<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 31,1998. 

         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)

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)

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, 1998, Registrant had 4,349,961 shares of Common Stock
outstanding, and 1,413,653 shares of Class A Common Stock outstanding for a
total of 5,763,614 Common Stock outstanding. As of March 31, 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
                                                                   ----   ----





                                       1
<PAGE>   2

                        YIELDUP INTERNATIONAL CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
PART I.   FINANCIAL INFORMATION                                                               Page
<S>                                                                                           <C>
ITEM 1.   FINANCIAL STATEMENTS

1) Condensed Balance Sheets - March 31, 1998 and December 31, 1997                              3

2) Condensed Statements of Operations - Three Months ended March 31, 1998 and 1997              4

3) Condensed Statements of Cash Flows - Three Months ended March 31, 1998 and 1997              5

4) Notes to Financial Statements                                                              6-9

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL                                  9-13
                CONDITION AND RESULTS OF OPERATIONS


PART II.  OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS                                                                   14

ITEM 2.    CHANGES IN SECURITIES                                                            14-15

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 16

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                                    16

SIGNATURES                                                                                     17
</TABLE>





                                       2

<PAGE>   3

PART I.       FINANCIAL INFORMATION
    ITEM 1.   FINANCIAL STATEMENTS



                        YIELDUP INTERNATIONAL CORPORATION
                                 BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                           MARCH 31,         DECEMBER 31,
                                                             1998                1997
                                                         ------------        ------------
<S>                                                      <C>                 <C>         
                                     ASSETS
Current assets:
   Cash and cash equivalents                             $  7,928,348        $  2,145,785
   Restricted cash                                            406,749             406,749
   Short-term investments                                      10,000           1,506,150
   Accounts receivable                                      4,290,787           4,324,760
   Inventories                                              4,783,857           4,678,600
   Prepaid expenses and other current assets                  283,735             308,419
                                                         ------------        ------------
        Total current assets                               17,703,476          13,370,463

Property, plant, and equipment                              1,342,867           1,409,817
Other assets                                                2,122,284           2,144,660
                                                         ============        ============
        Total assets                                     $ 21,168,627        $ 16,924,940
                                                         ============        ============

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                      $  1,317,206        $  2,512,204
   Accrued liabilities                                        862,374             693,699
   Capital lease obligations and debt                         514,735             617,854
                                                         ------------        ------------
        Total current liabilities                           2,694,315           3,823,757
                                                         ------------        ------------
Stockholders' equity:
   Preferred stock                                                  1                  --
   Class A common stock                                         1,392               1,414
   Common stock                                                 4,371               4,341
   Additional paid-in capital                              28,631,273          22,685,283
   Notes receivable from stockholders                          (1,841)             (1,841)
   Accumulated deficit                                    (10,160,884)         (9,588,014)
                                                         ------------        ------------
        Total stockholders' equity                         18,474,312          13,101,183
                                                         ============        ============
        Total liabilities and stockholders' equity       $ 21,168,627        $ 16,924,940
                                                         ============        ============
</TABLE>




                 See accompanying notes to financial statements

                                       3


<PAGE>   4

                        YIELDUP INTERNATIONAL CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED MARCH 31,
                                                             ------------------------------
                                                                1998               1997
                                                             -----------        -----------
<S>                                                          <C>                <C>        
Revenues                                                     $ 2,559,501        $   913,000
Cost of sales                                                  1,469,465            962,156
                                                             -----------        -----------
Gross margin                                                   1,090,036            (49,156)
                                                             -----------        -----------

Operating expenses:
   Research and development                                      712,634            427,412
   Selling, general, and administrative                          964,854            800,742
                                                             -----------        -----------
Total operating expenses                                       1,677,488          1,228,154
                                                             -----------        -----------
Operating loss                                                  (587,452)        (1,277,310)
Interest income (expense), net                                    14,582             (6,008)
                                                             -----------        -----------
Net loss                                                     $  (572,870)       $(1,283,318)
                                                             ===========        ===========

Basic and diluted net loss per share                         $     (0.10)       $     (0.38)
                                                             ===========        ===========
Shares used in basic and diluted per share computation         5,761,103          3,414,131
                                                             ===========        ===========
</TABLE>






                 See accompanying notes to financial statements


                                       4

<PAGE>   5

                        YIELDUP INTERNATIONAL CORPORATION
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                THREE MONTHS ENDED MARCH 31,
                                                                                               ------------------------------
                                                                                                  1998                1997
                                                                                               -----------        -----------
<S>                                                                                            <C>                <C>         
Cash flows from operating activities:
   Net loss                                                                                    $  (572,870)       $(1,283,318)
   Adjustments to reconcile net loss to net cash used for operating activities:
                    Depreciation and amortization                                                  133,936             54,622
                    Expense related to certain Class A warrants amendment                               --            300,000
                    Changes in operating assets and liabilities:
                              Accounts receivable                                                   33,973           (169,490)
                              Inventories                                                         (105,257)          (144,869)
                              Prepaid expenses and other assets                                     39,681            111,955
                              Accounts payable                                                  (1,194,998)           546,175
                              Accrued liabilities                                                  168,675            (94,088)
                              Customer deposits                                                         --            (39,000)
                                                                                               -----------        -----------

                                     Net cash used for operating activities                     (1,496,860)          (718,013)
                                                                                               -----------        -----------

Cash flows from investing activities:
   Purchase of plant and equipment                                                                 (59,609)           (71,219)
   Decrease in restricted cash                                                                          --            253,976
   Proceeds from sales of short-term investments                                                 1,496,150                 --
                                                                                               -----------        -----------
                                    Net cash provided by (used for) investing activities         1,436,541            182,757
                                                                                               -----------        -----------

Cash flows from financing activities
   Principal payments under capital lease obligations                                              (13,119)           (10,899)
   Principal payments of term loan                                                                 (90,000)           (90,000)
   Proceeds of notes receivable from stockholders                                                       --              8,413
   Issuance of common stock from option exercises                                                   56,000              3,450
   Issuance of common stock from warrant exercise                                                       --            122,542
   Issuance of Series A preferred stock, net                                                     5,890,000                 --
   Issuance of Class A common stock from option exercise                                                --              4,341
                                                                                               -----------        -----------

                                    Net cash provided by financing activities                    5,842,881             37,847
                                                                                               -----------        -----------

Net increase (decrease) in cash and cash equivalents                                             5,782,562           (497,409)

Cash and cash equivalents at beginning of period                                                 2,145,785            619,172
                                                                                               -----------        -----------

Cash and cash equivalents at end of period                                                     $ 7,928,347        $   121,763
                                                                                               ===========        ===========

Supplemental cash flow disclosure:
  Cash paid for interest                                                                       $    13,052        $    16,928
                                                                                               ===========        ===========
</TABLE>



                 See accompanying notes to financial statements




                                       5

<PAGE>   6

                        YIELDUP INTERNATIONAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                 MARCH 31, 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 consolidated 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 consolidated 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. The consolidated results of operations for
            the three-month periods ended March 31, 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 shares are
            included for loss periods as they would be anti-dilutive. In the
            first quarter of 1998 there were 303,760 options and 600 convertible
            preferred shares outstanding and in the first quarter of 1997 there
            were 366,821 options outstanding that could potentially dilute basic
            earnings per share ("EPS") in the future 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
<PAGE>   7


                        YIELDUP INTERNATIONAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


2.     INVENTORIES


            A summary of inventories follows:



<TABLE>
<CAPTION>
                                                 MARCH 31,            DECEMBER 31,
                                                  1998                   1997
                                               ----------             ----------
<S>                                            <C>                    <C>       
Raw materials                                  $1,420,263             $1,762,780
Work in process                                   558,112                941,576
Evaluation units                                  909,201              1,001,958
Finished goods                                  1,896,281                972,286
                                               ----------             ----------

                                               $4,783,857             $4,678,600
                                               ==========             ==========
</TABLE>



Evaluation units are installed at potential customers' sites.


3.     SERIES A CONVERTIBLE PREFERRED STOCK

            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.

            Under the securities purchase agreement, the Company has issued 600
shares of convertible preferred stock which are initially convertible into an
aggregate of approximately 615,000 shares of the Company's Common Stock. After
the satisfaction of certain holding periods, each of the newly issued shares of
Series A Shares is convertible, at the option of the holder, into shares of
common stock of the Company based upon a conversion price of $10.8625 per share
or if lower, 100% of the market price, defined as the lowest closing bid price
during the 20 trading days preceding a conversion. The Series A Shares bear a
dividend of 5% per year, payable in kind. The shares of Series A Shares are
subject to automatic conversion after three years if not previously converted.





                                       7
<PAGE>   8

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.

Except upon the occurrence of certain events, the Investor(s) may convert, in
aggregate, only up to a maximum of a specified percentage of the Series A Shares
according to the following schedule:


<TABLE>
<CAPTION>
                        Days from                   % of Shares
                         Closing                    Convertible
                      ----------------              -----------
<S>                                                 <C>
                      1 through 90                       0
                      91 through 135                    20
                      136 through 180                   40
                      181 through 225                   60
                      226 through 270                   80
                      271 through term                 100
</TABLE>

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.

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.


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.




                                       8
<PAGE>   9


EFFECT 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.


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 MARCH 31, 1998 AND 1997

REVENUES

            Revenues increased to $2,559,501 in the first quarter of 1998 from
$913,000 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 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 March 31, 1998, sales to a single customer in
the United States accounted for 37% of revenues.

            Backlog at March 31, 1998 totaled approximately $3,748,650 compared
to approximately $787,000 at March 31, 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.

GROSS MARGIN

            The Company's gross margin improved to $1,090,036, or 43% of
revenues, during the first quarter of 1998 compared to negative gross margin of
($49,156), or (5%) 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. 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.




                                       9
<PAGE>   10


RESEARCH AND DEVELOPMENT EXPENSES

            Research and development expenses were $712,634, or 28% of revenues,
in the first quarter of 1998, compared to $427,412 or 47% 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 first quarter of 1998, the Company continued to
invest in enhancement of its existing product line. The Company expects to
continue to invest in new product research and development and enhancement of
existing products, although these expenses may decline as a percentage of
revenues to the extent revenues increase.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

            Selling, general, and administrative expenses were $964,854, or 38%
of revenues in the first quarter of 1998, compared to $800,742, or 88% 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. The selling, general, and administrative expenses in the first quarter
of 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. Excluding this expense, the 1997 expenses would
have been $500,742, or 55% of revenues. 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 $14,582 for first quarter of 1998 compared
to net interest expense of $6,008 for the same period in 1997. The increase in
net interest income was the result of increased interest income on short term
investments.

NET INCOME

            Net loss for the first quarter of 1998 was $572,870, or $0.10 per
share compared to a net loss of $1,283,318, or $0.38 per share for the same
period in 1997. The loss in the first quarter of 1997 included 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.
Excluding this expense, the 1997 net loss would have been $983,318, or $0.29 per
share.

            Prior to the quarter ended March 31, 1998, the Company had 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.

                         LIQUIDITY AND CAPITAL RESOURCES

            Cash, cash equivalents, and short term investment balances at March
31, 1998 totaled $8,345,097 compared to $4,058,684 at December 31, 1997. The
increase of $4,286,413 was due to the equity financing completed during the
first quarter of 1998 which resulted in total net proceeds to the Company of
approximately $5.9 million. The net cash used for operating activities during
the period was approximately $1.5 million. Principal payments of term loan and
capital lease obligations were approximately $0.1 million.




                                       10
<PAGE>   11

            At March 31, 1998 the Company had accounts receivable of $4,290,787
compared to $4,324,760 at December 31, 1997. Inventories at March 31, 1998 were
$4,783,857 compared to $4,678,600 at December 31, 1997. Net property, plant, and
equipment was $1,342,867 at March 31, 1998 compared to $1,409,817 at December
31, 1997. The decrease in net property and equipment was primarily the result of
depreciation of the assets.

            The accounts payable balance at March 31, 1998 was $1,317,206
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 quarter 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 obtained a commitment from a commercial lender
to receive a loan of up to $500,000 for its capital equipment and to create 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 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





                                       11
<PAGE>   12

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





                                       12
<PAGE>   13

adversely affecting the Company. If the Company is unable to respond to the
challenges of competition, including changes in cleaning, rinsing, and drying or
semiconductor or other manufacturing processes, there can be no assurance that
the Company would be able to achieve or maintain profitability at a level
required to support its survival or growth.

RELIANCE ON SINGLE PRODUCT FAMILY

            The Company anticipates that the substantial majority of its future
revenues will come from sales of its cleaning, rinsing, and drying systems.
Should the demand for, or pricing of, the Company's products decline due to
increased competitive pressure, the introduction of superior systems or
processes, changes in the semiconductor, magnetic or optical disk, flat panel
display or photo-mask industries or other factors, the Company's business,
financial condition and results of operations would be materially adversely
affected. The ability of the Company to diversify its operations through the
introduction and sale of new products and broader acceptance of its cleaning,
rinsing, and drying systems is dependent on the success of the Company's
continuing research, product development and engineering activities, as well as
its marketing efforts. No assurance can be given that the Company will be able
to develop, acquire, introduce or market new products in a timely or
cost-effective manner or that any new products or improvements will achieve
market acceptance or result in acceptable margins. Accordingly, the Company will
be dependent on overall market acceptance of its products.






                                       13
<PAGE>   14

PART II.    OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

            CFM Technologies, Inc. and CFMT, Inc. (collectively "CFM") filed a
complaint against the Company in United States District Court for the District
of Delaware in September 1995. The complaint alleged that the drying process
incorporated in certain of the Company's products infringes a patent held by
CFM. On October 14, 1997, a federal court for the District of Delaware ruled in
favor of the defendant, YieldUP International Corporation. In a written opinion
granting summary judgment for YieldUP, the United States District Court held
that CFM had failed to produce evidence on three separate elements of the patent
claim. To establish infringement, evidence of all three elements was required.
However, there can be no assurance that this judgment will not be overturned
should there be an appeal by CFM. A loss, if any, resulting from an unfavorable
adjudication, cannot presently be estimated. Accordingly, no provision for any
liability that may result upon adjudication has been made in the accompanying
condensed financial statements.

ITEM 2.     CHANGES IN SECURITIES

            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.
The Company has filed a registration statement that has not yet become effective
for the resale of the shares of the Company's Common Stock that may be acquired
on conversion of the 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.

Except upon the occurrence of certain events, the Investor(s) may convert, in
aggregate, only up to a maximum of a specified percentage of the Series A Shares
according to the following schedule:


<TABLE>
<CAPTION>
                          Days from                % of Shares
                          Closing                  Convertible
                      ---------------              -----------
<S>                                                <C>
                      1 through 90                       0
                      91 through 135                    20
                      136 through 180                   40
                      181 through 225                   60
                      226 through 270                   80
                      271 through term                 100
</TABLE>

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.




                                       14
<PAGE>   15

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.


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.


                                       15

<PAGE>   16

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

None

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(1)    EXHIBITS

Exhibit No.                       Description
-----------      -----------------------------------------------------------
    3.1*         Certificate of Designation for Series A Shares 
    10.1*        Form of Securities Purchase Agreement for Series A Shares 
    10.2*        Form of Registration Rights Agreement for Series A Shares 
    27.1         Financial Data Schedule
    99.1*        Press Release of YieldUP International Corporation dated March
                 31, 1998 

----------------------------
*    Incorporated herein by reference to the Registrant's Current Report on Form
     8-K filed April 8, 1998.


(2) REPORTS ON FORM 8-K

None.







                                       16
<PAGE>   17

                                   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 15, 1998                  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







                                       17

<PAGE>   18
                               INDEX TO EXHIBITS
 
Exhibit
Number                            Description
------                            -----------
27.1      Financial Data Schedule