<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 March 31, 1999.

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934.

         COMMISSION FILE NO. 0-27104

                        YIELDUP INTERNATIONAL CORPORATION
       (Exact name of small business issuer as specified 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)

Issuer's telephone number, including area code:              (650) 964-0100


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 March 31, 1999, we had 6,891,979 shares of common stock outstanding, and
1,364,497 shares of Class A common stock outstanding for a total of 8,256,476
common stock outstanding. All shares of common stock and Class A common stock
have par value of $0.001 per share.

Transitional Small Business Disclosure Format (check one) : YES [ ] NO [X]






                                  Page 1 of 14
<PAGE>   2

                        YIELDUP INTERNATIONAL CORPORATION

                                      INDEX



<TABLE>
<CAPTION>
                                                                                                   PAGE
                                                                                                   ----
<S>                                                                                               <C>
PART I.   FINANCIAL INFORMATION                                                                   


ITEM 1.   FINANCIAL STATEMENTS                                                                    

1) Condensed Balance Sheets - March 31, 1999 and December 31, 1998                                   3

2) Condensed Statements of Operations - Three Months ended March 31, 1999 and 1998                   4

3) Condensed Statements of Cash Flows - Three Months ended March 31, 1999 and 1998                   5

4) Notes to Financial Statements                                                                    6-7

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS                               8-13

PART II.  OTHER INFORMATION                                                                       

ITEM 1.   LEGAL PROCEEDINGS                                                                         13

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                                                 13

ITEM 3.   DEFAULTS ON SENIOR SECURITIES                                                             13

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                       14

ITEM 5.   OTHER INFORMATION                                                                         14

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                                                          14

SIGNATURES                                                                                          14
</TABLE>





                                  Page 2 of 14
<PAGE>   3

PART I. FINANCIAL INFORMATION

         ITEM 1. FINANCIAL STATEMENTS


                        YIELDUP INTERNATIONAL CORPORATION
                            CONDENSED BALANCE SHEETS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                MARCH 31,              DECEMBER 31,
                                                              ------------             ------------
                                                                  1999                     1998
                                                              ------------             ------------
<S>                                                          <C>                      <C>         
                                     ASSETS
Current assets:
   Cash and cash equivalents                                  $    262,572             $    143,228
   Short-term investments                                           10,000                   10,000
   Accounts receivable                                           1,567,856                1,401,413
   Inventories                                                   2,112,118                2,788,037
   Prepaid expenses and other current assets                        66,463                   76,431
                                                              ------------             ------------
        Total current assets                                     4,019,009                4,419,109

Property, plant, and equipment                                   1,543,702                1,500,712
Other assets                                                       222,395                  206,712
                                                              ------------             ------------
        Total assets                                          $  5,785,106             $  6,126,533
                                                              ============             ============

              LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
   Accounts payable                                           $    880,974             $    747,730
   Accrued liabilities                                             539,162                  616,997
   Current portion of capital lease obligations                     16,412                   15,994
   Bank borrowings                                               1,223,963                1,223,963
   Deferred revenue                                              1,250,000                        0
   Note payable to a director of the Company                             0                  500,000
                                                              ------------             ------------
        Total current liabilities                                3,910,511                3,104,684
   Long-term capital lease obligations                              62,721                   66,985
                                                              ------------             ------------
        Total liabilities                                        3,973,232                3,171,669

Stockholders' equity:
   Class A common stock                                              1,364                    1,364
   Common stock                                                      6,892                    6,892
   Additional paid-in capital                                   23,898,385               23,898,385
   Notes receivable from stockholders                               (1,841)                  (1,841)
   Accumulated deficit                                         (22,092,926)             (20,949,936)
                                                              ------------             ------------
        Total stockholders' equity                            $  1,811,874             $  2,954,864
                                                              ------------             ------------
        Total liabilities and stockholders' equity            $  5,785,106             $  6,126,533
                                                              ============             ============
</TABLE>



                 See accompanying notes to financial statements



                                  Page 3 of 14
<PAGE>   4

                        YIELDUP INTERNATIONAL CORPORATION
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)




<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED MARCH 31,
                                                                      --------------------------------------
                                                                         1999                        1998
                                                                      -----------                -----------
<S>                                                                   <C>                        <C>        
Gross revenues                                                        $ 1,392,102                $ 2,559,501

Cost of sales                                                           1,236,517                  1,469,465
                                                                      -----------                -----------

Gross margin                                                              155,585                  1,090,036

Operating expenses:
   Research and development                                               523,185                    712,634
   Selling, general, and administrative                                   729,848                    964,854
                                                                      -----------                -----------
Total operating expenses                                                1,253,033                  1,677,488
                                                                      -----------                -----------
Operating loss                                                         (1,097,448)                  (587,452)
Interest income/(expense), net                                            (45,542)                    14,582
                                                                      -----------                -----------
Net loss                                                              $(1,142,990)               $  (572,870)
                                                                      ===========                ===========

Basic and diluted net loss per share                                  $     (0.14)               $     (0.10)
                                                                      ===========                ===========
Shares used in basic and diluted per share computations                 8,256,476                  5,761,103
                                                                      ===========                ===========
</TABLE>



                 See accompanying notes to financial statements




                                  Page 4 of 14
<PAGE>   5

                        YIELDUP INTERNATIONAL CORPORATION
                        CONDENSED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                              THREE MONTHS ENDED MARCH 31,
                                                                                          -----------------------------------
                                                                                             1999                     1998
                                                                                          -----------             -----------
<S>                                                                                       <C>                     <C>         
Cash flows from operating activities:
   Net loss                                                                               $(1,142,990)            $  (572,870)
   Adjustments to reconcile net loss to net cash used by operating activities:
                    Depreciation and amortization                                             156,400                 133,936
                    Provision for bad debts                                                        --                     500
                    Changes in operating assets and liabilities:
                              Accounts receivable                                            (166,443)                 33,473
                              Inventories                                                     675,919                (105,257)
                              Prepaid expenses and other assets                                (5,715)                 39,681
                              Accounts payable                                                133,244              (1,194,998)
                              Accrued liabilities                                             (77,835)                168,675
                              Deferred revenue                                              1,250,000                      --
                                                                                          -----------             -----------
                     Net cash provided by/(used by) operating activities                      822,580              (1,496,860)
                                                                                          -----------             -----------
Cash flows from investing activities:
   Purchase of plant and equipment                                                           (199,390)                (59,609)
   Purchase of short-term investments, net                                                         --               1,496,150
                                                                                          -----------             -----------
                     Net cash (used by)/provided by investing activities                     (199,390)              1,436,541
                                                                                          -----------             -----------
Cash flows from financing activities
   Repayment of note payable to a director of the Company                                    (500,000)                     --
   Payments under capital lease obligations                                                    (3,846)                (13,119)
   Payments of term loan                                                                           --                 (90,000)
   Issuance of common stock from option exercises                                                  --                  56,000
   Issuance of Series A preferred stock, net                                                       --               5,890,000
                                                                                          -----------             -----------
                     Net cash  (used by)/provided by financing activities                    (503,846)              5,842,881
                                                                                          -----------             -----------

Net increase in cash and cash equivalents                                                     119,344               5,782,562

Cash and cash equivalents at beginning of period                                              143,228               2,145,785
                                                                                          -----------             -----------

Cash and cash equivalents at end of period                                                $   262,572             $ 7,928,347
                                                                                          ===========             ===========
Supplemental cash flow disclosure:
Cash paid for interest                                                                    $    49,262             $    13,052
                                                                                          ===========             ===========
</TABLE>



                 See accompanying notes to financial statements





                                  Page 5 of 14
<PAGE>   6

                        YIELDUP INTERNATIONAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                  (UNAUDITED)
                                 MARCH 31, 1999



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 financial statements and notes thereto included in the
Company's 1998 Annual Report on Form 10-KSB. The results of operations for the
three months ended March 31, 1999 are not necessarily indicative of the results
to be expected for any subsequent quarter or for the entire year ending December
31, 1999.

NET LOSS PER SHARE

     Basic net loss per share is computed using the weighted average number of
shares of Class A common stock and 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 first quarter of 1999 there were 397,447 options, and in
the first quarter of 1998 there were 303,760 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
anti-dilutive for those periods.

COMPREHENSIVE INCOME

     We have no other components of comprehensive income other than our reported
amounts of net loss.

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 September 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.




                                  Page 6 of 14
<PAGE>   7

2. INVENTORIES

A summary of inventories follows:


<TABLE>
<CAPTION>
                                                                MARCH 31,            DECEMBER 31,
                                                                  1999                  1998
                                                               ----------            ------------
<S>                                                            <C>                   <C>       
   Raw materials                                               $1,524,299            $1,840,088
   Work in process                                                456,871               493,024
   Evaluation units                                             1,142,145             1,308,052
   Finished goods                                               2,327,983             2,486,053
                                                               ----------            ----------
Gross inventory                                                $5,451,298            $6,127,217
   Less provision for excess and obsolete inventory             3,339,180             3,339,180
                                                               ----------            ----------
Net inventory                                                  $2,112,118            $2,788,037
                                                               ==========            ==========
</TABLE>

Evaluation units are installed at potential customers' sites.

3.  ACCOUNTS RECEIVABLE

Accounts receivable at March 31, 1999 is net of a reserve for sales returns of
$236,389 and a reserve for bad debts of $537,218.

4.  DEFERRED REVENUE

Included in the deferred revenue is a pre-paid license by FSI International.
Revenue will be recognized when products on which the royalty payments are based
are sold.

5. LEGAL PROCEEDINGS

     CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against us in United States District Court for the District of
Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of our products infringes a patent held by CFM. On
October 14, 1997, a federal court for the District of Delaware ruled in our
favor. In a written opinion granting summary judgment for us, 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 re-argument briefs have been filed by both parties. The court may not
sustain its original order. If the original order is overturned, the litigation
may proceed to trial, and the litigation and the associated costs may, and an
unfavorable adjudication will, have a material adverse impact on us. 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 financial statements.

      CFM filed an additional complaint against YieldUP in United States
District Court for the District of Delaware on December 30, 1998. The complaint
alleged that the cleaning process incorporated in certain of our products
infringes patents held by CFM. We believe that the additional CFM patent
infringement lawsuit is without merit and that none of our technology and
products infringe any of the CFM patents asserted in that litigation. Our
technology is substantially different from CFM's patented technology. We have
filed an answer to the complaint and a counter claim for non-infringement and
invalidity of CFM's patents. We plan to vigorously defend our intellectual
property rights against any and all claims. The associated costs may, and an
unfavorable adjudication will, have a material adverse impact on us. In both
lawsuits filed by CFM, they are asking for monetary damages and an injunction
against our use of those products at issue. 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 financial statements.



                                  Page 7 of 14
<PAGE>   8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

RESULTS OF OPERATIONS

     The discussions in this Report contain forward-looking statements that
involve risks and uncertainties. Our 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 our other periodic reports filed with
the Securities and Exchange Commission.


THREE MONTHS ENDED MARCH 31, 1999 AND 1998

REVENUES

     Revenues decreased to $1,392,102 in the first quarter of 1999 from
$2,559,501 for the same period in 1998. The 46% decrease in revenues in first
quarter of 1999 was due to a decrease in the level of shipments for our
cleaning, rinsing, and drying systems.

     In the first quarter of 1999, sales to a single customer in Europe,
STMicroelectronics, accounted for 31% of revenues, and sales to a customer in
United States, Submicron Systems, accounted for 23% of revenues.


GROSS MARGIN

     Our gross margin decreased to $155,585, or 11% of revenues, during the
first quarter of 1999 compared to gross margin of $1,090,036, or 43% of
revenues, during the same period a year ago. This decline in gross margins was
due in part to the high fixed overhead costs allocated to reduced shipments and
revenue.

RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses were $523,185, or 38% of revenues, in the
first quarter of 1999, compared to $712,634, or 28% of revenues, for the same
period in 1998. The decrease in research and development expenses was due mainly
to a decrease in engineering personnel compared to the same period a year ago.
We expect 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 $729,848, or 52% of
revenues in the first quarter of 1999, compared to $964,854, or 38% of revenues,
for the same period in 1998. Selling, general, and administration expenses
decreased due to reduced commissions related to the decrease in sales. We expect
that selling, general, and administrative expenses may decline as a percentage
of revenues, to the extent revenues increase.

NET INTEREST EXPENSE

     Net interest expense was $45,542, net of interest income of $3,720, for
first quarter of 1999 compared to net interest income of $14,582, net of
interest expense of $13,052, for the same period in 1998. In December 1998, we
increased borrowings and reduced cash in order to redeem all of the outstanding
shares of the Series A convertible Preferred Stock for approximately $6.0
million. The increase in net interest expense was the result of reduced interest
income due to the reduced cash balances and increased interest expense on the
additional borrowings.



                                  Page 8 of 14
<PAGE>   9


NET LOSS

     Net loss for the first quarter of 1999 was $1,142,990, or $0.14 per share
compared to a net loss of $572,870, or $0.10 per share for the same period in
1998. The shares used in basic and diluted per share computations were 8,256,476
for the first quarter of 1999, and 5,761,103 for the same period in 1998.

     We have incurred operating losses in each fiscal quarter since inception.
Such losses have been principally the result of the various costs associated
with product development and manufacturing activities as we seek to gain
acceptance of our products in the marketplace. There can be no assurance that we
will be successful in generating future profits from the sales of our products.

LIQUIDITY AND CAPITAL RESOURCES

     Cash, cash equivalents, and short-term investment balances at March 31,
1999 totaled $272,572, compared to $153,228 at December 31, 1998. The increase
of $119,344 was due to net cash generated by operating activities during the
period of approximately $823,000, which included deferred revenue of $1,250,000.
Payment on a loan from a director of YieldUP reduced available cash by $500,000.

     At March 31, 1999, we had accounts receivable of $1,567,856 compared to
$1,401,413 at December 31, 1998. Inventories at March 31, 1999 were $2,112,118
compared to $2,788,037 at December 31, 1998. Net property, plant, and equipment
were $1,543,702 at March 31, 1999 compared to $1,500,712 at December 31, 1998.
The increase in net property and equipment was primarily the result of an
increase in equipment that was partially offset by depreciation.

     The accounts payable balance at March 31, 1999 was $880,974 compared to
$747,730 at December 31, 1998. The increase in accounts payable was due
primarily to an increase in purchases of components for new product development
and legal fees associated with the proposed merger with FSI International.

     On January 21, 1999, we entered into a definitive agreement with FSI, for
FSI to acquire all of the outstanding stock of YieldUP. The form of the
transaction will be a merger. Under the terms of the definitive agreement, the
YieldUP stockholders will receive $0.7313 in cash and 0.1567 of a share of FSI
common stock for each share of YieldUP common stock. YieldUP option holders will
receive substitute options entitling them to purchase FSI common stock. When the
merger becomes effective, each outstanding warrant to purchase shares of our
common stock under any warrant agreement will become a right to acquire FSI
common stock. The warrants will be subject to substantially the same terms and
conditions as they were prior to the merger. Each warrant, upon payment of the
exercise price, will entitle the holder to receive $.7313 cash and .1567 of a
share of FSI common stock for each share of YieldUP common stock the warrant
holder is entitled to. Completion of the transaction is subject to certain
closing conditions including, among other things, approval by the stockholders
of YieldUP. FSI and YieldUP currently anticipate that the transaction will be
completed in late June or early July 1999. As part of the agreement to be
acquired by FSI, we also granted FSI a non-exclusive royalty-bearing license to
our patent portfolio, and have received pre-paid licensing fees. We amended this
licensing agreement in April of 1999, which will result in additional payments
by FSI to YieldUP in the second quarter of 1999.

BUSINESS RISKS

GENERAL

     Our 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. We have incurred
significant losses from our operations, and we may never achieve profitable
operations. Our smaller resources make us vulnerable to competition from larger
companies. Because our 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. Since we expect to derive substantially
all of our future revenues from sales of cleaning, rinsing, and drying systems,
our business, financial condition and results of operations would be materially
adversely affected by declining demand for our products or decreasing prices and
margins for those products. 




                                  Page 9 of 14
<PAGE>   10

RISKS RELATING TO THE MERGER

Fixed Exchange Ratio May Limit the Value of FSI Stock Received by YieldUP
Stockholders

     In the merger, each outstanding share of YieldUP common stock and Class A
common stock will be converted into the right to receive $.7313 in cash and
 .1567 of a share of FSI common stock. There will be no adjustment of the
exchange ratio based on fluctuations in the market price of FSI common stock.
Consequently, the value of the FSI common stock received in the merger could
decrease from now until the effective date of the merger.

If FSI and YieldUP Cannot Effectively Integrate Their Operations, Then Potential
Benefits of the Merger May Not Be Realized

     FSI and YieldUP will have to integrate their manufacturing, research and
development, and sales and marketing efforts. If the companies are not
successful in this integration, then FSI's results of operations could be
adversely affected, employee morale could decline, and key employees could
leave. In addition, until YieldUP's existing customers have had the opportunity
to determine how well the combined organization operates, they may cancel
existing orders or delay placing new ones.

OTHER BUSINESS RISKS

The Semiconductor Industry is Experiencing a Downturn Which May Materially and
Adversely Affect Us

     The semiconductor equipment industry is highly cyclical and has
historically experienced periodic and often prolonged downturns. Currently, the
industry is in the midst of a severe downturn which began in 1998. The current
severe downturn could not have been predicted in early 1998, and future severe
downturns may occur prior to our anticipation of them. We can neither predict
nor avoid such downturns. A downturn in the semiconductor industry could
materially adversely affect our 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 our business, financial condition, and results of
operations.

We Have Experienced Operating Losses in the Past and We Expect to Sustain Losses
in the Future

     We may never achieve profitability if we remain an independent entity. If
we do not remain independent and are acquired by FSI, it may not be able to
generate profits from the acquired operations of YieldUP. We have experienced
significant operating losses since our inception in June 1993 and only commenced
significant shipments of our products in the fourth quarter of 1995. We have
experienced net losses applicable to holders of common stock of $11,361,922 in
1998, $3,993,642 in 1997 and $3,374,035 in 1996. Accordingly, we have a limited
operating history on which to base the evaluation of our business, and our prior
operating results are not indicative of the results which may be achieved in the
future. As of March 31, 1999, our accumulated deficit was $22,092,926. Our
operating losses have been and will continue to be principally the result of the
various costs associated with our product development, manufacturing, and sales
and marketing activities.

Our Existing Capital Resources Will Not Enable Us To Fund Our Operations Through
1999

     We believe our existing capital resources, combined with the payments
received from the licensing agreement with FSI, will enable us to fund
operations through June 1999. We will need to obtain additional capital to fund
our operations beyond June 1999, which may result in dilution to the current
stockholders. The existence of Class B warrants may also complicate future
capital raising activities because of their potentially dilutive effect on the
purchasers of equity securities and the anti-dilution provisions of the Class B
warrants. These anti-dilution provisions could reduce the exercise price of the
Class B warrants. If we are unable to obtain the necessary capital, we will be
required to significantly curtail operations.

Our Products Employ Proprietary Technology and this Technology May Infringe on
the Intellectual Property Rights of Third Parties

     Our issued patents may not provide us with meaningful competitive
advantages, and challenges may be issued against the validity and enforceability
of any patent issued to us. We rely on patent, trade secret and copyright
protection for our products and technology. We have obtained eight United States
patents since 1996 relating to our cleaning, rinsing and drying products and



                                 Page 10 of 14
<PAGE>   11



technologies and have filed twenty-four additional U.S. and foreign patent
applications. The process of obtaining patents can be expensive and our patent
applications may not result in the issuance of patents.

     We also rely on trade secrets and proprietary technology that we seek to
protect, in part, through confidentiality agreements with employees, consultants
and other parties. However, these agreements may be breached, we may not have
adequate remedies for any breach, and our trade secrets may become known to or
independently developed by others.

     In the absence of significant patent or other proprietary protection,
competitors may be able to copy our technology or design approaches, replicate
our processes or gain access to our trade secrets. Moreover, our competitors may
be able to develop technologies similar to or more advanced than our products or
technology. Our current or future products may infringe on the patents of
others.

     There has been substantial litigation regarding patent and other
intellectual property rights in semiconductor-related industries. Increased
sales of our products could provoke additional claims of infringement from third
parties. In the future, litigation may be necessary to:

         -        enforce patents issued to us;

         -        to protect trade secrets or know-how owned by us; 

         -        to defend us against claimed infringement of the rights of
                  others; and 

         -        to determine the scope and validity of the proprietary rights
                  of others.

     Any such litigation would likely result in substantial cost and diversion
of effort, which by itself could have a material adverse effect on our business,
financial condition and operating results. Further, adverse determinations in
such litigation could result in the loss of proprietary rights, subject us to
significant liabilities to third parties, require us to seek licenses from third
parties or prevent us from manufacturing or selling our products, any of which
could have a material adverse effect on our business, financial condition and
results of operations. See "Legal Proceedings."

We May Not Be Able To Successfully Compete in the Highly Competitive
Semiconductor Manufacturing Market

     There is intense competition in the markets for our products. Our smaller
resources and yet to be fully proven products make us 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 with
a significant advantage over us because our 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. We may not be able to
overcome these disadvantages.

     Competition for our products currently comes from makers of traditional and
new cleaning, rinsing, and drying equipment. These competitors may be able to
develop new products or improve their existing products which, when combined
with their existing market presence, would make our products obsolete or
unmarketable. Any such development would have a material adverse effect on us.
We may not be able to penetrate the wet processing equipment market and convince
semiconductor or other manufacturers to install our systems either directly or
through retrofitting in place of existing equipment. Additional competition for
our products also currently comes from a large number of small companies making
cleaning, rinsing, and drying equipment which is less expensive than our
products. Because our products sell for significantly higher prices than such
products, we may not be able to compete effectively against them without
lowering our prices.

     We also expect 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 our products obsolete, thereby
materially adversely affecting us. If we are unable to respond to the challenges
of competition, including changes in cleaning, rinsing, and drying of
semiconductor or other manufacturing processes, we may not able to achieve or
maintain profitability at a level required to support our survival or growth.




                                 Page 11 of 14
<PAGE>   12

     Our competitors include manufacturers of spin rinse dryers such as Verteq
and Semitool, IsoPropyl alcohol dryer manufacturers such as S&K and integrated
wet processing system manufacturers such as SCP Global Technologies, Sub Micron
Systems, Steag, FSI International, CFM Technologies, and Dai Nippon Screen.
Several of these competitors are also our customers.

     We currently compete principally on the basis of superior contamination
reduction, better price/performance, improved equipment reliability, smaller
footprint, lower operating costs, and reduction in hazardous chemical usage. We
believe that these factors as well as the ease of use, price, reputation,
service and familiarity are important competitive criteria for selection of
cleaning, rinsing and drying equipment by potential customers. These factors may
not give us a competitive edge in the future and any failure to do so may have a
material adverse impact on our business or operating results.

The Failure of Our Systems, Key Suppliers and Customers To Be Year 2000
Compliant Could Negatively Impact Our Business

     By the year 2000, most companies could face a potentially serious
information systems problem because many software applications and operational
programs written in the past were designed to handle dates formatted with
two-digit years and thus may not properly recognize calendar dates beginning in
the Year 2000 (Y2K). This problem could result in computers either outputting
incorrect data or shutting down altogether when attempting to process a date
such as "01/01/00".

     In order to minimize the disruption to business and government that may be
caused by computer systems and software products that are not Y2K compliant,
many companies and government agencies worldwide have established programs to
evaluate and mitigate the risks and adverse effects of the Y2K problem.
Accordingly, YieldUP formed a Y2K Readiness team in 1998, comprising of
Information Technology personnel, finance and administration staff and product
software engineers. The team has assessed all critical software and operational
applications for review and evaluated Y2K compliance of its internal business
systems, manufacturing and design tools, current products, products sold in
recent years, and the most critical systems, services and products supplied to
the Company by third parties.

     A four-step approach, comprising assessment, remediation, testing and
implementation, was used to determine the Y2K readiness of our systems, software
equipment and products. Such an approach provided a detailed method for tracking
the evaluation, repair and testing of systems, software, equipment and products
that may be affected by Y2K issues.

     In the first step, we prepared an inventory of all systems, software,
equipment and products that we use internally or market as products to
customers. We then determined whether equipment met Y2K compliance. This
involved detailed analysis of the products by utilizing the Internet and
contacting the vendors directly. Letters of compliance were collected and
organized into a centralized location. Any systems that did not meet compliance
were identified.

     The second step included repairing, upgrading and/or replacing any
non-compliant equipment or systems identified in the first step. This included
developing and implementing methods for immediately bringing them up to
compliance standards.

     In the third step, we tested our systems, software and equipment for Y2K
readiness, or in certain cases, relying on test results or certifications
provided by third parties to us.

     The fourth step involved placing compliant systems, software and equipment
into service.

     A few issues were discovered with systems utilized in YieldUP's day-to-day
operations and with one of YieldUP's products. Solutions to these problems were
quickly addressed, resolved and tested by working with each vendor. The costs to
address the Y2K issues have been relatively small to date, and our products in
the field have been made compliant. Completion date for these issues was
December 1998. Final analysis of our readiness will be completed by the middle
of 1999. We have further implemented policy and procedures that all new systems
procured or developed are evaluated for Y2K readiness to assure compliance. In
the latter half of 1999, we will be finalizing contingency plans, to respond to
any unforeseen Y2K problems. We expect to develop these contingency plans
working with FSI, as the merger is expected to be complete by mid-1999.

     An analysis of the products that we market to customers was conducted in
the latter half of 1998. This analysis included the hardware, software and
firmware used in our products. Items tested were the computer systems that
control the products, hardware and the software for the products. An issue was
found with one of the software packages used on one of the products. Issues
found are not critical to the functionality of the system as a whole and the
product will continue to operate. Software patches are required



                                 Page 12 of 14
<PAGE>   13


for the software to be Y2K compliant. Procedures have been written and any and
all software upgrades have been collected and distributed to all of our existing
customers. The patches were provided free-of-charge by the software package
vendor. The total cost to address the Y2K problem and upgrade any current
business systems is estimated to not be more than $25,000.

     We believe we are diligently addressing the Y2K issues and that we will
satisfactorily identify and resolve all critical and significant Y2K problems in
our operations and products by the middle of 1999. The assessment and
remediation plan we have implemented is expected to significantly reduce the
level of uncertainty about the Y2K problem in our internal systems, our products
and our critical third-party suppliers. We are devoting the necessary resources
to identify and resolve any potential present or future Y2K issues.

      We have been advised by all of our suppliers and business partners, which
includes OEMs, that they are addressing and preparing for any Y2K issues that
they may have. In the event any of these suppliers or business partners are not
Y2K compliant, we may experience a delay in shipping our products.

      We expect that the financial institutions and customers are also devoting
resources to resolve their Y2K issues. Other than any pervasive problem, over
which we have no control, we do not expect the Y2K problem to have any material
adverse effect on our business, operating results or financial condition.


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against us in United States District Court for the District of
Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of our products infringes a patent held by CFM. On
October 14, 1997, a federal court for the District of Delaware ruled in our
favor. In a written opinion granting summary judgment for us, 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 re-argument briefs have been filed by both parties. The court may not
sustain its original order. If the original order is overturned, the litigation
may proceed to trial, and the litigation and the associated costs may, and an
unfavorable adjudication will, have a material adverse impact on us. 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 financial statements.

     CFM filed an additional complaint against YieldUP in United States District
Court for the District of Delaware on December 30, 1998. The complaint alleged
that the cleaning process incorporated in certain of our products infringes
patents held by CFM. We believe that the additional CFM patent infringement
lawsuit is without merit and that none of our technology and products infringe
any of the CFM patents asserted in that litigation. Our technology is
substantially different from CFM's patented technology. We have filed an answer
to the complaint and a counter claim for non-infringement and invalidity of
CFM's patents. We plan to vigorously defend our intellectual property rights
against any and all claims. The associated costs may, and an unfavorable
adjudication will, have a material adverse impact on us. In both lawsuits filed
by CFM, they are asking for monetary damages and an injunction against our use
of those products at issue. 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
financial statements.


ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS ON SENIOR SECURITIES

None




                                 Page 13 of 14
<PAGE>   14


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(1)  EXHIBITS


EXHIBIT NO.                              DESCRIPTION
-----------                              -----------

   3.1*          Articles of Incorporation

   3.2*          Bylaws

   10.1**        The Merger Agreement by and between YieldUP and FSI
                 International dated as of January 21, 1999

   27.1          Financial Data Schedule


------------

*        Incorporated herein by reference to the registration statement on Form
         SB-2.

**       Incorporated herein by reference to YieldUP's Annual Report on Form
         10-KSB for the year ended December 31, 1998.

(2)      REPORTS ON FORM 8-K

Current Report on Form 8-K filed on January 27, 1999



                                   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:  May 14, 1999                 By: /s/ Raj Mohindra
                                        --------------------------------------
                                        Raj Mohindra,
                                        President and Chief Executive Officer


                                        /s/ Abhay K. Bhushan
                                        --------------------------------------
                                        Abhay K. Bhushan,
                                        Executive Vice President and
                                        Chief Financial Officer






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