arbitrators have selected a neutral arbitrator who will act as the chairman of the tribunal. The Company strongly believes that the equipment the customer purchased met all applicable specifications, that there is no basis for a valid warranty claim and that the risk that a loss has occurred with respect to this matter although reasonably possible, is not material to the Company’s consolidated financial statements. An estimate or a range of any possible loss cannot be made at this juncture due to the early stage of the proceedings. However, because litigation is inherently uncertain and unpredictable and excessive outcomes do occur, we could incur a judgment or enter into a settlement or revise our estimate of the outcome of this matter in a way that could result in a material adverse effect on the Company’s results of operations and financial condition.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Condensed Consolidated Statements of Operations [Abstract]
Net sales	$ 14,137	$ 16,865	$ 45,007	$ 61,250
Costs of goods sold	10,018	10,506	30,903	36,509
Gross profit	4,119	6,359	14,104	24,741
Operating expenses:
Selling, general and administrative	4,925	6,013	15,578	17,921
Research, development and engineering	1,333	1,914	4,121	5,545
Restructuring		352	176	352
Operating income (loss)	(2,139)	(1,920)	(5,771)	923
Interest income	10	21	47	54
Interest expense	(114)	(119)	(346)	(372)
Foreign exchange loss	(3)	(23)	(56)	(172)
Other income	1	6	2	231
Income (loss) before provision for income taxes	(2,245)	(2,035)	(6,124)	664
Provision for income taxes	153	179	430	1,063
Net loss	$ (2,398)	$ (2,214)	$ (6,554)	$ (399)
Loss per share:
Basic	$ (0.25)	$ (0.23)	$ (0.69)	$ (0.04)
Diluted	$ (0.25)	$ (0.23)	$ (0.69)	$ (0.04)
Weighted average number of shares outstanding:
Basic shares	9,515,967	9,462,281	9,506,926	9,418,708
Effect of dilutive options
Diluted shares	9,515,967	9,462,281	9,506,926	9,418,708

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Debt

9 Months Ended

Sep. 30, 2012

Debt [Abstract]

Debt

(5) Debt

Long-term debt at September 30, 2012 and December 31, 2011 consisted of:

	September 30, 2012		December 31, 2011
	($ in thousands)
Mortgage note payable, interest rate of 5.50%	$	8,058	$	8,335
Less - current portion of long-term debt		395		379
Long-Term debt, less current portion	$	7,663	$	7,956

On March 30, 2006, the Company entered into a mortgage note that is secured by our real property in Billerica, Massachusetts, in the amount of $10 million. This mortgage note payable has a balloon payment of $6.7 million due and payable at maturity on December 23, 2015. On September 9, 2010, the Company signed a Loan Modification Agreement relating to the mortgage note. The modification resulted in a reduction of the annual interest rate from 6.84% to 5.50% and a reduction in the monthly payment from $76,280 to $69,000.

On August 31, 2009, the Company entered into a pledge and assignment agreement with a bank. The bank agrees, at the Company’s request, to issue letters of credit in the bank’s name and the Company agrees to cash collateralize letters of credit via restricted cash deposits at the bank. As of September 30, 2012, the value of the outstanding letters of credit issued by the bank for the Company and cash collateralized by the Company was $225,140. This restricted cash value is included in the Company’s balance sheet in other current assets.

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Accrued Expenses

9 Months Ended

Sep. 30, 2012

Accrued Expenses [Abstract]

Accrued Expenses

(4) Accrued Expenses

	September 30, 2012		December 31, 2011
	( $ in thousands)
Accrued commissions	$	968	$	1,194
Accrued warranty		428		497
Accrued taxes		1,467		1,175
Accrued audit		344		373
Accrued legal		240		246
Accrued bonus		52		167
Payroll and payroll taxes		494		764
Accrued cost of sales		266		216
Accrued restructuring costs		24		192
Other		64		86
	$	4,347	$	4,910

Warranty

The Company provides standard warranty coverage for labor for 12 months and special extended material-only coverage on certain products. The Company estimates and records an accrual for anticipated warranty claims based on sales. 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 nine months ended September 30, 2012 (in thousands):

	Nine Months Ended
	September 30, 2012
Beginning balance, December 31, 2011	$	497
Plus: accruals related to new sales		433
Less: warranty claims incurred and reserve adjustment		(502	)
Ending balance, September 30, 2012	$	428

Restructuring

In September 2011, the Company eliminated 17 positions and recorded restructuring charges of $401,000 in the year ended December 31, 2011. The decision to eliminate 17 positions was made due to the slowdown in orders from customers in the solar industry. Due to the continued slowdown in the solar industry, the Company eliminated a combined 18 positions and recorded restructuring charges of $176,000 during the nine months ended September 30, 2012.

The restructuring charge consisted of primarily severance and benefits.

The following table reflects changes in the reserves for restructuring charges for the nine months ended September 30, 2012 (in thousands):

	Nine Months Ended
	September 30, 2012
Beginning balance, December 31, 2011	$	192
Plus: charges to costs and expenses		176
Less: cash payments		(344	)
Ending balance, September 30, 2012	$	24

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Accounting for Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Accounting for Stock-Based Compensation [Abstract]

Calculation of Fair Value - Assumptions Used

	Nine months ended
	September 30, 2012			October 2, 2011
Expected Volatility		66.85	%		63.03	%
Expected Life (in years)		4.21			4.53
Risk-Free Interest Rate		0.59	%		1.58	%
Expected Dividend Yield		0			0

Summary of stock option activity

				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Options
Outstanding at December 31, 2011		1,299,358		$	6.72
Granted		112,335		$	3.01
Exercised		(3,250	)	$	3.00
Forfeited/Cancelled		(117,117	)	$	5.48
Outstanding at September 30, 2012		1,291,326		$	6.52		3.93	$	—
Exercisable at September 30, 2012		757,066		$	7.44		3.06	$	—

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Comprehensive Income

In June 2011, the Financial Accounting Standards Board (FASB) issued guidance amending the presentation requirements for comprehensive income. For public entities, this guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early adoption permitted. Subsequently, in December 2011, the FASB deferred the effective date of the portion of the June 2011 accounting standards update requiring separate presentation of reclassifications out of accumulated other comprehensive income. Upon adoption on January 1, 2012, we had the option to report total comprehensive income, including components of net income and components of other comprehensive income, as a single continuous statement or in two separate but consecutive statements. We elected to present comprehensive income in two separate but consecutive statements as part of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Other than a change in presentation, the implementation of this accounting pronouncement did not have a material impact on our financial statements.

Subsequent Events

Subsequent Events – The Company evaluated subsequent events through the time of issuance of these condensed consolidated financial statements. In October 2012, the Company eliminated 13 positions due to the continued slowdown in orders from customers in the solar industry. The Company expects to incur $250,000 in charges in the fourth quarter of 2012 related to this restructuring action, primarily for severance and benefits. 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.

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Revenue Recognition

9 Months Ended

Sep. 30, 2012

Revenue Recognition [Abstract]

Revenue Recognition

(8) Revenue Recognition

For the three and nine months ended September 30, 2012, there was $794,990 and $1,173,427, respectively, of revenue recognized using the percentage of completion method. For the three and nine months ended October 2, 2011, there was $831,179 and $2,285,094, respectively, of revenue recognized using the percentage of completion method.

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Net Loss Per Share

9 Months Ended

Sep. 30, 2012

Net Loss Per Share [Abstract]

Net Loss Per Share

(6) Net Loss Per Share

Basic EPS is computed by dividing net income (loss) 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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units (RSUs). Diluted EPS equals basic EPS when the Company reports a net loss because the assumed exercise or conversion of potentially dilutive securities would be anti-dilutive. Due to their anti-dilutive effect, approximately 1,308,864 and 1,277,016 potentially dilutive securities were excluded from the calculation of diluted income (loss) per share for the three and nine months ended September 30, 2012, respectively, and 681,605 and 331,900 were excluded for the three and nine months ended October 2, 2011, respectively. These potentially dilutive securities could become dilutive in future periods.

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Accounting for Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Accounting for Stock-Based Compensation [Abstract]

Accounting for Stock-Based Compensation

(7) Accounting for Stock-Based Compensation

The Company’s stock option compensation expense was $180,321 and $678,577 for the three and nine months ended September 30, 2012, respectively and $305,969 and $948,195 for the three and nine months ended October 2, 2011, respectively. These amounts do not include expense related to restricted stock awards or the employee stock purchase plan.

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 stock-based compensation expense was recorded only for those awards that are expected to vest. Accordingly, awards ultimately expected to vest have been reduced by an annualized estimated forfeiture rate of 4%.

Calculation of Fair Value - Assumptions Used:

	Nine months ended
	September 30, 2012			October 2, 2011
Expected Volatility		66.85	%		63.03	%
Expected Life (in years)		4.21			4.53
Risk-Free Interest Rate		0.59	%		1.58	%
Expected Dividend Yield		0			0

Expected volatilities are based on the historical volatility of the Company’s common stock. The Company had used 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 paid a dividend and management’s current expectation to retain any excess cash for use in the business.

The following table summarizes the stock option activity during the nine months ended September 30, 2012:

				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Options
Outstanding at December 31, 2011		1,299,358		$	6.72
Granted		112,335		$	3.01
Exercised		(3,250	)	$	3.00
Forfeited/Cancelled		(117,117	)	$	5.48
Outstanding at September 30, 2012		1,291,326		$	6.52		3.93	$	—
Exercisable at September 30, 2012		757,066		$	7.44		3.06	$	—

The weighted-average grant date fair values of options granted during the nine-month periods ended September 30, 2012 and October 2, 2011 were $1.54 and $4.49, respectively. The aggregate fair value of options exercised during the nine-month periods ended September 30, 2012 and October 2, 2011 was $6,179 and $381,534, respectively.

As of September 30, 2012, there was $1,051,630 of total unrecognized compensation cost related to non-vested options granted under the Company’s option plans. That cost is expected to be recognized over a weighted-average period of 1.98 years. The total fair value of options vested during the nine-month period ended September 30, 2012 was $801,779.

In June 2012, the Company granted 10,200 restricted stock units to various employees. The fair value of the restricted stock units at the date of the grant was $3.03. These stock units vest over a two-year term. The Company has recorded compensation expense of $4,633 during the nine-month period ended September 30, 2012 related to this grant. As of September 30, 2012, there was $23,801 of unrecognized compensation costs related to these grants. These grants have a remaining life of 1.68 years.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

(9) Fair Value of Financial Instruments

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

• Level 1 – Valuation is based upon quoted market price for identical instruments traded in active markets.

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

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

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

The carrying amounts of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the instruments’ short-term nature. Long-term debt is also reported at carrying value and approximates fair value as the interest rate on the mortgage note payable of 5.5% approximates the current market interest rate.

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Accounting for Stock-Based Compensation (Details)	9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011
Calculation of Fair Value - Assumptions Used
Expected Volatility	66.85%	63.03%
Expected Life (in years)	4 years 2 months 16 days	4 years 6 months 11 days
Risk-Free Interest Rate	0.59%	1.58%
Expected Dividend Yield	0.00%	0.00%

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Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2012

Accrued Expenses [Abstract]

Schedule of accrued expenses

	September 30, 2012		December 31, 2011
	( $ in thousands)
Accrued commissions	$	968	$	1,194
Accrued warranty		428		497
Accrued taxes		1,467		1,175
Accrued audit		344		373
Accrued legal		240		246
Accrued bonus		52		167
Payroll and payroll taxes		494		764
Accrued cost of sales		266		216
Accrued restructuring costs		24		192
Other		64		86
	$	4,347	$	4,910

Schedule of changes in the Company's accrued warranty account

	Nine Months Ended
	September 30, 2012
Beginning balance, December 31, 2011	$	497
Plus: accruals related to new sales		433
Less: warranty claims incurred and reserve adjustment		(502	)
Ending balance, September 30, 2012	$	428

Schedule of changes in the reserves for restructuring charges

	Nine Months Ended
	September 30, 2012
Beginning balance, December 31, 2011	$	192
Plus: charges to costs and expenses		176
Less: cash payments		(344	)
Ending balance, September 30, 2012	$	24

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Inventories (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of inventories
Raw materials and manufactured components	$ 6,922	$ 7,614
Work-in-process	2,277	5,363
Finished goods	4,584	4,533
Total inventory	$ 13,783	$ 17,510

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Condensed Consolidated Statement of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Oct. 02, 2011	Sep. 30, 2012	Oct. 02, 2011
Comprehensive loss is calculated as follows:
Net loss	$ (2,398)	$ (2,214)	$ (6,554)	$ (399)
Other comprehensive income:
Foreign currency translation adjustment	47	71	49	364
Comprehensive loss	$ (2,351)	$ (2,143)	$ (6,505)	$ (35)

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Inventories

9 Months Ended

Sep. 30, 2012

Inventories [Abstract]

Inventories

(3) Inventories

	September 30, 2012		December 31, 2011
	($ in thousands)
Raw materials and manufactured components	$	6,922	$	7,614
Work-in-process		2,277		5,363
Finished goods		4,584		4,533
Total inventory	$	13,783	$	17,510

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Accrued Expenses (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of accrued expenses
Accrued commissions	$ 968	$ 1,194
Accrued warranty	428	497
Accrued taxes	1,467	1,175
Accrued audit	344	373
Accrued legal	240	246
Accrued bonus	52	167
Payroll and payroll taxes	494	764
Accrued cost of sales	266	216
Accrued restructuring costs	24	192
Other	64	86
Accrued expenses, Total	$ 4,347	$ 4,910

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Fair Value of Financial Instruments (Details) (Mortgage note payable [Member])	9 Months Ended
	Sep. 30, 2012
Mortgage note payable [Member]
Fair Value of Financial Instruments (Textual) [Abstract]
Interest rate on the mortgage note payable	5.50%

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Inventories (Tables)

9 Months Ended

Sep. 30, 2012

Inventories [Abstract]

Schedule of inventories

	September 30, 2012		December 31, 2011
	($ in thousands)
Raw materials and manufactured components	$	6,922	$	7,614
Work-in-process		2,277		5,363
Finished goods		4,584		4,533
Total inventory	$	13,783	$	17,510