<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
----- of 1934. Quarterly for the period ended September 30,1997. ---
Transition report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934.
COMMISSION FILE NO. 0-27104
YIELDUP INTERNATIONAL CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 77-0341206
(State or other jurisdiction of incorporation) (I.R.S. Employer ID #)
117 EASY STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (415) 964-0100
<TABLE>
<S> <C>
Securities registered under Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.001
CLASS B WARRANTS, NO PAR VALUE
(Title of Class)
</TABLE>
Check whether the issuer: 1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
As of September 30, 1997, Registrant had 5,742,537 shares of Common Stock
outstanding, including 4,216,457 shares of Common Stock and 1,526,080 shares of
Class A Common Stock. All shares of Common and Class A Common Stock have par
value of $0.001 per share.
Transitional Small Business Disclosure Format (check one) : YES NO X
---- ----
1
<PAGE> 2
YIELDUP INTERNATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
ITEM 1. CONDENSED FINANCIAL STATEMENTS
1) Condensed Balance Sheets - September 30, 1997 and December 31, 1996 3
2) Condensed Statements of Operations - Three Months and Nine Months ended Sept. 30, 1997 and 1996 4
3) Condensed Statements of Cash Flows - Nine Months ended Sept. 30, 1997 and 1996 5
4) Notes to Condensed Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9-13
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
YIELDUP INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------ ------------
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,473,242 $ 619,172
Restricted cash 402,841 509,878
Short-term investments 10,000 10,000
Accounts receivable 2,486,434 699,459
Inventories 3,006,997 677,383
Prepaid expenses and other current assets 13,564 109,822
------------ ------------
Total current assets 13,393,078 2,625,714
------------ ------------
Property, plant, and equipment 1,072,984 894,499
Other assets 2,405,216 440,511
------------ ------------
Total assets $ 16,871,278 $ 3,960,724
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 481,013 $ 643,089
Accrued liabilities 757,756 524,277
Customer deposits -- 43,000
Current portion of capital lease obligations and long-term debt 607,810 406,258
------------ ------------
Total current liabilities 1,846,579 1,616,624
Long-term debt, less current portion 210,000 330,000
Capital lease obligations, less current portion 29,551 48,863
------------ ------------
Total liabilities 2,086,130 1,995,487
------------ ------------
Stockholders' equity:
Preferred Stock -- --
Class A common stock 3,491 1,912
Common stock 2,204 1,495
Additional paid-in capital 22,247,724 7,571,550
Notes receivable from stockholders (1,841) (15,348)
Accumulated deficit (7,466,430) (5,594,372)
------------ ------------
Total stockholders' equity $ 14,785,148 $ 1,965,237
------------ ------------
Total liabilities and stockholders' equity $ 16,871,278 $ 3,960,724
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE> 4
YIELDUP INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
EQUIPMENT SALES $ 2,034,194 $ 359,540 $ 4,154,080 $ 1,299,590
COST OF SALES 1,149,294 621,739 3,033,924 1,713,308
----------- ----------- ----------- -----------
GROSS MARGIN 884,900 (262,199) 1,120,156 (413,718)
----------- ----------- ----------- -----------
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT 392,820 253,180 1,275,846 848,276
SELLING, GENERAL, AND ADMINISTRATIVE 761,562 453,910 1,934,784 1,316,657
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,154,382 707,090 3,210,630 2,164,933
----------- ----------- ----------- -----------
OPERATING LOSS (269,482) (969,289) (2,090,474) (2,578,651)
INTEREST INCOME, NET 136,946 20,633 218,417 101,503
----------- ----------- ----------- -----------
NET LOSS $ (132,536) $ (948,656) $(1,872,057) $(2,477,148)
=========== =========== =========== ===========
NET LOSS PER SHARE $ (0.02) $ (0.28) $ (0.40) $ (0.73)
=========== =========== =========== ===========
SHARES USED IN PER SHARE COMPUTATIONS 5,742,537 3,407,111 4,686,304 3,406,156
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE> 5
YIELDUP INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,872,057) $ (2,477,148)
Adjustments to reconcile net loss to net cash used for operating activities
Depreciation and amortization 128,709 100,798
Changes in operating assets and liabilities
Accounts receivable (1,786,975) 74,166
Other receivables -- 42,972
Inventories (2,329,614) (101,688)
Prepaid expenses and other assets 96,258 57,439
Other assets (1,964,705) 4,976
Accounts payable (162,076) (301,933)
Accrued liabilities 233,479 (113,159)
Customer deposits (43,000) (112,500)
------------ ------------
Net cash used for operating activities (7,699,981) (2,826,077)
------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment (307,194) (664,214)
Sale of fixed asset -- 22,000
Proceeds from sales of short-term investments -- 4,422,172
Purchases of short-term investments -- (2,499,933)
------------ ------------
Net cash provided by (used for) investing activities (307,194) 1,280,025
------------ ------------
Cash flows from financing activities
Proceeds from notes payable 280,000 --
Principal payments under capital lease obligations (37,760) (29,244)
Principal payments of term loan (180,000) --
Proceeds of notes receivable from stockholders 13,507 23,882
Issuance of common stock from option exercises 108,237 --
Decrease in restricted cash 107,037 --
Issuance of common stock from warrant exercises, net 14,495,240 --
Issuance of Class A Common Stock from option exercise 74,984 1,250
------------ ------------
Net cash provided from financing activities 14,861,245 (4,112)
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,854,070 (1,550,164)
Cash and cash equivalents at beginning of period 619,172 2,876,466
------------ ------------
Cash and cash equivalents at end of period $ 7,473,242 $ 1,326,302
============ ============
Supplemental cash flow information:
Acquisition of equipment under capital lease obligations -- $ 42,000
============ ============
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE> 6
YIELDUP INTERNATIONAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1997
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
YieldUP International Corporation (the "Company" or "YieldUP")
develops, manufactures, and markets cleaning, rinsing, and drying equipment used
during several steps in the manufacturing process for semiconductors and other
defect sensitive substrates. The accompanying condensed financial statements are
prepared in accordance with generally accepted accounting principles. In the
opinion of management, all adjustments which are necessary for the fair
presentation of the condensed financial statements have been included and all
such adjustments are of a normal and recurring nature. The operating results for
the quarter and nine month periods ended September 30, 1997, are not necessarily
representative of the results of future quarterly or annual periods.
BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared
assuming the Company will continue as a going concern. On April 30, 1997, the
Company completed the redemption of its Class A Warrants with greater than 99%
of the warrants being exercised prior to the redemption date. The net proceeds
to the Company from the exercise of the Class A warrants was approximately
$14,484,240. The Company believes that the net proceeds from the warrant
exercise, together with existing cash balances, will be sufficient to meet the
Company's cash requirements for the next twelve months.
For information as to the significant accounting policies followed
by the Company and other financial and operating information, see the Company's
Form 10-KSB/A as filed with the Securities and Exchange Commission for the year
ended December 31, 1996.
CONDENSED BALANCE SHEET COMPONENTS
RESTRICTED CASH
As of September 30, 1997, the Company had restricted cash in the
form of certificates of deposit, of $315,000 and $87,841 as collateral for
long-term debt and substantially all of the capital lease obligations,
respectively.
SHORT-TERM INVESTMENTS
The Company's short-term investments comprise a certificate of
deposit of $10,000 which is classified as "available-for-sale".
(continued)
6
<PAGE> 7
YIELDUP INTERNATIONAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $1,290,940 $ 364,510
Work in process 695,122 56,063
Evaluation units 748,323 218,070
Finished goods 272,612 38,740
---------- ----------
$3,006,997 $ 677,383
========== ==========
</TABLE>
Evaluation units are units installed at potential customers' sites.
PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant, and equipment follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------- ----------
<S> <C> <C>
Machinery and equipment $ 612,446 $ 404,438
Furniture and fixtures 47,624 47,624
Leasehold improvements 693,561 594,374
---------- ----------
1,353,631 1,046,436
Less accumulated depreciation and amortization 280,647 151,937
---------- ----------
$1,072,984 $ 894,499
========== ==========
</TABLE>
OTHER ASSETS
Other assets include patents, $1,000,000 material purchase advance,
and $1,000,000 investment in a privately held company.
(continued)
7
<PAGE> 8
YIELDUP INTERNATIONAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
LONG-TERM DEBT
Long-term debt comprises a bank term loan which is 50%
collateralized by a certificate of deposit. The loan is payable in monthly
installments of $30,000, and bears interest at the bank's prime rate plus 2.25%.
PATENT MATTERS
CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against the Company in United States District Court for the District
of Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of the Company's products infringes a patent held by
CFM. On October 14, 1997, a federal court for the District of Delaware ruled in
favor of the defendant, YieldUP International Corporation. In a written opinion
granting summary judgment for YieldUP, the United States District Court held
that CFM had failed to produce evidence on three separate elements of the patent
claim. To establish infringement, evidence of all three elements was required.
However, there can be no assurance that this judgment will not be overturned
should there be an appeal by CFM. A loss, if any, resulting from an unfavorable
adjudication, cannot presently be estimated. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
condensed financial statements.
NET LOSS PER SHARE
The Financial Accounting Standards Board recently issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 requires the presentation of basic earnings per share ("EPS") and, for
companies with complex capital structures, diluted EPS. SFAS No. 128 is
effective for annual and interim periods ending after December 15, 1997. Earlier
adoption is not permitted. For profitable periods, the Company expects that
basic EPS, will be higher than primary earnings per share and that diluted EPS
will not differ materially from primary earnings per share. Computations for
loss periods should not change significantly.
REDEMPTION OF CLASS A WARRANTS
On April 30, 1997 the Company completed the redemption of its Class
A Warrants. Greater than 99% of the 2,215,000 Class A Warrants outstanding were
exercised prior to the redemption date. The net proceeds to the Company from the
warrant exercise were approximately $14,484,240.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussions in this Report contain forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in
"Business Risks" and elsewhere in this Report as well as in the Company's other
periodic reports filed with the Securities and Exchange Commission.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
Revenues increased to $2,034,194 in the third quarter of 1997 from
$359,540 for the same period in 1996. The increase in revenues in 1997 was due
to an increase in the level of shipments for the Company's cleaning, rinsing,
and drying systems.
Backlog at September 30, 1997 totaled approximately $2,359,200
compared to approximately $1,109,500 at September 30,1996 and approximately
$1,243,700 at June 30, 1997.
GROSS MARGIN
The Company's gross margin improved substantially to $884,900 or
43.5% during the third quarter of 1997 compared to a negative gross margin in
the same period a year ago. The Company expects that its gross margin will
improve in the future if unit shipments and revenue increase and if the Company
is able to transition to increased shipments of standardized products and lower
unit material costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $392,820 in the third
quarter of 1997 from $253,180 for the same period in 1996. The increase in
research and development expenses was due mainly to an increase in engineering
personnel and an increase in expenses for prototype development of new versions
of the Company's products compared to the same period in the prior year. In
addition, in the third quarter of 1997, the Company continued to invest in
enhancement of its existing product line. The Company expects to continue to
invest in new product research and development and enhancement of existing
products, although these expenses may decline as a percentage of revenues to the
extent revenues increase.
The Company was issued a new patent for its technology in the third
quarter of 1997 and was informed that it has been allowed additional patents,
bringing the total number of patents issued or allowed to six patents.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to $761,562
in the third quarter of 1997 from $453,910 for the same period in 1996. The
increase in selling, general, and administrative expenses reflected the
Company's increased expenses for representative sales commissions due to higher
shipment levels and increased sales and marketing expenses compared to the third
quarter of 1996. Selling, administrative and general expenses declined as a
percentage of revenues to 37% in the third quarter of 1997 from 126% for the
same period in 1996 due to increased revenues. The Company expects that selling,
general, and administrative expenses may continue to decline as a percentage of
revenues to the extent revenues increase.
9
<PAGE> 10
NET INTEREST INCOME
Net interest income was $136,946 for the third quarter of 1997
compared to net interest income of $20,633 for the same period in 1996. The
increase in net interest income was the result of higher cash balances resulting
from the exercise of the Company's Class A warrants in the second quarter of
1997.
NET LOSS
Net loss for the third quarter of 1997 decreased to $132,536 from
$948,656 for the same period in 1996. The decrease in net loss was due primarily
to improvements in gross margins and increased revenues.
The Company has been operating at a loss since its inception. Such
losses have been principally the result of the various costs associated with the
Company's product development and manufacturing activities as the Company seeks
to gain acceptance of its products in the marketplace. There can be no assurance
that the Company will be successful in penetrating the market for wet processing
semiconductor manufacturing equipment or other markets or in generating future
revenues and profits from the sales of its products.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
Revenues increased to $4,154,080 in the first nine months of 1997
from $1,299,590 for the same period in 1996. The increase in revenues in 1997
was due to an increase in the level of shipments for the Company's cleaning,
rinsing, and drying systems.
GROSS MARGIN
The Company's gross margin improved to $1,120,156 or 27% during the
first nine months of 1997 compared to negative gross margin in the same period a
year ago. The Company's cost of revenue remained high during the first nine
months of 1997 due to manufacturing expenses being allocated over relatively few
units. The Company expects that its gross margin will improve in the future if
unit shipments and revenue increase and if the Company is able to transition to
increased shipments of standardized products and lower unit material costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased to $1,275,846 in the
first nine months of 1997 from $848,276 for the same period in 1996. The
increase in research and development expenses was due mainly to an increase in
engineering personnel and an increase in expenses for prototype development of
the Company's new products compared to the same period in the prior year. In
addition, in 1997, the Company continued to invest in enhancement of its
existing product line. The Company expects to continue to invest in new product
research and development and enhancement of existing products, although these
expenses may decline as a percentage of revenues to the extent revenues
increase.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to
$1,934,784 in the first nine months of 1997 from $1,316,657 for the same period
in 1996. The increase in selling, general, and administrative expenses reflected
the Company's increased expenses for representative sales commissions due to
higher shipment levels and increased legal expense for litigation and patent
activity compared to the first nine months of 1996. Selling, administrative and
general expenses declined as a percentage of revenues to 47% in the first nine
months of 1997 from 101% for the same period in 1996 due to increased revenues.
The Company expects that selling, general, and administrative expenses may
continue to decline as a percentage of revenues to the extent revenues increase.
10
<PAGE> 11
NET INTEREST INCOME
Net interest income was $218,417 for first nine months of 1997
compared to net interest income of $101,503 for the same period in 1996. The
increase in net interest income was the result of higher cash balances resulting
from the exercise of the Company's Class A warrants in the second quarter of
1997.
NET LOSS
Net loss for the first nine months of 1997 decreased to $1,872,057
from $2,477,148 for the same period in 1996. The decrease in net loss was due
primarily to improved gross margins and increased revenues in 1997.
The Company has been operating at a loss since its inception. Such
losses have the result of the various costs associated with the Company's
product development and manufacturing activities as the Company seeks to gain
acceptance of its products in the marketplace. There can be no assurance that
the Company will be successful in penetrating the market for wet processing
semiconductor manufacturing equipment or other markets or in generating future
revenues and profits from the sales of its products.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, and short term investment balances at
September 30, 1997 totaled $7,483,242 compared to $629,172 at December 31, 1996.
The increase was due primarily to the exercise of approximately 2,211,400 Class
A Warrants at $7.00 per warrant during March and April of 1997.
At September 30, 1997 the Company had accounts receivable of
$2,486,434 compared to $699,459 at December 31, 1996. Inventories at September
30, 1997 were $3,006,997 compared to $677,383 at December 31, 1996. The increase
in inventory was the primary result of increasing the Company's manufacturing
capacity and an increase in the number of evaluation units. Net property, plant,
and equipment was $1,072,984 at September 30, 1997 compared to $894,499 at
December 31, 1996. The increase in net property and equipment was primarily the
result of expenditures for engineering and manufacturing computer and other
equipment and for various leasehold improvements.
The accounts payable balance at September 30, 1997 was $481,013
compared to $643,089 at December 31, 1996.
On April 30, 1997, the Company completed the redemption of its Class
A Warrants. Greater than 99% of the outstanding Class A Warrants were exercised
prior to the redemption date, providing net proceeds to the Company of
approximately $14,484,240. The Company believes that the existing cash balances
will be sufficient to meet the Company's cash requirements for the next twelve
months.
11
<PAGE> 12
BUSINESS RISKS
GENERAL
The Company's operations are subject to numerous risks associated
with establishing any new business, including unforeseeable expenses, delays and
complications, as well as specific risks of the semiconductor equipment
industry. The Company has incurred significant losses from its operations, and
there can be no assurance that the Company will achieve profitable operations.
The Company's smaller resources make it vulnerable to competition from larger
companies. Because the Company's technology has not been widely deployed, it
presents potential customers with uncertainty not associated with existing
equipment marketed by competitors. In addition, many semiconductor manufacturers
are reluctant to choose small companies as key suppliers due to concerns about
long-term viability and product support. Given the anticipated increasing focus
on yield management in the semiconductor manufacturing industry, equipment
manufacturers are likely to put an increased emphasis on contaminant reduction
and competitive technologies or new manufacturing technologies may be developed
which could make the Company's products obsolete. Since the Company expects to
derive substantially all of its future revenues from sales of cleaning, rinsing,
and drying systems, the Company's business, financial condition and results of
operations would be materially adversely affected by declining demand for the
Company's products or decreasing prices and margins for those products.
The Company anticipates that it will devote significant management
time and financial resources to obtaining protection of its intellectual
property rights. The Company is attempting to obtain additional patent
protection on various aspects of its proprietary technology. These rights under
any patents issued may not provide competitive advantages to the Company or
prevent others from developing competitive products or technologies similar to
or more advanced than the Company.
The Company expects to derive a substantial portion of its revenues
from the sale of a relatively small number of systems. As a result, a small
reduction in the number of systems shipped in a quarter could have a material
adverse effect on the Company's revenues and results of operations for the
quarter. If the Company's anticipated level of revenues is not achieved for a
particular period, the Company's operating results would be adversely affected
by its inability to reduce costs. Sales of the Company's products have been, and
are expected to continue to be, characterized by a relatively long sales cycle
and may also depend upon the decision of a prospective customer to upgrade the
equipment in its existing semiconductor fabrication facilities or to open new
facilities, which typically involves a significant capital commitment.
The semiconductor equipment industry is highly cyclical and has
historically experienced periodic and often prolonged downturns. There can be no
assurance that industry downturns can be avoided and will not materially
adversely affect the Company's backlog level, business, financial condition, and
results of operations. Any downturn in the market demand for integrated circuits
would likely reduce to an even greater extent the willingness of the
manufacturers of semiconductor devices to make substantial capital expenditures
and would adversely affect the Company's business, financial condition, and
results of operations.
(continued)
12
<PAGE> 13
INTENSE COMPETITION; UNCERTAIN MARKET ACCEPTANCE
There is intense competition in the markets for the Company's
products. The Company's smaller resources and yet to be fully proven products
make it extremely vulnerable to competition from larger companies, many of which
have significantly greater financial, employee, product development and
marketing resources. Leading competitors have a larger installed base of
products which can provide them a significant advantage over the Company because
the Company's technology has not been widely deployed and therefore presents
potential customers with uncertainty not associated with existing equipment. In
addition, many semiconductor manufacturers are reluctant to choose small
companies as key suppliers due to concerns about long term viability and product
support. There can be no assurance that the Company will overcome these
disadvantages.
Competition for the Company's products currently comes from makers
of traditional and new cleaning, rinsing, and drying equipment. There can be no
assurance that these competitors will not develop new products or improve their
existing products which, when combined with their existing market presence,
would make the Company's products obsolete or unmarketable. Any such development
would have a material adverse effect on the Company. There also can be no
assurance that the Company will be able to penetrate the wet processing
equipment market and convince semiconductor or other manufacturers to install
the Company's systems either directly or through retrofitting in place of
existing equipment. Additional competition for the Company's products also
currently comes from a large number of small companies making cleaning, rinsing,
and drying equipment which is less expensive than the Company's products.
Because the Company's products sell for significantly higher prices than such
products, the Company may not be able to compete effectively against them
without lowering its prices.
The Company also expects that competition may arise from new
competitors and from new technological approaches adopted by new and existing
competitors. Because of the increasing focus on yield management in the
semiconductor manufacturing industry, equipment manufacturers are likely to put
an increased emphasis on contaminant reduction. Thus, competitive technologies
or new manufacturing techniques may be developed which could make the Company's
products obsolete, thereby materially adversely affecting the Company. If the
Company is unable to respond to the challenges of competition, including changes
in cleaning, rinsing, and drying or semiconductor or other manufacturing
processes, there can be no assurance that the Company would be able to achieve
or maintain profitability at a level required to support its survival or growth.
RELIANCE ON SINGLE PRODUCT FAMILY
The Company anticipates that the substantial majority of its future
revenues will come from sales of its cleaning, rinsing, and drying systems.
Should the demand for, or pricing of, the Company's products decline due to
increased competitive pressure, the introduction of superior systems or
processes, changes in the semiconductor, magnetic or optical disk, flat panel
display or photo-mask industries or other factors, the Company's business,
financial condition and results of operations would be materially adversely
affected. The ability of the Company to diversify its operations through the
introduction and sale of new products and broader acceptance of its cleaning,
rinsing, and drying systems is dependent on the success of the Company's
continuing research, product development and engineering activities, as well as
its marketing efforts. No assurance can be given that the Company will be able
to develop, acquire, introduce or market new products in a timely or
cost-effective manner or that any new products or improvements will achieve
market acceptance or result in acceptable margins. Accordingly, the Company will
be dependent on overall market acceptance of its products.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against the Company in United States District Court for the District
of Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of the Company's products infringes a patent held by
CFM. On October 14, 1997, a federal court for the District of Delaware ruled in
favor of the defendant, YieldUP International Corporation. In a written opinion
granting summary judgment for YieldUP, the United States District Court held
that CFM had failed to produce evidence on three separate elements of the patent
claim. To establish infringement, evidence of all three elements was required.
However, there can be no assurance that this judgment will not be overturned
should there be an appeal by CFM. A loss, if any, resulting from an unfavorable
adjudication, cannot presently be estimated. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
condensed financial statements.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) Exhibits
27.1 Financial Data Schedule
(2) Reports on Form 8-K
None.
14
<PAGE> 15
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.
YIELDUP INTERNATIONAL CORPORATION
(Registrant)
Date: November 10, 1997 By: /s/ Raj Mohindra
----------------------------------------
Raj Mohindra, President, and
Chief Executive Officer
Date: November 10, 1997 By: /s/ Abhay Bhushan
----------------------------------------
Abhay Bhushan, Executive Vice President,
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
15
<PAGE> 16
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,876,083
<SECURITIES> 10,000
<RECEIVABLES> 2,486,434
<ALLOWANCES> 0
<INVENTORY> 3,006,997
<CURRENT-ASSETS> 13,393,078
<PP&E> 1,353,631
<DEPRECIATION> 280,647
<TOTAL-ASSETS> 16,871,278
<CURRENT-LIABILITIES> 1,846,579
<BONDS> 239,551
0
0
<COMMON> 5,695
<OTHER-SE> 14,779,453
<TOTAL-LIABILITY-AND-EQUITY> 16,871,278
<SALES> 4,154,080
<TOTAL-REVENUES> 4,154,080
<CGS> 3,033,924
<TOTAL-COSTS> 3,033,924
<OTHER-EXPENSES> 2,090,474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (218,417)
<INCOME-PRETAX> (1,872,057)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,872,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,872,057)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
