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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 June 30,1998.
[ ] 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)
<TABLE>
<S> <C>
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: (650) 964-0100
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 June 30, 1998, Registrant had 4,421,391 shares of Common Stock
outstanding, and 1,364,497 shares of Class A Common Stock outstanding for a
total of 5,785,888 shares of Common Stock outstanding. As of June 30, 1998, the
Company also had 600 shares of Series A Convertible Preferred Stock outstanding.
All shares of Common Stock, Class A Common Stock, and Series A Convertible
Preferred Stock have par value of $0.001 per share.
Transitional Small Business Disclosure Format (check one) : YES [ ] NO [X]
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YIELDUP INTERNATIONAL CORPORATION
INDEX
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<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1) Condensed Balance Sheets - June 30, 1998 and December 31, 1997 3
2) Condensed Statements of Operations - Three and Six Months ended
June 30, 1998 and 1997 4
3) Condensed Statements of Cash Flows - Six Months ended June 30, 1998 and 1997 5
4) Notes to Financial Statements 6-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
YIELDUP INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,048,045 $ 2,145,785
Restricted cash 94,254 406,749
Short-term investments 996,173 1,506,150
Accounts receivable 4,306,975 4,324,760
Inventories 5,804,947 4,678,600
Prepaid expenses and other current assets 267,922 308,419
------------ ------------
Total current assets 16,518,316 13,370,463
------------ ------------
Property, plant, and equipment 1,650,706 1,409,817
Other assets 2,129,949 2,144,660
------------ ------------
Total assets $ 20,298,971 $ 16,924,940
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 1,330,075 $ 2,512,204
Accrued liabilities 838,338 693,699
Capital lease obligations and long-term debt 501,993 617,854
------------ ------------
Total current liabilities 2,670,406 3,823,757
------------ ------------
Preferred stock 6,489,038 --
Stockholders' equity:
Class A common stock 1,365 1,414
Common stock 4,421 4,341
Additional paid-in capital 22,788,001 22,685,283
Notes receivable from stockholders (1,841) (1,841)
Accumulated deficit (11,652,419) (9,588,014)
------------ ------------
Total stockholders' equity $ 11,139,527 $ 13,101,183
------------ ------------
Total liabilities and stockholders' equity $ 20,298,971 $ 16,924,940
============ ============
</TABLE>
See accompanying notes to condensed financial statements
3
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YIELDUP INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,071,413 $ 1,206,886 4,630,914 $ 2,119,886
Cost of sales 1,176,816 922,474 2,646,281 1,884,630
----------- ----------- ----------- -----------
Gross margin 894,597 284,412 1,984,633 235,256
----------- ----------- ----------- -----------
Operating expenses:
Research and development 715,760 455,614 1,428,394 883,026
Selling, general, and administrative 1,099,028 672,480 2,063,882 1,473,222
----------- ----------- ----------- -----------
Total operating expenses 1,814,788 1,128,094 3,492,276 2,356,248
----------- ----------- ----------- -----------
Operating loss (920,191) (843,682) (1,507,643) (2,120,992)
Interest income, net 78,656 87,479 93,238 81,471
----------- ----------- ----------- -----------
Net loss (841,535) (756,203) (1,414,405) (2,039,521)
Accretion on redeemable convertible
preferred stock (650,000) -- (650,000) --
----------- ----------- ----------- -----------
Net loss applicable to holders of
common stock $(1,491,53) $ (756,203) $(2,064,405) $(2,039,521)
=========== =========== =========== ===========
Basic and diluted net loss per share
applicable to holders of common stock $ (0.26) $ (0.15) $ (0.36) $ (0.49)
=========== =========== =========== ===========
Shares used in basic and diluted per
share computations 5,774,533 4,879,040 5,767,818 4,146,586
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements
4
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YIELDUP INTERNATIONAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,414,405) $ (2,039,521)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 264,910 110,341
Expense related to certain
Class A warrants -- 300,000
Changes in operating assets and liabilities:
Accounts receivable 17,785 (825,030)
Inventories (1,126,347) (1,375,671)
Prepaid expenses and other assets 55,208 (789,433)
Accounts payable (1,182,129) 48,426
Accrued liabilities 144,639 435,294
Customer deposits -- (43,000)
------------ ------------
Net cash used for operating activities (3,240,339) (4,178,594)
------------ ------------
Cash flows from investing activities:
Purchase of plant and equipment (413,040) (280,695)
Proceeds from sales of short-term investments 509,977 --
Purchase of investments -- (1,000,000)
------------ ------------
Net cash provided by (used for)
investing activities 96,937 (1,280,695)
------------ ------------
Cash flows from financing activities
Proceeds from Notes Payable -- 280,000
Payments under capital lease obligations (28,620) (23,534)
Payments of term loan (180,000) (180,000)
Decrease in restricted cash on term loan 312,495 --
Proceeds of notes receivable from stockholders -- 13,507
Issuance of common stock from option exercises 95,849 83,822
Issuance of common stock from warrant exercise -- 107,037
Issuance of Series A preferred stock, net 5,839,038 14,484,240
Issuance of Class A common stock from option exercise 6,900 74,984
------------ ------------
Net cash provided by financing activities 6,045,662 14,840,056
------------ ------------
Net increase in cash and cash equivalents 2,902,260 9,380,767
Cash and cash equivalents at beginning of period 2,145,785 619,172
------------ ------------
Cash and cash equivalents at end of period $ 5,048,045 $ 9,999,939
============ ============
Supplemental cash flow disclosure:
Acquisition of equipment under capital lease
obligations $ 92,759 $ --
Accretion on redeemable convertible preferred stock $ 650,000 $ --
============ ============
</TABLE>
See accompanying notes to condensed financial statements
5
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YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
YieldUp International Corporation (the "Company") develops, manufactures, and
markets cleaning, rinsing, and drying equipment used during several steps in the
manufacturing process for semiconductors and other defect sensitive substrates.
BASIS OF PRESENTATION
The unaudited condensed financial information of the Company furnished herein
reflects all adjustments, consisting only of normal recurring adjustments, which
in the opinion of management are necessary to fairly state the Company's
financial position, results of operations and cash flows for the periods
presented. This Quarterly Report on Form 10-QSB should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1997 Annual Report on Form 10-KSB/A. The consolidated results of
operations for the six-month periods ended June 30, 1998 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire year ending December 31, 1998.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per share
is based on the weighted average number of shares of common stock outstanding
during the period and dilutive common equivalent shares from stock options,
warrants and preferred stock outstanding during the period. No common equivalent
shares are included for loss periods as they would be anti-dilutive. In the
second quarter of 1998 there were 244,099 options, 4,155,000 warrants and
1,142,857 shares issuable upon conversion of outstanding preferred shares, and
in the second quarter of 1997 there were 366,821 options outstanding that could
potentially dilute basic earnings per share ("EPS") in the future that were not
included in the computation of diluted EPS because to do so would have been
antidilutive for those years.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130. "Reporting Comprehensive Income" which establishes standards
for reporting and disclosures of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997 and requires reclassification of financial statements for
earlier periods to be provided for comparative purposes. The Company has not
determined the manner in which it will present the information required by SFAS
No. 130 in its annual financial statements for the year ending December 31,
1998. The Company's total comprehensive income (loss) for all periods presented
herein would not have differed from those amounts reported as net income (loss)
in the statements of operations.
6
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YIELDUP INTERNATIONAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Board issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated and accounted for as (a) a
hedge of the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the exposure to
variable cash flows of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an unrecognized
firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. This statement will be
effective for all annual and interim periods beginning after June 15, 1999 and
management does not believe the adoption of SFAS No. 133 will have a material
effect on the financial position of the Company.
2. INVENTORIES
A summary of inventories follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- -----------
<S> <C> <C>
Raw materials $2,368,395 $1,762,780
Work in process 479,963 941,576
Evaluation units 1,431,040 1,001,958
Finished goods 1,525,549 972,286
---------- ----------
$5,804,947 $4,678,600
========== ==========
</TABLE>
Evaluation units are installed at potential customers' sites.
3. CHANGES IN SECURITIES
On March 30, 1998, the Company completed an equity financing in a
private placement of Series A Convertible Preferred Stock (Series A Shares) with
net proceeds to the Company of approximately $5.9 million. The Company, subject
to certain conditions, may exercise a put option for up to an additional $6
million of Series A Shares and the investors, subject to certain conditions, may
exercise a call option for up to an additional $6 million of Series A Shares.
Conversion
The Series A Shares are convertible into shares of Common Stock at the
election of the holder of such Series A Shares, at a price (the "Conversion
Rate") equal to the lower of the market price at the original date of issuance
of such share (the "Fixed Conversion Price") or the lowest market price during
the 20 consecutive days immediately preceding the date a holder of Series A
Shares delivers notice of his election to convert such shares. "Market price" is
generally determined by the closing price for the Registrant's Common Stock on
the applicable date.
7
<PAGE> 8
Subject to certain exceptions, any Series A Shares outstanding three years after
the date such shares were initially issued will automatically convert into
shares of the Registrant's Common Stock at the then applicable Conversion Rate.
Dilutive effects of conversion of series A preferred stock and exercise of
class B warrants; no limit of common stock issuable upon conversion
The number of shares of Common Stock which may be issued upon
conversion of the Series A Shares is dependent upon the trading price of the
Company's Common Stock at the time of conversion. To the extent that the
trading price of the Common Stock is lower than $10.8625 per share at the time
of any conversion of the currently outstanding Series A Shares, the number of
Series of Common Stock issuable upon such conversion will increase with
resulting dilution to the holders of the Company's Common Stock. There is no
minimum conversion price and thus no maximum number of shares of Common Stock
into which the Series A Shares may be converted. The Series A Shares also have
a cumulative annual dividend of 5% payable in shares of Common Stock upon
conversion. The Purchase Agreement also provides for the issuance of additional
Series A Shares, subject to certain conditions. Issuance of such additional
Series A Shares would result in additional dilution to the holders of the
Common Stock.
Adjustments to Conversion Rate
The Conversion Rate is subject to proportional adjustment upon any stock
split, stock dividend or other similar change to the capital stock of the
Registrant as well other adjustments upon the issuance, or deemed issuance, of
other shares of Common Stock at a price below the then effective Fixed
Conversion Price.
Mandatory Conversion
Under certain circumstances after the Registrant publicly discloses a
Change of Control Transaction, as defined in the Certificate of Designation, the
Registrant shall have the right to require that all of the outstanding Series A
Shares be converted to Common Stock.
Redemption
The holders of Series A Shares have a right to require the Registrant to redeem
the Series A Shares upon the occurrence of certain events, including a Major
Transaction, or a Triggering Event, as each is defined in the Certificate of
Designation. The redemption price would equal the liquidation value defined
below. The Company is accreting its preferred stock carrying value to the
redemption amount, over the stock month period ending September 30, 1998.
Limitations on Conversion and Exercise
The Purchase Agreement provides that the number of shares of the
Registrant's Common Stock issuable upon conversion of the Series A Shares cannot
exceed 20% of the outstanding shares of the Registrant's Common Stock without
the approval of the stockholders of the Registrant. Likewise, the number of
shares of the Registrant's Common Stock issuable from to time to any single
Investor cannot exceed 4.99% or more of the Registrant's outstanding Common
Stock.
Effect on Rights of Existing Security Holders
There is no change to the rights, preferences or privileges of the
holders of the Registrant's Common Stock as a result of the transactions which
are the subject of the Purchase Agreement. However, in addition to the dilutive
impact of the issuance of additional shares of capital stock, the Series A
Shares have a liquidation preference which entitles the holders thereof to
receive payment upon any dissolution or liquidation of the Registrant in
preference to the holders of Common Stock. The amount of such preference is
equal to $12,000 plus an amount equal to the product of (.05)(N/365)($12,000)
for each of the Series A Shares where "N" is the number of days since the
initial issuance of such shares.
On March 4, 1998, the Company issued a warrant to purchase 2,439 shares
of its Common Stock to a commercial lender in connection with the establishment
of a line of credit. The warrant has an exercise price of $10.25 per share.
8
<PAGE> 9
4. 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.
On June 30, 1998, the United States District Court of Delaware granted CFM's
petition for re-argument of the summary judgement motion, and the reargument is
scheduled for August 1998. There can be no assurance that the court will sustain
its original order. If the original order is overturned, the litigation may
proceed to trial, and there can be no assurance that the litigation and the
associated costs or an unfavorable ajudication will not have a material adverse
impact on the company. 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. 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 JUNE 30, 1998 AND 1997
REVENUES
Revenues increased to $2,071,413 in the second quarter of 1998 from
$1,206,886 for the same period in 1997. The increase in revenues in 1998 was due
to an increase in the level of shipments for the Company's cleaning, rinsing,
and drying systems. The Company continues to modify and improve its products,
generally based on feedback from its customers and as result has significantly
increased its sales to OEM's, and its export sales to Europe. The Company
believes these factors, along with an increased market acceptance of the
Company's products and the introduction of the Omega product line, which
replaced the Olympian and Hercules lines, had a significant impact on the
increase in revenues.
In the quarter ended June 30, 1998, sales to a single customer in Europe,
accounted for 36% of revenues. Sales to OEM's accounted for 20% of revenues
during the quarter ended June 30, 1998 compared to 12% of revenues during the
same period a year ago. Export sales to customers outside North America
accounted for 43% of revenues (37% in Europe and 6% in Asia Pacific region)
during the quarter ended June 30, 1998 compared to 32% of revenues (20% in
Europe and 12% in Asia Pacific region) during the same period a year ago.
Backlog at June 30, 1998 totaled approximately $3,355,640 compared to
approximately $1,243,784 at June 30, 1997 and approximately $2,517,000 at
December 31, 1997. The continuing slowdown in the semiconductor equipment and
disk drive industries may negatively impact the Company's ability to book new
orders in the future until there is a change in the conditions that are reducing
capital equipment spending by manufacturers.
9
<PAGE> 10
GROSS MARGIN
The Company's gross margin improved to $894,597, or 43.2% of revenues, during
the second quarter of 1998 compared to gross margin of $284,412, or 23.6% of
revenues, during the same period a year ago. This improvement was due in part to
lower manufacturing costs of the new Omega product lines, and in part to
increased unit shipments. The Company expects that future gross margins should
improve to the extent that unit shipments and revenues increase and the Company
is able to continue its transition to increased shipments of standardized
products and lower unit material costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $715,760, or 35% of revenues, in the
second quarter of 1998, compared to $455,614 or 38% of revenues, for the same
period in 1997. The increase in research and development expenses was due mainly
to an increase in engineering personnel compared to the same period a year ago.
In addition, in the second quarter of 1998, the Company continued to invest in
enhancement of its existing product lines. 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 were $1,099,028, or 53% of
revenues in the second quarter of 1998, compared to $672,480, or 56% of
revenues, for the same period in 1997. The selling, general, and administration
expenses increased due to additional commissions related to the increase in
revenues, and increase in sales and marketing personnel. The Company expects
that selling, general, and administrative expenses may decline as a percentage
of revenues to the extent revenues increase.
NET INTEREST INCOME
Net interest income was $78,656 for second quarter of 1998 compared to net
interest income of $87,479 for the same period in 1997. The decrease in net
interest income was the result of decreased interest income on short-term
investments.
NET LOSS
Net loss applicable to holders of common stock for the second quarter of
1998 was $1,491,535, or basic and diluted net loss of $0.26 per share, compared
to a net loss of $756,203, or basic and diluted net loss of $0.15 per share, for
the same period a year ago. The net loss for the second quarter of 1998 includes
an accretion of the excess of the redemption value over the carrying value of
the redeemable convertible preferred stock of $650,000. Excluding the accretion,
the net loss for the quarter would be $841,535, or $0.15 per share. Average
weighted common shares for the second quarter ending June 30, 1998, were
5,774,533 shares, compared to 4,879,040 shares for the same period a year ago.
The Company has incurred operating losses in each fiscal quarter since
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 generating
future profits from the sales of its products.
10
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SIX MONTHS ENDED JUNE 30, 1998 AND 1997
REVENUES
Revenues increased to $4,630,914 in the first half of 1998 from $2,119,886
for the same period in 1997. The increase in revenues in 1998 was due to an
increase in the level of shipments for the Company's cleaning, rinsing, and
drying systems as well sales to OEM's, and its export sales to Europe and Asia
Pacific region. The Company believes these factors, along with an increased
market acceptance of the Company's products, have lead to the increase in sales
for the Company's products. The introduction of the Omega product line, which
replaced the Olympian and Hercules lines, also had a significant impact on the
increase in revenues.
In the six months ended June 30, 1998, a single customer in North America,
Applied Materials, accounted for 20% of revenues, and a single customer in
Europe, SGS Thompson, accounted for 16% of revenues. OEM's accounted for 29% of
revenues during the six months ended June 30, 1998 compared to 7% of revenues
during the same period a year ago. Export sales to customers outside North
America accounted for 29%of revenues (17% in Europe and 12% in Asia Pacific
region) during the six months ended June 30, 1998 compared to 18% of revenues
(12% in Europe and 6% in Asia Pacific region) during the same period a year ago.
GROSS MARGIN
The Company's gross margin for the six month period ended June 30, 1998
improved to $1,984,633, or 43% of revenues compared to gross margin of $235,256,
or 11% of revenues, during the same period a year ago. This improvement was due
in part to lower manufacturing costs of the new Omega product lines, and in part
to increased unit shipments. The Company expects that future gross margins
should improve to the extent that unit shipments and revenues increase and the
Company is able to continue its transition to increased shipments of
standardized products and lower unit material costs.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses were $1,428,394, or 31% of revenues, in the
six months ended June 30, 1998, compared to $883,026 or 42% of revenues, for the
same period in 1997. The increase in research and development expenses was due
mainly to an increase in engineering personnel compared to the same period a
year ago.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses were $2,063,882, or 45% of
revenues in the first half of 1998, compared to $1,473,222, or 69% of revenues,
for the same period in 1997. The selling, general, and administrative expenses
for the period in 1997, include a non-cash expense of $300,000 related to an
amendment to certain of the company's Class A warrants to resolve a potential
dispute with the holders of such warrants with respect to the effectiveness of a
resale registration statement relating to such Class A Warrants. The terms of
certain Class A warrants were amended to give certain Class A warrant holders an
additional 0.2 shares of common stock for each Class A warrant exercised. The
Company used the Black-Scholes option pricing model to value the Class A
warrants before and after the change in terms and determined that the increase
in value was approximately $300,000. Excluding this expense, the 1997 expenses
would have been $1,173,222, or 55% of revenues. The selling, general, and
administration expenses increased due to additional commissions related to the
increase in revenues, and increase in sales and marketing personnel. The Company
expects that selling, general, and administrative expenses may decline as a
percentage of revenues, to the extent revenues increase.
NET INTEREST INCOME
Net interest income was $93,238 for first half of 1998 compared to net
interest income of $81,471 for the same period in 1997. The increase in net
interest income was the result of increased interest income on short-term
investments.
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<PAGE> 12
NET LOSS
Net loss applicable to holders of common stock for the six months ended June
30, 1998 was $2,064,405, or basic and diluted net loss of $0.36 per share,
compared to a net loss of $2,039,521, or basic and diluted net loss of $0.49 per
share, for the same period a year ago. The net loss for the six month period in
1998 includes an accretion of the excess of redemption value over the carrying
value of the redeemable convertible preferred stock of $650,000. Excluding the
accretion, the net loss for the quarter would be $1,414,405 or $0.25 per share.
Average weighted common shares for the six months ended June 30, 1998, were
5,767,818 shares, compared to 4,146,586 shares for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents, restricted cash, and short term investment balances
at June 30, 1998 totaled $6,138,472 compared to $4,058,684 at December 31, 1997.
The increase of $2,079,788 was primary due to the equity financing completed
during the first quarter of 1998, which resulted in total net proceeds to the
Company of approximately $5.84 million. The net cash used for operating
activities during the second quarter of 1998 was approximately $1.74 million.
Principal payments of term loan and capital lease obligations for the quarter
were approximately $100,000. Restricted cash decreased by $312,000 as a result
of an advance on the term loan no longer being required as collateral.
At June 30, 1998 the Company had accounts receivable of $4,306,975 compared
to $4,324,760 at December 31, 1997. Inventories at June 30, 1998 were $5,804,947
compared to $4,678,600 at December 31, 1997. The increase in inventories was
primarily due to an increase in raw materials, evaluation units and finished
goods. Net property, plant, and equipment was $1,650,706 at June 30, 1998
compared to $1,409,817 at December 31, 1997. The increase in net property and
equipment was primarily the result of purchase of manufacturing and computing
equipment.
The accounts payable balance at June 30, 1998 was $1,330,075 compared to
$2,512,204 at December 31, 1997. The decrease in accounts payable was due
primarily to an increase in payments made during the first and second quarters
of 1998.
On March 30, 1998, the Company completed an equity financing in a private
placement of convertible preferred stock (Series A Shares) with net proceeds to
the Company of approximately $5,850,000. The Company, subject to certain
conditions, may exercise a put option for up to an additional $6,000,000 of
Series A Shares and the investors, subject to certain conditions, may exercise a
call option for up to an additional $6,000,000 of Series A Shares.
The Company has also entered into an agreement with a commercial lender for a
loan of up to $500,000 for its capital equipment and for a $4,000,000 revolving
credit line collateralized by the Company's qualifying accounts receivable, at
an interest rate of the lender's prime rate plus 1.25%. The funds available to
the Company, if any, under such line of credit will depend on the Company's
ability to generate revenues in the near term. The Company believes that the
equity financing and the two credit facilities should provide the Company with
the necessary funds to finance operations through the next 12 months. The
Company may be required to seek additional capital beyond that time, which may
result in dilution to the current stockholders. If the Company is unable to
obtain the necessary capital, the Company's business and operating results may
be materially adversely affected.
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
12
<PAGE> 13
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 prospective customers to upgrade the equipment in
their 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. Currently, the industry is
in the midst of such a downturn. 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.
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.
13
<PAGE> 14
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.
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. On June 30,
1998, the United States District Court of Delaware granted CFM's petition for
re-argument of the summary judgment motion, and the reargument is scheduled for
August 1998. There can be no assurance that the court will sustain its original
order. If the original order is overturned, the litigation may proceed to trial,
and there can be no assurance that the litigation and the associated costs or an
unfavorable adjudication will not have a material adverse impact on the Company.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(1) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.X Line of Credit agreement
27.1 Financial Data Schedule
</TABLE>
(2) REPORTS ON FORM 8-K
Registrant filed a report on Form 8-K on April 8,1998 pursuant to item 5
thereof.
14
<PAGE> 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.
YIELDUP INTERNATIONAL CORPORATION
(Registrant)
Date: August 14, 1998 /s/ Raj Mohindra
-----------------------------------------
Raj Mohindra,
President and Chief Executive Officer
/s/ Abhay K. Bhushan
-----------------------------------------
Abhay K. Bhushan,
Executive Vice President and
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
10.X Line of Credit agreement
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.X
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 4, 1998, by
and between YieldUP International Corporation ("Borrower") whose address is 117
Easy Street, Mountain View, CA 94043 and Silicon Valley Bank ("Bank") whose
address is 3003 Tasman Drive, Santa Clara, CA 95054.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, an Amended and Restated Loan and Security Agreement, dated
March 5, 1997, as may be amended from time to time, (the "Loan Agreement"). The
Loan Agreement provided for, among other things, a Committed Revolving Line in
the original principal amount of Two Million Dollars ($2,000,000), (the
"Revolving Facility") and a Term Loan in the amended principal amount of Six
Hundred Thirty Thousand Dollars ($630,000) ("Term Loan"). Defined terms used
but not otherwise defined herein shall have the same meanings as in the Loan
Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness
is secured by the Collateral as described in the Loan Agreement and in the
Collateral Assignment, Patent Mortgage and Security Agreement dated March 5,
1997 (the "IP Agreement"). Notwithstanding the foregoing, pursuant to this Loan
Modification Agreement, Bank shall release its security interest under the IP
Agreement in consideration of Borrower executing a Negative Pledge Agreement
stating it shall not pledge its intellectual property to any party without
written permission by Bank.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents." Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness
shall be referred to as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s)) to Loan Agreement
1. The following terms under Section 1.1 entitled "Definitions"
are hereby amended as follows:
"Committed Revolving Line" means Four Million Dollars
($4,000,000).
"Revolving Maturity Date" means March 3, 1999.
Item "(1)" under "Eligible Accounts" means Accounts with
respect to an account debtor, including Subsidiaries and
Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such
obligations exceed the aforementioned percentage, provided
however, (i) a thirty-five percent (35%) concentration limit
is allowed for each of Applied Materials, Intel, Micron, Komag
and Matsushita, or (ii) as otherwise approved in writing by
Bank.
"Eligible Foreign Accounts" are Eligible Accounts for which
the account debtor does not have its principal place of
business in the United States but are: (1) covered by credit
insurance satisfactory to Bank, less any deductible; or (2)
supported by letter(s) of credit acceptable to Bank; or (3)
that Bank approves in writing.
1
<PAGE> 2
2. The following terms are hereby incorporated in to Section 1.1
entitled "Definitions":
"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.5.
"EQUIPMENT ADVANCE" is defined in Section 2.1.5.
"COMMITTED EQUIPMENT LINE" means Five Hundred Thousand Dollars
($500,000).
"EQUIPMENT MATURITY DATE" is defined in Section 2.1.5.
"CAPITALIZED PRODUCT DEVELOPMENT COSTS" are all costs
associated with the development of Borrower's product,
including, but not limited to software, that are not recorded
as an expense and have been classified as an asset account.
"CREDIT EXTENSION" is each Advance, Equipment Advance, Letter
of Credit, or any other extension of credit by Bank for
Borrower's benefit.
3. The first sentence in the first paragraph under Section 2.1
entitled "Advances" is hereby amended to read as follows:
Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an
aggregate amount not to exceed (i) the lesser of (A) the
Committed Revolving Line minus the Cash Management Services
Sublimit or (B) the Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit).
4. Item "(a)" under Section 2.1.1 entitled "Letters of Credit"
is hereby amended to read as follows:
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued letters of credit
for the account of Borrower in an aggregate face amount not to
exceed (i) the lesser of the Committed Revolving Line or the
Borrowing Base minus (ii) the outstanding principal balance of
the Advances minus the Cash Management Sublimit; however, the
face amount of outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed $4,000,000. Each such Letter of Credit
shall have an expiry date no later than ninety (90) days after
the Revolving Maturity Date provided that Borrower's letter of
credit reimbursement obligation shall be secured by cash on
terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of this Agreement is not extended by
Bank. All such letters of credit shall be, in form and
substance, acceptable to Bank in its sole discretion and
shall be subject to the terms and condition of Bank's form of
application and letter of credit agreement.
5. The following Section is hereby incorporated into the Loan
Agreement:
2.1.4 CASH MANAGEMENT SERVICES SUBLIMIT.
Borrower may use up to $500,000 for Bank's Cash Management
Services, which may include merchant services, direct deposit
of payroll, business credit card, and check cashing services
identified in various cash management services
2
<PAGE> 3
agreements related to such services (the "Cash Management
Services"). All amounts Bank pays for any Cash Management
Services will be treated as Advances under the Committed
Revolving Line.
6. The following Section is hereby incorporated into the Loan
Agreement:
2.1.5 EQUIPMENT ADVANCES.
Through March 4, 1999 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and,
collectively, "Equipment Advances") not exceeding the
Committed Equipment Line. The Equipment Advances may only be
used to finance Equipment leasehold improvements and may not
exceed 100% of the invoice amount excluding taxes, shipping,
warranty charges, freight discounts and installation expense.
Interest accrues from the date of each Equipment Advance at
the rate in Section 2.3.1 and is payable monthly, beginning
April 4, 1998, until the Equipment Availability End Date
occurs. Equipment Advances outstanding on the Equipment
Availability End Date are payable in 36 equal monthly
installments of principal, plus accrued interest, beginning on
the 4th of each month following the Equipment Availability End
Date and ending on March 4, 2002 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.
To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m.
Pacific time 1 Business Day before the day on which the
Equipment Advance is to be made. The notice in the form of
Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the
invoice for the Equipment being financed.
7. Section 2.3.1 entitled "Interest Rate" is hereby amended in
its entirety to read as follows:
(a) Any Advances under the Committed Revolving Line shall bear
interest at a rate equal to one and one quarter (1.250)
percentage points above the Prime Rate.
(b) Any Advances under the Term Loan shall bear interest at a
rate equal to two and one quarter (2.250) percentage points
above the Prime Rate.
(c) Any Equipment Advances under the Committed Equipment Line
shall bear interest at a rate equal to one and three quarters
(1.750) percentage points above the Prime Rate.
8. The first sentence in Section 2.7 entitled "Term" is hereby
amended to read as follows:
Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section
12.7, shall continue in full force and effect for a term
ending on the later of the Revolving Maturity Date or the Term
Loan Maturity Date or the Equipment Maturity Date.
3
<PAGE> 4
9. The certificate of deposit number 8800015809 securing the Term Loan
Advances is hereby no longer required and shall not be a part of the
Collateral.
10. Item "(a)" in the first paragraph under Section 6.3 entitled "Financial
Statements, Reports, Certificates" is hereby amended to read as follows:
. . . (a) at such times as outstanding Obligations exist, as soon as
available, but in an event within thirty (30) days after the end of each
month, a company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during such period, certified
by an officer of Borrower reasonably acceptable to Bank; . . .
11. The second paragraph under Section 6.3 entitled "Financial Statements,
Reports, Certificates" is hereby amended to read as follows:
Within twenty (20) days after the last day of each month, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer together with aged listings of accounts receivable and accounts
payable.
12. The fourth paragraph under Section 6.3 entitled "Financial Statements,
Reports, Certificates" is hereby amended to read as follows:
Bank shall have a right from to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be
conducted no more often than once each fiscal year unless an Event of
Default has occurred and is continuing.
13. Section 6.8 entitled "Quick Ratio" is hereby amended in its entirety to
read as follows:
Borrower shall maintain, as of the last day of each calendar month, a
ratio of Quick Assets to Current Liabilities of at least 1.75 to 1.00.
14. Section 6.10 entitled "Tangible Net Worth" is hereby deleted and replaced
with the words, "Intentionally left blank."
15. Section 6.11 entitled "Profitability" is hereby amended in its entirety to
read as follows:
Borrower shall be profitable on a quarterly and an annual basis, provided,
however, Borrower may suffer a loss not to exceed Five Hundred Thousand
Dollars ($500,000) in a maximum of 1 quarter during any fiscal year.
16. Section 6.12 entitled "Minimum Liquidity" is hereby amended in its
entirety to read as follows:
Borrower shall maintain, as of the last calendar day of each month, a
ratio of unrestricted cash (and equivalents) plus net availability under
the Committed Revolving Line divided by Term Loan and Equipment Advances
outstandings of not less than 2.00 to 1.00. If Borrower maintains, for 2
consecutive fiscal quarters, a ratio of earnings after tax less
Capitalized Product Development Costs plus interest, depreciation and
amortization for the specified period on an
4
<PAGE> 5
annualized basis to current maturities of long term debt
and capitalized leases, plus interest expense annualized of
at least 1.75 to 1.00 (the "Debt Service Coverage"), then
the Debt Service Coverage shall replace the Liquidity
Coverage.
17. The term "Advances" in the last sentence in Sections 8.4.
8.5 and 8.8 shall be amended to read "Certain Extensions".
18. Borrower shall issue to Bank a warrant to purchase 2,439
shares of Borrower's Common stock, with an initial exercise
price of $10.25 per share. Such warrant shall be on Bank's
form, contain registration rights and antidilution
provisions and shall be for a term of five years.
B. Release of IP Agreement.
1. As an accommodation to Borrower and for good and valuable
consideration, including Bank's agreement to release its
security interest in all of Borrower's Copyrights, Patents and
Trademarks, Bank, with this Loan Modification Agreement, has
agreed to release its security interest in Borrower's
Copyrights, Patents and Trademarks granted under the IP
Agreement. In consideration of such release of security
interest, Borrower shall execute a negative pledge agreement
covering all of Borrower's Copyrights, Patents and Trademarks
(the "Negative Pledge Agreement"). Such Negative Pledge
Agreement shall include Borrower's agreement that it shall not
encumber any of its Copyrights, Patents and Trademarks without
the prior written consent of Bank.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank the sum of fees as
follows: (a) Twenty Thousand Dollars ($20,000) (the "Revolving Loan Fee") plus
(b) One Thousand Two Hundred Fifty Dollars ($1,250) (the "Equipment Advance
Fee") plus (c) all out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or guarantor will be released by virtue of this Loan Modification Agreement.
The terms of this paragraph apply not only to this Loan Modification Agreement,
but also to all subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Revolving Loan Fee and the Equipment
Advance Fee.
5
<PAGE> 6
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
YIELDUP INTERNATIONAL CORPORATION SILICON VALLEY BANK
By: /s/ ARHAY K. BHUSHAN By: /s/ MICHAEL J. ROSE
----------------------------- ---------------------------
Name: ARHAY K. BHUSHAN Name: MICHAEL J. ROSE
--------------------------- -------------------------
Title: Exec. V.P. & CFO Title: Vice President
--------------------------- ------------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 5,142,299
<SECURITIES> 996,173
<RECEIVABLES> 4,306,975
<ALLOWANCES> 0
<INVENTORY> 5,804,947
<CURRENT-ASSETS> 16,518,316
<PP&E> 2,346,481
<DEPRECIATION> 695,775
<TOTAL-ASSETS> 20,298,971
<CURRENT-LIABILITIES> 2,670,406
<BONDS> 501,993
0
6,489,038
<COMMON> 5,786
<OTHER-SE> 11,139,527
<TOTAL-LIABILITY-AND-EQUITY> 20,298,971
<SALES> 2,071,413
<TOTAL-REVENUES> 2,071,413
<CGS> 1,176,816
<TOTAL-COSTS> 1,176,816
<OTHER-EXPENSES> 1,814,788
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (15,474)
<INCOME-PRETAX> (1,491,535)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,491,535)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,491,535)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
