# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-Q

| | (Mark | One)
| | ----- | ----

| | [X] | QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
| | --- | --------------------------------------------------------------------------------------

# For the quarterly
period ended September 30, 2005

# or

| | [   ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
| | ----- | ---------------------------------------------------------------------------------------

# Commission File
Number: 0-26824

# TEGAL CORPORATION (Exact Name of
Registrant as Specified in Its Charter)

|                                                                        |                                               
|----------------------------------------------------------------------- | ----------------------------------------------
|Delaware (State or other jurisdiction of
incorporation or organization) | 68-0370244(I.R.S. Employer Identification No.)

# 2201 South McDowell
Blvd.Petaluma, California
94954(Address of
Principal Executive Offices)

# Telephone Number (707)
763-5600(Registrants
Telephone Number, Including Area Code)

_________________

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No
[   ]

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange List. Yes [   ] No [X]

As
of November 9, 2005 there were 83,951,613 shares of our common stock outstanding.

---

---

# TEGAL CORPORATION AND
SUBSIDIARIES

# INDEX

Page

|        | PART I. FINANCIAL INFORMATION                                                                            |   
|------- | -------------------------------------------------------------------------------------------------------- | --
|ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                  |   
|        | Condensed Consolidated Balance Sheets as of September 30, 2005 and March 31, 2005                        | 3 
|        | Condensed Consolidated Statements of Operations-- for the three months ended September 30, 2005 and 2004 | 4 
|        | Condensed Consolidated Statements of Cash Flows-- for the three months ended September 30, 2005 and 2004 | 5 
|        | Notes to Condensed Consolidated Financial Statements                                                     | 6 
|ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS                    | 12
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                               | 21
|ITEM 4. | CONTROLS AND PROCEDURES                                                                                  | 21

|           | PART II. OTHER INFORMATION                          |   
|---------- | --------------------------------------------------- | --
|ITEM 1.    | LEGAL PROCEEDINGS                                   | 22
|ITEM 4.    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | 22
|ITEM 6.    | EXHIBITS                                            | 23
|SIGNATURES |                                                     | 24

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# PART I 
FINANCIAL INFORMATION

# Item 1. Condensed Consolidated
Financial Statements

# TEGAL CORPORATION AND
SUBSIDIARIESCONDENSED CONSOLIDATED
BALANCE SHEETS(Unaudited)(In thousands)

|                                                                                                                                                                            | September 30,
    2005 | March 31,
   2005
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | -----------------------
|ASSETS                                                                                                                                                                      |                               |                        
|Current assets:                                                                                                                                                             |                               |                        
|Cash and cash equivalents                                                                                                                                                   |                               |                        
|Accounts receivable, net of allowances for sales returns and doubtful accounts of $92 and  $533 at September 30, and March 31, 2005 respectively                            |                               |                        
|Inventories                                                                                                                                                                 |                               |                        
|Prepaid expenses and other current assets                                                                                                                                   |                               |                        
|                                                                                                                                                                            |                               |                        
|Total current assets                                                                                                                                                        |                               |                        
|Property and equipment, net                                                                                                                                                 |                               |                        
|Intangible assets, net                                                                                                                                                      |                               |                        
|Other assets                                                                                                                                                                |                               |                        
|                                                                                                                                                                            |                               |                        
|Total assets                                                                                                                                                                |                               |                        
|                                                                                                                                                                            |                               |                        
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                        |                               |                        
|Current liabilities:                                                                                                                                                        |                               |                        
|Notes payable and bank lines of credit                                                                                                                                      |                               |                        
|Accounts payable                                                                                                                                                            |                               |                        
|Accrued product warranty                                                                                                                                                    |                               |                        
|Deferred revenue                                                                                                                                                            |                               |                        
|Accrued expenses and other current liabilities                                                                                                                              |                               |                        
|                                                                                                                                                                            |                               |                        
|Total current liabilities                                                                                                                                                   |                               |                        
|Long-term portion of capital lease obligations                                                                                                                              |                               |                        
|Other long term obligations                                                                                                                                                 |                               |                        
|                                                                                                                                                                            |                               |                        
|Total long term liabilities                                                                                                                                                 |                               |                        
|                                                                                                                                                                            |                               |                        
|Total liabilities                                                                                                                                                           |                               |                        
|Commitments and contingencies (Note 6)                                                                                                                                      |                               |                        
|                                                                                                                                                                            |                               |                        
|Total liabilities and contingent liabilities                                                                                                                                |                               |                        
|Stockholders' equity:                                                                                                                                                       |                               |                        
|Preferred stock; $0.01 par value; 5,000,000 shares authorized; none issued and outstanding                                                                                  |                               |                        
|Common stock; $0.01 par value; 200,000,000 shares authorized; 83,951,613 and 52,843,520 shares issued and outstanding at September 30, 2005 and March 31, 2005 respectively |                               |                        
|Restricted Share Units                                                                                                                                                      |                               |                        
|Deferred Compensation                                                                                                                                                       |                               |                        
|Additional paid-in capital                                                                                                                                                  |                               |                        
|Accumulated other comprehensive income (loss)                                                                                                                               |                               |                        
|Accumulated deficit                                                                                                                                                         |                               |                        
|                                                                                                                                                                            |                               |                        
|Total stockholders' equity                                                                                                                                                  |                               |                        
|                                                                                                                                                                            |                               |                        
|Total liabilities and stockholders' equity                                                                                                                                  |                               |                        
|                                                                                                                                                                            |                               |                        

See accompanying notes.

---

# TEGAL CORPORATION AND
SUBSIDIARIESCONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS(Unaudited)(In thousands, except
per share data)

|                                       | Three Months Ended
September 30, | Six Months Ended
September 30,
|-------------------------------------- | ------------------------------------------ | ----------------------------------------
|
|Revenue                                |                                            |                                         
|Cost of sales                          |                                            |                                         
|                                       |                                            |                                         
|Gross profit (loss)                    |                                            |                                         
|                                       |                                            |                                         
|Operating expenses:                    |                                            |                                         
|Research and development               |                                            |                                         
|Sales and marketing                    |                                            |                                         
|General and administrative             |                                            |                                         
|In Process Research and Development    |                                            |                                         
|                                       |                                            |                                         
|Total operating expenses               |                                            |                                         
|                                       |                                            |                                         
|Operating loss                         |                                            |                                         
|Other income (expense), net            |                                            |                                         
|                                       |                                            |                                         
|Net loss                               |                                            |                                         
|                                       |                                            |                                         
|Net loss per share, basic and diluted  |                                            |                                         
|                                       |                                            |                                         
|Shares used in per share computations: |                                            |                                         
|Basic                                  |                                            |                                         
|Diluted                                |                                            |                                         

See accompanying notes.

---

# TEGAL CORPORATION AND
SUBSIDIARIESCONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS(Unaudited)(In thousands)

|                                                                                      | Six Months Ended
September 30,
|------------------------------------------------------------------------------------- | -------------------------------------------
|
|Cash flows from operating activities:                                                 |                                            
|Net loss                                                                              |                                            
|Adjustments to reconcile net loss to cash provided by (used) in operating activities: |                                            
|Depreciation and amortization                                                         |                                            
|Allowance for doubtful accounts and sales return allowances                           |                                            
|Fair value of warrants issued for services rendered                                   |                                            
|Fair value of restricted share units granted                                          |                                            
|Non-cash amortization of beneficial conversion feature and  debt issuance costs       |                                            
|Non-cash valuation of marked to market investor warrants                              |                                            
|In-process research and development                                                   |                                            
|Changes in operating assets and liabilities:                                          |                                            
|Receivables                                                                           |                                            
|Inventories                                                                           |                                            
|Prepaid expenses and other assets                                                     |                                            
|Accounts payable                                                                      |                                            
|Accrued expenses and other liabilities                                                |                                            
|Accrued warranty                                                                      |                                            
|Deferred revenue                                                                      |                                            
|                                                                                      |                                            
|Net cash provided by (used in) operating activities                                   |                                            
|                                                                                      |                                            
|Cash flows used in investing activities purchases of property and equipment          |                                            
|                                                                                      |                                            
|Cash flows from financing activities:                                                 |                                            
|Net proceeds from issuance of common stock                                            |                                            
|Borrowings under lines of credit                                                      |                                            
|Repayment of borrowings under lines of credit                                         |                                            
|Payments on capital lease financing                                                   |                                            
|                                                                                      |                                            
|Net cash provided by financing activities                                             |                                            
|                                                                                      |                                            
|Effect of exchange rates on cash and cash equivalents                                 |                                            
|                                                                                      |                                            
|Net increase (decrease) in cash and cash equivalents                                  |                                            
|Cash and cash equivalents at beginning of period                                      |                                            
|                                                                                      |                                            
|Cash and cash equivalents at end of period                                            |                                            
|                                                                                      |                                            

Supplemental Schedule of Non Cash
Investing Activities (In thousands, except share data):

On
May 28, 2004, Tegal purchased substantially all of the assets and assumed certain
liabilities of First Derivative Systems, Inc. (FDSI), a development stage
company, for 1,410,632 shares of common stock valued at $2,342, $150 in debt forgiveness,
approximately $50 in assumed liabilities, and $158 in acquisition costs. The following
table represents the allocation of the purchase price for FDSI. In estimating the fair
value of assets acquired and liabilities assumed management considered various factors,
including an independent appraisal.

|                                    | 
|----------------------------------- | 
|Fair value fixed assets acquired    | 
|Non compete agreements              | 
|Patents                             | 
|In-process research and development | 
|Debt forgiveness                    | 
|Assumed liabilities                 | 
|                                    | 
|                                    | 
|                                    | 

See accompanying notes.

---

# TEGAL CORPORATION AND
SUBSIDIARIES

# NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)(All amounts in
thousands, except share data)

# 1. Basis of Presentation:

In
the opinion of management, the unaudited condensed consolidated interim financial
statements have been prepared on the same basis as the March 31, 2005 audited consolidated
financial statements and include all adjustments, consisting only of normal recurring
adjustments, necessary to fairly state the information set forth herein. The statements
have been prepared in accordance with the regulations of the Securities and Exchange
Commission (the SEC), but omit certain information and footnote disclosures
necessary to present the statements in accordance with generally accepted accounting
principles. These interim financial statements should be read in conjunction with the
consolidated financial statements and footnotes included in the Companys Annual
Report on Form 10-K for the fiscal year ended March 31, 2005. The results of operations
for the three and six months ended September 30, 2005 are not necessarily indicative of
results to be expected for the entire year.

The
consolidated financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company incurred net
losses of $5,188 and $8,826 for the six months ended September 30, 2005 and 2004,
respectively. The company generated negative cash flows from operations of $7,268 and
$3,732 for the period ended September 30, 2005 and 2004 respectively. During the six
months ended September 30, 2005 the Company raised a net of $18,161 through a private
investment placement of equity. Management believes that these proceeds, combined with
projected sales, consolidation of certain operations and continued cost containment will
be adequate to fund operations through fiscal 2007. However, projected sales may not
materialize and unforeseen costs may be incurred.If the projected sales do not
materialize, the Companys ability to achieve its intended business objectives may be
adversely affected. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets or the amount or
classification of liabilities or any other adjustments that might be necessary should the
Company be unable to continue as a going concern. These factors raise substantial doubt
about the Companys ability to continue as a going concern.

# Concentration of Credit
Risk

Financial
instruments that potentially subject the Company to significant concentrations of credit
risk consist primarily of temporary cash investments and accounts receivable.
Substantially all of the Companys temporary investments are invested in highly
liquid money market funds. The Companys accounts receivables are derived primarily
from sales to customers located in the U.S., Europe, and Asia. The Company performs
ongoing credit evaluations of its customers and generally requires no collateral. The
Company maintains reserves for potential credit losses. Write-offs during the periods
presented have been insignificant. As of September 30, 2005 and September 30, 2004 one
customer accounted for approximately 69% and 54%, respectively, of the accounts receivable
balance.

During
the three months ended September 30, 2005 and September 30, 2004 two customers accounted
for 78% and one customer accounted for 52% of total revenues, respectively. During the six
months ended September 30, 2005 and September 30, 2004, two customers accounted for 69%
and, one customer accounted for 30% of total revenues, respectively.

# Stock Based Compensation

The
Company accounts for stock-based employee compensation under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, (APB No. 25) and related interpretations. Under APB No. 25,
compensation cost is equal to the difference, if any, on the date of grant between the
fair value of the Companys stock and the amount an employee must pay to acquire the
stock. SFAS No. 123, Accounting for Stock-based Compensation, established accounting and
disclosure requirements using a fair value based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value based method of accounting described above, and has
adopted the disclosure requirements of SFAS No. 123 and related SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure.

The
following assumptions are included in the estimated grant date fair value calculations for
the Companys stock option awards and Employee Qualified Stock Purchase Plan
(Employee Stock Purchase Plan):

|                        | Three Months Ended
September 30, 2005 | Six Months Ended 
September 30, 2005 | Three Months Ended
September 30, 2004 | Six Months Ended
September 30, 2004
|----------------------- | --------------------------------------------- | -------------------------------------------- | --------------------------------------------- | -------------------------------------------
|Expected life (years):  |                                               |                                              |                                               |                                            
|Stock options           |                                               |                                              |                                               | 4                                          
|Employee plan           |                                               |                                              |                                               | 4                                          
|Volatility:             |                                               |                                             
|Stock options           |                                               |                                              |                                               | 48                                         
|Employee plan           |                                               |                                              |                                               | 48                                         
|Risk-free interest rate |                                               |                                              |                                               | 3                                          
|Dividend yield          |                                               |                                              |                                               | 0                                          

The
following table illustrates the effect on net income (loss) and net income (loss) per
share if the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based compensation (in thousands, except per share data):

|                                                            | Three Months Ended
September 30, | Six Months Ended
September 30,
|----------------------------------------------------------- | ------------------------------------------ | ----------------------------------------
|
|Net loss as reported                                        |                                            |                                         
|Add:  Stock-based employee compensation expense included in |                                            |                                         
|Reported net loss                                           |                                            |                                         
|Deduct:  Total stock-based employee compensation expense    |                                            |                                         
|Determined under fair value method for all awards           |                                            |                                         
|                                                            |                                            |                                         
|Proforma net loss                                           |                                            |                                         
|                                                            |                                            |                                         
|Basic net loss per share:                                   |                                            |                                         
|As reported                                                 |                                            |                                         
|Proforma                                                    |                                            |                                         
|                                                            |                                            |                                         

During
the three months ended September 30, 2005, the Company awarded 1,000,000 restricted stock
units to Brad Mattson, the Companys Chairman, and 150,000 restricted stock units to
Thomas Mika, the Companys President and Chief Executive Officer at the close of the
2005 PIPE, see note 6. These restricted stock units were accounted for as compensation
expense of $1,004.

During
the three months ended September 30, 2005, the Company awarded five employees 400,000
restricted shares. These shares were valued at $276, are not vested, and were accounted
for as Restricted Share Units and Deferred Compensation in the equity section of the
balance sheet.

During
the previous fiscal year, the Company entered into a contract with certain consultants of
the Company pursuant to which the Company will issue warrants on a monthly basis in lieu
of cash payments for two years, dependant upon the continuation of the contract and the
achievement of certain performance goals. These warrants are valued and expensed on a
monthly basis upon issuance. During the three and six months ending September 30, 2005,
the Company issued warrants to purchase 84,999 and 169,998 shares, respectively, of the
Companys common stock to service providers for services rendered. During the three
and six months ended September 30, 2005, the warrants were valued at $53 and $137
respectively, using the Black-Scholes model with an exercise price at the market value on
the day of the grant and an average interest rate of 3.09% and 2.67% respectively. The
life of the warrants is five and seven years with the volatility of 115% and 118%,
respectively.

On
September 13, 2005 the Company issued 500,000 warrants at $0.69 as consideration for an
amendment to the current lease of the Companys headquarters to reduce the
termination fee. The value of the warrants of $655 was based on the fair value of the
termination penalty reduction offset by the exercise price of the warrant and recorded as
rent expense.

The
disclosure provisions of SFAS No. 123 and SFAS No. 148 require judgments by management as
to the estimated lives of the outstanding options. Management has based the estimated life
of the options on historical option exercise patterns. If the estimated life of the
options increases, the initial valuation of the options will increase as well.

# Revenue Recognition

Each
sale of our equipment is evaluated on an individual basis in regard to revenue
recognition. We have integrated in our evaluation the related interpretative guidance
included in Topic 13 of the codification of staff accounting bulletins, and recognize the
role of the EITF consensus on Issue 00-21. We first refer to EITF 00-21 in order to
determine if there is more than one unit of accounting and then we refer to SAB104 for
revenue recognition topics for the unit of accounting. We recognize revenue when
persuasive evidence of an arrangement exists, the sellers price is fixed or
determinable and collectibility is reasonably assured.

For
products produced according to our published specifications, where no installation is
required or installation is deemed perfunctory and no substantive customer acceptance
provisions exist, revenue is recognized when title passes to the customer, generally upon
shipment. Installation is not deemed to be essential to the functionality of the equipment
since installation does not involve significant changes to the features or capabilities of
the equipment or the building of complex interfaces and connections. In addition, the
equipment could be installed by the customer or other vendors and generally the cost of
installation approximates only 1% of the sales value of the related equipment.

For
products produced according to a particular customers specifications, revenue is
recognized when the product has been tested and it has been demonstrated that it meets the
customers specifications and title passes to the customer. The amount of revenue
recorded is reduced by the amount (generally 10%), which is not payable by the customer
until installation is completed and final customer acceptance is achieved.

For
new products, new applications of existing products, or for products with substantive
customer acceptance provisions where performance cannot be fully assessed prior to meeting
customer specifications at the customer site, 100% of revenue is recognized upon
completion of installation and receipt of final customer acceptance. Since title to goods
generally passes to the customer upon shipment and 90% of the contract amount becomes
payable at that time, inventory is relieved and accounts receivable is recorded for the
entire contract amount. The revenue on these transactions is deferred and recorded as
deferred revenue. As of September 30, 2005, deferred revenue as related to systems was
$421. We reserve for warranty costs at the time the related revenue is recognized.

Revenue
related to sales of spare parts is recognized upon shipment. Revenue related to
maintenance and service contracts is recognized ratably over the duration of the
contracts. Unearned maintenance and service revenue is included in deferred revenue. As of
September 30, 2005, $13 of deferred revenue was related to service contracts.

Our
return policy is for spare parts and components only. Customers are allowed to return
spare parts if they are defective upon receipt. The potential returns are offset against
gross revenue on a monthly basis. Management reviews outstanding requests for returns on a
quarterly basis to determine that the reserves are adequate.

# 2. Inventories:

Inventories
are stated at the lower of cost or market, reduced by provisions for excess and
obsolescence. Cost is computed using standard cost, which approximates actual cost on a
first-in, first-out basis and includes material, labor and manufacturing overhead costs.
We estimate the effects of excess and obsolescence on the carrying values of our
inventories based upon estimates of future demand and market conditions. We establish
provisions for related inventories in excess of production demand. Should actual
production demand differ from our estimates, additional inventory write-downs may be
required, as was the case in the forth quarter of fiscal 2005. Any excess and obsolete
provision is released only if and when the related inventories is sold or scrapped. During
the three and six months ending September 30, 2005, $187 and $309, respectively, of
previously reserved inventory was sold.

Inventories
for the periods presented consisted of:

|                          | September 30,
2005 | March 31,
2005
|------------------------- | ------------------------- | ---------------------
|Raw materials             |                           |                      
|Work in progress          |                           |                      
|Finished goods and spares |                           |                      
|                          |                           |                      
|                          |                           |                      
|                          |                           |                      

We
periodically analyze any systems that are in finished goods inventory to determine if they
are suitable for current customer requirements. At the present time, our policy is that,
if after approximately 18 months, we determine that a sale will not take place within the
next 12 months and the system would be useable for customer demonstrations or training, it
is transferred to fixed assets. Otherwise, it is expensed.

# 3. Product Warranty:

The
Company provides warranty on all system sales based on the estimated cost of product
warranties at the time revenue is recognized. The warranty obligation is affected by
product failure rates, material usage rates, and the efficiency by which the product
failure is corrected. Should actual product failure rates, material usage rates and labor
efficiencies differ from estimates, revisions to the estimated warranty liability may be
required.

Warranty
activity for the three-month and six-month periods ended September 30, 2005 and 2004 was:

|                                                   | Warranty Activity for the
    Three Months Ended
         September 30, | Warranty Activity for
         the
  Six Months Ended
       September 30,
|-------------------------------------------------- | -------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------
|
|Balance at the beginning of the period             |                                                                                  |                                                                                    
|Additional warranty accruals for warranties issued |                                                                                  |                                                                                    
|during the period                                  |                                                                                  |                                                                                    
|Accruals related to pre-existing warranties        |                                                                                  |                                                                                    
|Settlements made during the period                 |                                                                                  |                                                                                    
|                                                   |                                                                                  |                                                                                    
|Balance at the end of the period                   |                                                                                  |                                                                                    
|                                                   |                                                                                  |                                                                                    

Certain
of the Companys sales contracts include provisions under which customers would be
indemnified by the Company in the event of, among other things, a third-party claim
against the customer for intellectual property rights infringement related to the
Companys products. There are no limitations on the maximum potential future payments
under these guarantees. The Company has accrued no amounts in relation to these provisions
as no such claims have been made and the Company believes it has valid, enforceable rights
to the intellectual property embedded in its products.

# 4. Accounting for
Restructure Expenses:

During
the three months ended September 30, 2005, the Company recorded a severance charge of
approximately $117 related to staff reductions of 5 employees, of which approximately $24
was classified as cost of sales, $85 as research and development and $8 as sales,
marketing and general and administrative expenses. The Company had an outstanding
severance liability of approximately $93 as of September 30, 2005. During the fiscal year
ended March 31, 2005, the Company recorded a severance charge of approximately $129
related to staff reductions of 19 employees, of which approximately $19 was classified as
cost of sales, $18 as research and development and $92 as sales, marketing and general and
administrative expenses.

# 5. Net Loss Per Common
Share:

Basic
earnings per share (EPS) is calculated by dividing net income (loss) for the
period by the weighted average common shares outstanding for that period. Diluted EPS
takes into account the number of additional common shares that would have been outstanding
if the dilutive potential common shares (common stock equivalents) had been
issued.

Common
stock equivalents for the three months ended September 30, 2005 and September 30, 2004,
were 2,121,069 and 6,677,260, respectively, and the six months ended September 30, 2005
and September 30, 2004 were 2,283,719 and 8,042,487, respectively, and have been excluded
from shares used in calculating diluted loss per share because their effect would be
antidilutive.

# 6. Stock-Based
Transactions:

Issuance of Common Stock
 2005 PIPE

Effective
July 6, 2005, the Company entered into a Purchase Agreement with certain accredited
investors pursuant to which it sold to them an aggregate of 30,840,000 shares of our
common stock at a purchase price of $0.65 per share and warrants to purchase an aggregate
of 15,420,001 shares of our common stock at an exercise price of $1.00 per share. All of
these securities were sold in a private placement pursuant to Regulation D of the
Securities Act of 1933, as amended, solely to accredited investors, as defined in Rule 501
of the Act. This financing transaction is referred to herein as the 2005 PIPE.

In
the initial closing of the 2005 PIPE, on July 12, 2005, the Company sold 6,300,000 shares
at a purchase price of $0.65 per share and five-year warrants to purchase an aggregate of
3,150,000 shares of common stock at an exercise price of $1.00 per share to the selling
securityholders at an aggregate purchase price of $4,095. The effective date of the S-3
related to the initial closing was August 25, 2005.

On
September 19, 2005, the Company completed the second closing of the 2005 PIPE with five
accredited investors for $16 million. The Company sold the accredited investors 24,540,000
shares of the Companys unregistered common stock at a price of $0.65 per share. In
connection with this sale, warrants for an additional 12,270,001 shares of common stock at
a strike price of $1.00 were also issued to the investors. The shares were issued in
reliance upon the exemptions from registration provided by Rule 506 of Regulation D and
Section 4(2) under the Securities Act. The warrants are exercisable upon issuance and
expire September 19, 2010.

Within
30 calendar days following the closing date, the Company was required to file with the
Securities and Exchange Commission (SEC) a registration statement covering the resale of
all of the common stock purchased and the common stock underlying the warrants issued to
the investors. The Company was required to use its commercially reasonable efforts to
obtain effectiveness of the registration statement before the earlier of (a) the 120th
calendar day following the closing date or (b) the fifth trading day following
notification by the SEC that the registration statement will not be reviewed or is no
longer subject to further review and comments.

The
Company timely filed a registration statement on Form S-3 (S-3) covering the resale of the
purchased and warrant-related common stock on October 12, 2005. By correspondence, dated
October 19, 2005, the SEC informed the Company it was waiving review of the S-3. By
letter, dated October 21, 2005, the Company requested the SEC accelerate the effectiveness
date. The S-3 became effective on October 24, 2005.

The
registration rights agreement provided that if a registration statement was not filed, or
did not become effective, within the defined time period, then in addition to any other
rights the investors may have had, the Company would have been required to pay to each
investor an amount in cash, as liquidated damages, equal to 1.5 % per month of the
aggregate purchase price, prorated daily.

In
accordance with EITF 00-19, Accounting for Derivative Financial Instruments Indexed
To, and Potentially Settled In a Companys Own Stock, the fair value of the
warrants in the second closing of the 2005 PIPE on the date of grant was estimated to be
$6,621 using the Black-Scholes option-pricing model with the following assumptions: no
dividends; risk-free interest rate of 3.5%, the contractual life of 5 years and volatility
of 115%. The warrants fair value was reported as a liability at the time of grant,
with a corresponding charge to common stock. At September 30, 2005, the fair value of the
warrants was estimated to be $6,295 using the Black-Scholes option pricing model with the
same assumptions. The $326 decrease in the liability has been reported as other income.
The fair value of the warrants was reclassified to common stock when the applicable S-3
filing became effective on October 24, 2005, with the difference in the fair value of the
warrants between September 30, 2005, and the effective date reflected in the statement of
operations

The
Company paid a placement fee of $1,453 (equal to 7% of the Companys gross proceeds
for both transactions) to Dahlman Rose & Company LLC, the Companys financial
advisor.

Issuance of Warrants to
Consultants

The
Company is party to a contract with certain consultants pursuant to which the Company will
issue warrants on a monthly basis in lieu of cash payments through August 2006, depending
upon the continuation of the contract and the achievement of certain performance goals.
The maximum number of warrants to be issued under these agreements is 990,000 shares.
During the three and six months ended September 30, 2005, the warrants were valued at $53
and $137 respectively, using the Black-Scholes model with an exercise price at the market
value on the day of the grant and an average interest rate of 3.09% and 2.67%
respectively. The life of the warrants is five and seven years with the volatility of 115%
and 118%, respectively.

On
September 13, 2005 the Company issued 500,000 warrants at $0.69 as consideration for an
amendment to the current lease of the Companys headquarters to reduce the
termination fee. The value of the warrants of $655 was based on the fair value of the
termination penalty reduction offset by the exercise price of the warrant and recorded as
rent expense.

# 7. Lines of Credit:

As
of September 30, 2005, the Companys Japanese subsidiary had borrowed 1.5 million Yen
(approximately $13 at exchange rates prevailing on September 30, 2005) under its Japanese
bank line of credit. The credit line has a total borrowing capacity of 150 million Yen
(approximately $1,327 at exchange rates prevailing on September 30, 2005), which is
secured by Japanese customer promissory notes held by such subsidiary in advance of
payment on customers accounts receivable. The Japanese bank line bears interest at
Japanese prime (1.375% as of September 30, 2005) plus 0.875%.

Notes
payable as of September 30, 2005 consisted primarily of one outstanding note to the
California Trade and Commerce Agency for $32. The unsecured note from the California Trade
and Commerce Agency carries an annual interest rate of 5.75% with monthly payments of
approximately $5.5 per month. Although the payment deadlines are being met, the note is
currently in technical default due to the merger of Sputtered Films and Tegal Corporation.

# 8. Geographical
Information

Tegal
operates in one segment for the manufacture, marketing and servicing of integrated circuit
fabrication equipment. In accordance with SFAS No. 131 (SFAS 131) Disclosures About
Segments of an Enterprise and Related Information, Tegals chief operating
decision-maker has been identified as the President and Chief Executive Officer, who
reviews operating results to make decisions about allocating resources and assessing
performance for the entire company. All material operating units qualify for aggregation
under SFAS 131 due to their identical customer base and similarities in: economic
characteristics; nature of products and services; and procurement, manufacturing and
distribution processes. Since Tegal operates in one segment and in one group of similar
products and services, all financial segment and product line information required by SFAS
131 can be found in the consolidated financial statements.

For
geographical reporting, revenues are attributed to the geographic location in which the
customers facilities are located. Long-lived assets consist primarily of property,
plant and equipment, and are attributed to the geographic location in which they are
located. Net sales and long-lived assets by geographic region were as follows:

|                               | Revenue for the
Three Months Ended
  September 30, | Revenue for the
Six Months Ended
  September 30,
|------------------------------ | ------------------------------------------------------------- | -----------------------------------------------------------
|
|Sales to customers located in: |                                                               |                                                            
|United States                  |                                                               |                                                            
|Asia, excluding Japan          |                                                               |                                                            
|Japan                          |                                                               |                                                            
|Europe                         |                                                               |                                                            
|                               |                                                               |                                                            
|Total sales                    |                                                               |                                                            
|                               |                                                               |                                                            

|                                 | September 30,
     2005 | March 31,
  2005
|-------------------------------- | ----------------------------- | ----------------------
|Long-lived assets at period-end: |                               |                       
|United States                    |                               |                       
|Europe                           |                               |                       
|Japan                            |                               |                       
|Asia, excluding Japan            |                               |                       
|                                 |                               |                       
|Total long-lived assets          |                               |                       
|                                 |                               |                       

# 9. Comprehensive Income
(Loss):

The
components of comprehensive loss for the three and six-month periods ended September 30,
2005 and 2004 are as follows:

|                                        | Three Months
   Ended
September  30, | Six Months
   Ended
September 30,
|--------------------------------------- | -------------------------------------------- | -----------------------------------------
|
|Net loss                                |                                              |                                          
|Foreign currency translation adjustment |                                              |                                          
|                                        |                                              |                                          
|                                        |                                              |                                          
|                                        |                                              |                                          

# 10. Subsequent Events:

The
fair value of the warrants issued upon the second closing of the 2005 PIPE was estimated
to be $6,295 on September 30, 2005 and was recorded as a liability. The warrant liability
was reclassified to equity as of the effective date of the registration statement covering
the resale of the shares issuable upon conversion of the warrants, October 24, 2005.

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

Information
herein contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as may, will, expect,
anticipate, estimate, or continue or the negative
thereof or other variations thereon or comparable terminology or which constitute
projected financial information. The forward-looking statements relate to the near-term
semiconductor capital equipment industry outlook, demand for our products, our quarterly
revenue and earnings prospects for the near-term future and other matters contained
herein. Such statements are based on current expectations and beliefs and involve a number
of uncertainties and risks that could cause the actual results to differ materially from
those projected. Such uncertainties and risks include, are not limited to, cyclicality of
the semiconductor industry, impediments to customer acceptance of our products,
fluctuations in quarterly operating results, competitive pricing pressures, the
introduction of competitor products having technological and/or pricing advantages,
product volume and mix and other risks detailed from time to time in our SEC reports. For
further information, refer to the business description and risk factors described below.

The
following summarizes our contractual obligations at September 30, 2005, and the effect
such obligations are expected to have on our liquidity and cash flows in future periods
(in thousands).

|Contractual obligations:                   | Total | Less than
  1 Year | 1-3 Years | 3-5 Years | After
5 Years
|------------------------------------------ | -------- | --------------------- | ------------ | ------------ | ---------------
|Non-cancelable capital lease obligations   |          |                       | $            | 20           |                
|Non-cancelable operating lease obligations |          |                      
|                                           |          |                       |              | 4,830        |                
|Notes payable and bank lines of credit     |          |                       |              | 46           |                
|                                           |          |                       |              |              |                
|Total contractual cash obligations         |          |                       | $            | 4,896        |                
|                                           |          |                       |              |              |                

Certain
sales contracts of the Company include provisions under which customers would be
indemnified by the Company in the event of, among other things, a third-party claim
against the customer for intellectual property rights infringement related to the
Companys products. There are no limitations on the maximum potential future payments
under these guarantees. The Company has accrued no amounts in relation to these provisions
as no such claims have been made and the Company believes it has valid, enforceable rights
to the intellectual property embedded in its products.

# Critical Accounting
Policies

Our
discussion and analysis of the financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation
of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our estimates,
including those related to inventory, warranty obligations, purchase order commitments,
bad debts, income taxes, intangible assets, restructuring and contingencies and
litigation. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We
believe the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements:

# Revenue Recognition

Each
sale of our equipment is evaluated on an individual basis in regard to revenue
recognition. We have integrated in our evaluation the related interpretative guidance
included in Topic 13 of the codification of staff accounting bulletins, and recognize the
role of the FASBs Emerging Issues Task Force (EITF) consensus on Issue
00-21. We first refer to EITF 00-21 in order to determine if there is more than one unit
of accounting and then we refer to SAB104 for revenue recognition topics for the unit of
accounting. We recognize revenue when persuasive evidence of an arrangement exists, the
sellers price is fixed or determinable and collectibility is reasonably assured.

For
products produced according to our published specifications, where no installation is
required or installation is deemed perfunctory and no substantive customer acceptance
provisions exist, revenue is recognized when title passes to the customer, generally upon
shipment. Installation is not deemed to be essential to the functionality of the equipment
since installation does not involve significant changes to the features or capabilities of
the equipment or building complex interfaces and connections. In addition, the equipment
could be installed by the customer or other vendors and generally the cost of installation
approximates only 1% of the sales value of the related equipment.

For
products produced according to a particular customers specifications, revenue is
recognized when the product has been tested and it has been demonstrated that it meets the
customers specifications and title passes to the customer. The amount of revenue
recorded is reduced by the amount (generally 10%), which is not payable by the customer
until installation is completed and final customer acceptance is achieved.

For
new products, new applications of existing products, or for products with substantive
customer acceptance provisions where performance cannot be fully assessed prior to meeting
customer specifications at the customer site, 100% of revenue is recognized upon
completion of installation and receipt of final customer acceptance. Since title to goods
generally passes to the customer upon shipment and 90% of the contract amount becomes
payable at that time, inventory is relieved and accounts receivable is recorded for the
entire contract amount. The revenue on these transactions is deferred and recorded as
deferred revenue. We reserve for warranty costs at the time the related revenue is
recognized.

Revenue
related to sales of spare parts is recognized upon shipment. Revenue related to
maintenance and service contracts is recognized ratably over the duration of the
contracts. Unearned maintenance and service revenue is included in other accrued
liabilities.

# Accounts Receivable
 Allowance for Sales Returns and Doubtful Accounts

We
maintain an allowance for doubtful accounts receivable for estimated losses resulting from
the inability of our customers to make required payments. If the financial condition of
our customers were to deteriorate, or even a single customer was otherwise unable to make
payments, additional allowances may be required.

Our
return policy is for spare parts and components only. Customers are allowed to return
spare parts if they are defective upon receipt, in accordance with SFAS 48. The potential
returns are offset against gross revenue on a monthly basis. Management reviews
outstanding requests for returns on a quarterly basis to determine that the reserves are
adequate.

# Inventories

Inventories
are stated at the lower of cost or market, reduced by provisions for excess and
obsolescence. Cost is computed using standard cost, which approximates actual cost on a
first-in, first-out basis and includes material, labor and manufacturing overhead costs.
We estimate the effects of excess and obsolescence on the carrying values of our
inventories based upon estimates of future demand and market conditions. We establish
provisions for related inventories in excess of production demand. Should actual
production demand differ from our estimates, additional inventory write-downs may be
required, as was the case in the forth quarter of fiscal 2005. Any excess and obsolete
provision is released only if and when the related inventories is sold or scrapped.

We
periodically analyze any systems that are in finished goods inventory to determine if they
are suitable for current customer requirements. At the present time, our policy is that,
if after approximately 18 months, we determine that a sale will not take place within the
next 12 months, and the system would be useable for customer demonstrations or training,
it is transferred to fixed assets. Otherwise, it is expensed.

The
carrying value of systems used for demonstrations or training is determined by assessing
the cost of the components that are suitable for sale. Any parts that may be rendered
unsaleable as a result of such use are removed from the system and are not included in
finished goods inventory. The remaining saleable parts are valued at the lower of cost or
market, representing the systems net realizable value. The depreciation period for
systems that are transferred to fixed assets is determined based on the age of the system
and its remaining useful life (typically five to eight years).

# Impairment of Long-Lived
Assets

Long-lived
assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. If undiscounted expected future cash
flows are less than the carrying value of the assets, an impairment loss is recognized
based on the excess of the carrying amount over the fair value of the assets.

# Warranty Obligations

We
provide for the estimated cost of our product warranties at the time revenue is
recognized. Our warranty obligation is affected by product failure rates, material usage
rates and the efficiency by which the product failure is corrected. Should actual product
failure rates, material usage rates and labor efficiencies differ from our estimates,
revisions to the estimated warranty liability may be required.

# Deferred Taxes

We
record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized. Based on the uncertainty of future taxable income, we have
fully reserved our deferred tax assets. In the event we were to determine that we would be
able to realize our deferred tax assets in the future, an adjustment to the deferred tax
asset would increase income in the period such determination was made.

# Results of Operations

Tegal
designs, manufactures, markets and services plasma etch and deposition systems that enable
the production of integrated circuits (ICs), memory and related
microelectronics devices used in personal computers, wireless voice and data
telecommunications, contact-less transaction devices, radio frequency identification
devices (RFIDs), smart cards, data storage and micro-level actuators.
Etching and deposition constitute two of the principal IC and related device production
process steps and each must be performed numerous times in the production of such devices.

The
following table sets forth certain financial items as a percentage of revenue for the
three and six-month periods ended September 30, 2005 and 2004:

|                                    | Three Months 
    Ended    
September 30, | Six Months
    Ended
September 30,
|----------------------------------- | -------------------------------------------------- | -------------------------------------------
|
|Revenue                             |                                                    |                                            
|Total cost of sales                 |                                                    |                                            
|                                    |                                                    |                                            
|Gross profit (loss)                 |                                                    |                                            
|Operating expenses:                 |                                                    |                                            
|Research and development            |                                                    |                                            
|Sales and marketing                 |                                                    |                                            
|General and administrative          |                                                    |                                            
|In-process research and development |                                                    |                                            
|                                    |                                                    |                                            
|Total operating expenses            |                                                    |                                            
|                                    |                                                    |                                            
|Operating loss                      |                                                    |                                            
|Other expense, net                  |                                                    |                                            
|                                    |                                                    |                                            
|Net loss                            |                                                    |                                            
|                                    |                                                    |                                            

Revenue. The
increase in revenue for the three and six months ended September 30, 2005           was
principally due to the sale of additional 980 series and used 6500 series
          systems over the same period of the previous year, offset by the lower revenue
          associated with a recertified Endeavor compared to a new Endeavor sold in the
          previous year, and reduced service and spare parts sales. We believe the
          reduction of service and spare parts sales is a result of reduced usage of our
          non-critical etch systems by our customers.

International
sales as a percentage of the Companys revenue for the three and six months ended
September 30, 2005 were approximately 77.9% and 81.6%, respectively. International sales
as a percentage of the Companys revenue for the three and six months ended September
30, 2004 were approximately 88.8% and 79.3%, respectively. We believe that international
sales will continue to represent a significant portion of our revenue.

Gross
profit.Gross profit as a percentage of revenue was flat at 38.1% for the three months
ended September 30, 2005 and 2004, respectively, and relatively flat at 33.0% and 32.0%
for the six months ended September 30, 2005 and 2004, respectively.

Research
and development.Research and development expenses consist primarily of salaries,
prototype material and other costs associated with our ongoing systems and process
technology development, applications and field process support efforts. The decrease in
research and development spending resulted from lower license fees, consulting, employee
travel, and recruiting expenses as compared to the prior year.

Sales
and marketing.Sales and marketing expenses consist primarily of salaries,
commissions, trade show promotion and travel and living expenses associated with those
functions. The decrease in sales and marketing spending was primarily due to temporary
reduction of personnel which the Company believes will return to previous run rates within
the next six months.

General
and administrative. General and administrative expenses consist primarily of
compensation for general management, accounting and finance, human resources, information
systems and investor relations functions and for legal, consulting and accounting fees of
the Company.. The increase in spending was primarily due to non cash restricted stock
units granted and recorded as compensation expense and warrants issued to the landlord as
compensation for the lease termination fee reduction, in addition to an accrual of $500
paid in October as an advance on the termination penalty, offset in part by reduced legal
and consulting fees that were associated with the defense of patents and the integration
of the acquired companies in the previous period.

Other
income (expense), net.Other income (expense), net consists principally of, interest
income, interest expense, other income, (expense), and gains and losses on foreign
exchange. We recorded net non-operating income of $242 and $120 during the three-month and
six-month period ended September 30, 2005 respectively. Other income was principally due
to the mark to market valuation of the investor warrants of $326.

# Liquidity and Capital
Resources

For
the six-month period ended September 30, 2005, we financed our operations through the use
of outstanding cash balances, borrowings against our credit facilities in Japan and net
proceeds from the 2005 PIPE.

As
of September 30, 2005, the Companys Japanese subsidiary had borrowed 1.5 million Yen
(approximately $13 at exchange rates prevailing on September 30, 2005) under its Japanese
bank line of credit. The credit line has a total borrowing capacity of 150 million Yen
(approximately $1,327 at exchange rates prevailing on September 30, 2005), which is
secured by Japanese customer promissory notes held by such subsidiary in advance of
payment on customers accounts receivable. The Japanese bank line bears interest at
Japanese prime (1.375% as of September 30, 2005) plus 0.875%.

Notes
payable as of September 30, 2005 consisted primarily of one outstanding note to the
California Trade and Commerce Agency for $32. The unsecured note from the California Trade
and Commerce Agency carries an annual interest rate of 5.75% with monthly payments of
approximately $5.5 per month. Although the payment deadlines are being met, the note is
currently in technical default due to the merger of Sputtered Films and Tegal Corporation.

The
consolidated financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company incurred net
losses of $5,188 and $8,826 for the six months ended September 30, 2005 and 2004,
respectively. The company generated negative cash flows from operations of $7,268 and
$3,732 for the period ended September 30, 2005 and 2004 respectively. During the six
months ended September 30, 2005 the Company raised a net of $18,161 through a private
investment placement of equity. Management believes that these proceeds, combined with
projected sales, consolidation of certain operations and continued cost containment will
be adequate to fund operations through fiscal 2007. However, projected sales may not
materialize and unforeseen costs may be incurred.If the projected sales do not
materialize, the Companys ability to achieve its intended business objectives may be
adversely affected. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets or the amount or
classification of liabilities or any other adjustments that might be necessary should the
Company be unable to continue as a going concern. These factors raise substantial doubt
about the Companys ability to continue as a going concern.

Risk Factors

We
have incurred operating losses and may not be profitable in the future; Our plans to
maintain and increase liquidity may not be successful; The report of the independent
registered public accounting firm includes a going concern uncertainty explanatory
paragraph.

We
incurred net losses of $15.4 million, $12.6 million and $12.6 million for the years ended
March 31, 2005, 2004 and 2003, respectively, and generated negative cash flows from
operations of $7.5 million, $3.2 million and $6.0 million in these respective years. These
factors raise substantial doubt as to our ability to continue as a going concern, and our
independent registered public accounting firm has included a going concern uncertainty
explanatory paragraph in their report dated May 27, 2005 filed with our Annual Report on
Form 10-K/A for the year ended March 31, 2005. We have raised approximately $20.0 million
from the sale of stock and warrants in the 2005 PIPE. During fiscal year 2005, we raised
approximately $10.4 million from stock issued to Kingsbridge. Management believes that
these proceeds, combined with a projected increase in sales, consolidation of certain
operations and continued cost containment will be adequate to fund operations for the next
twelve months. If the projected sales do not materialize, we will need to reduce expenses
further and raise additional capital through the issuance of debt or equity securities. If
additional funds are raised through the issuance of preferred stock or debt, these
securities could have rights, privileges or preferences senior to those of our common
stock, and debt covenants could impose restrictions on our operations. Moreover, such
financing may not be available to us on acceptable terms, if at all. Failure to raise
additional funds may adversely affect our ability to achieve our intended business
objectives. Our consolidated financial statements do not include any adjustments relating
to the recoverability and classification of recorded assets or the amount or
classification of liabilities or any other adjustments that might be necessary should we
be unable to continue as a going concern.

The exercise of outstanding
warrants, options and other rights to obtain additional shares will dilute the value of
our shares of common stock and could cause the price of our shares of common stock to
decline.

As
of September 30, 2005, there were 83,951,613 shares of our common stock issued and
outstanding and there were 25,006,559 shares of common stock reserved for issuance under
our equity incentive and stock purchase plans.

As
of September 30, 2005, there were warrants, stock options and restricted stock units
outstanding for approximately 30,322,552, shares of our common stock.

The
exercise of these warrants and options and the issuance of the common stock pursuant to
our equity incentive plans will result in dilution in the value of the shares of our
outstanding common stock and the voting power represented thereby. In addition, the
exercise price of the warrants may be lowered under the price adjustment provisions in the
event of a dilutive issuance, that is, if we issue common stock at any time
prior to their maturity at a per share price below such conversion or exercise price,
either directly or in connection with the issuance of securities that are convertible
into, or exercisable for, shares of our common stock. A reduction in the exercise price
may result in the issuance of a significant number of additional shares upon the exercise
of the warrants.

The
warrants do not establish a floor that would limit reductions in such
conversion price or exercise price. The downward adjustment of the exercise price of these
warrants could result in further dilution in the value of the shares of our outstanding
common stock and the voting power represented thereby.

No
prediction can be made as to the effect, if any, that future sales of shares of our common
stock, or the availability of shares for future sale, will have on the market price of our
common stock prevailing from time to time. Sales of substantial amounts of shares of our
common stock in the public market, or the perception that such sales could occur, may
adversely affect the market price of our common stock and may make it more difficult for
us to sell our equity securities in the future at a time and price which we deem
appropriate.

To
the extent our stockholders and the other holders of our warrants and options exercise
such securities and then sell the shares of our common stock they receive upon exercise,
our stock price may decrease due to the additional amount of shares available in the
market. The subsequent sales of these shares could encourage short sales by our
securityholders and others, which could place further downward pressure on our stock
price. Moreover, holders of these warrants and options may hedge their positions in our
common stock by shorting our common stock, which could further adversely affect our stock
price.

If we fail to meet the
continued listing requirements of the Nasdaq Stock Market, our stock could be delisted.

Our
stock is currently listed on The Nasdaq Capital Market. The Nasdaq Stock Markets
Marketplace Rules impose certain minimum financial requirements on us for the continued
listing of our stock. One such requirement is the minimum bid price on our stock of $1.00
per share. Beginning in 2002, there have been periods of time during which we have been
out of compliance with the $1.00 minimum bid requirements of The Nasdaq Capital Market.

On
August 18, 2005, we were notified by the Nasdaq that the bid price of our common stock
closed below the minimum $1.00 per share requirement for continued inclusion under the
Nasdaqs Marketplace rules. We have 180 calendar days, or until February 13, 2006, to
regain compliance. If, at anytime before February 13, 2006, the bid price of our common
stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, we
will regain compliance with the Nasdaqs Marketplace rules. If we do not regain
compliance by February 13, 2006, an additional 180 days will be granted to regain
compliance, so long as we meet the Nasdaq Capital Market initial listing criteria (except
for the bid price requirement).

If
we are unable to regain compliance or fall out of compliance in the future with Nasdaq
listing requirements, we may take actions in order to achieve compliance, which actions
may include a reverse split of our common stock. If an initial delisting decision is made
by the Nasdaqs staff, we may appeal the decision as permitted by Nasdaq rules. If we
are delisted and cannot obtain listing on another major market or exchange, our
stocks liquidity would suffer, and we would likely experience reduced investor
interest. Such factors may result in a decrease in our stocks trading price.
Delisting also may restrict us from issuing additional securities or securing additional
financing.

The semiconductor industry is
cyclical and may experience periodic downturns that may negatively affect customer demand
for our products and result in losses such as those experienced in the past.

Our
business depends upon the capital expenditures of semiconductor manufacturers, which in
turn depend on the current and anticipated market demand for integrated circuits. The
semiconductor industry is highly cyclical and historically has experienced periodic
downturns, which often have had a detrimental effect on the semiconductor industrys
demand for semiconductor capital equipment, including etch and deposition systems
manufactured by us. In response to the current prolonged industry slow-down, we have
initiated a substantial cost containment program and completed a corporate-wide
restructuring to preserve our cash. However, the need for continued investment in research
and development, possible capital equipment requirements and extensive ongoing customer
service and support requirements worldwide will continue to limit our ability to reduce
expenses in response to these downturns. As a result, we may continue to experience
operating losses such as those we have experienced in the past, which could materially
adversely affect us.

Our competitors have greater
financial resources and greater name recognition than we do and therefore may compete more
successfully in the semiconductor capital equipment industry than we can.

We
believe that to be competitive, we will require significant financial resources in order
to offer a broad range of systems, to maintain customer service and support centers
worldwide and to invest in research and development. Many of our existing and potential
competitors, including, among others, Applied Materials, Inc., Lam Research Corporation,
Novellus and Tokyo Electron Limited, have substantially greater financial resources, more
extensive engineering, manufacturing, marketing and customer service and support
capabilities, larger installed bases of current generation etch, deposition and other
production equipment and broader process equipment offerings, as well as greater name
recognition than we do. We cannot assure you that we will be able to compete successfully
against these companies in the United States or worldwide.

We depend on sales of our advanced
products to customers that may not fully adopt our product for production use.

We
have designed our advanced etch and deposition products for customer applications in
emerging new films, polysilicon and metal which we believe to be the leading edge of
critical applications for the production of advanced semiconductor and other
microelectronic devices. Revenues from the sale of our advanced etch and deposition
systems accounted for 30%, 40% and 25% of total revenues in fiscal 2005, 2004 and 2003,
respectively. Our advanced systems are currently being used primarily for research and
development activities or low volume production. For our advanced systems to achieve full
market adoption, our customers must utilize these systems for volume production. We cannot
assure you that the market for devices incorporating emerging films, polysilicon or metal
will develop as quickly or to the degree we expect. If our advanced systems do not achieve
significant sales or volume production due to a lack of full customer adoption, our
business, financial condition, results of operations and cash flows will be materially
adversely affected.

Our potential customers may not
adopt our products because of their significant cost or because our potential customers
are already using a competitors tool.

A
substantial investment is required to install and integrate capital equipment into a
semiconductor production line. Additionally, we believe that once a device manufacturer
has selected a particular vendors capital equipment, that manufacturer generally
relies upon that vendors equipment for that specific production line application
and, to the extent possible, subsequent generations of that vendors systems.
Accordingly, it may be extremely difficult to achieve significant sales to a particular
customer once that customer has selected another vendors capital equipment unless
there are compelling reasons to do so, such as significant performance or cost advantages.
Any failure to gain access and achieve sales to new customers will adversely affect the
successful commercial adoption of our products and could have a detrimental effect on us.

# Our quarterly operating
results may continue to fluctuate.

Our
revenue and operating results have fluctuated and are likely to continue to fluctuate
significantly from quarter to quarter, and we cannot assure you that we will achieve
profitability in the future.

Our
900 series etch systems typically sell for prices ranging between $250,000 and $600,000,
while prices of our 6500 series critical etch systems and our Endeavor deposition system
typically range between $1.8 million and $3.0 million. To the extent we are successful in
selling our 6500 and Endeavor series systems, the sale of a small number of these systems
will probably account for a substantial portion of revenue in future quarters, and a
transaction for a single system could have a substantial impact on revenue and gross
margin for a given quarter.

Other
factors that could affect our quarterly operating results include:

|  |                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | our timing of new systems and technology announcements and releases and ability to transition between product versions;                                                                                                                                  
| | seasonal fluctuations in sales;                                                                                                                                                                                                                          
| | changes in the mix of our revenues represented by our various products and customers;                                                                                                                                                                    
| | adverse changes in the level of economic activity in the United States or other major economies in which we do business;                                                                                                                                 
| | foreign currency exchange rate fluctuations;                                                                                                                                                                                                             
| | expenses related to, and the financial impact of, possible acquisitions of other businesses; and                                                                                                                                                         
| | changes in the timing of product  orders due to unexpected  delays in the  introduction  of our  customers'  products,  due to
lifecycles of our customers' products ending earlier than expected or due to market acceptance of our customers' products.

Some of our sales cycles are
lengthy, exposing us to the risks of inventory obsolescence and fluctuations in operating
results.

Sales
of our systems depend, in significant part, upon the decision of a prospective customer to
add new manufacturing capacity or to expand existing manufacturing capacity, both of which
typically involve a significant capital commitment. We often experience delays in
finalizing system sales following initial system qualification while the customer
evaluates and receives approvals for the purchase of our systems and completes a new or
expanded facility. Due to these and other factors, our systems typically have a lengthy
sales cycle (often 12 to 18 months in the case of critical etch and deposition systems)
during which we may expend substantial funds and management effort. Lengthy sales cycles
subject us to a number of significant risks, including inventory obsolescence and
fluctuations in operating results over which we have little or no control.

Because technology changes
rapidly, we may not be able to introduce our products in a timely enough fashion.

The
semiconductor manufacturing industry is subject to rapid technological change and new
system introductions and enhancements. We believe that our future success depends on our
ability to continue to enhance our existing systems and their process capabilities, and to
develop and manufacture in a timely manner new systems with improved process capabilities.
We may incur substantial unanticipated costs to ensure product functionality and
reliability early in our products life cycles. We cannot assure you that we will be
successful in the introduction and volume manufacture of new systems or that we will be
able to develop and introduce, in a timely manner, new systems or enhancements to our
existing systems and processes which satisfy customer needs or achieve market adoption.

Our financial performance may
adversely affect the morale and performance of our personnel and our ability to hire new
personnel.

Our
common stock has declined in value below the exercise price of many options granted to
employees pursuant to our stock option plans. Thus, the intended benefits of the stock
options granted to our employees, the creation of performance and retention incentives,
may not be realized. As a result, we may lose employees whom we would prefer to retain. As
a result of these factors, our remaining personnel may seek employment with larger, more
established companies or companies perceived as having less volatile stock prices.

Provisions in our agreements,
charter documents, stockholder rights plan and Delaware law may deter takeover attempts,
which could decrease the value of your shares.

Our
certificate of incorporation and bylaws and Delaware law contain provisions that could
make it more difficult for a third party to acquire us without the consent of our board of
directors. Our board of directors has the right to issue preferred stock without
stockholder approval, which could be used to dilute the stock ownership of a potential
hostile acquirer. Delaware law imposes some restrictions on mergers and other business
combinations between us and any holder of 15% or more of our outstanding common stock. In
addition, we have adopted a stockholder rights plan that makes it more difficult for a
third party to acquire us without the approval of our board of directors. These provisions
apply even if the offer may be considered beneficial by some of our stockholders.

We may not be able to protect our
intellectual property or obtain licenses for third parties intellectual property and
therefore we may be exposed to liability for infringement or the risk that our operations
may be adversely affected.

Although
we attempt to protect our intellectual property rights through patents, copyrights, trade
secrets and other measures, we may not be able to protect our technology adequately and
competitors may be able to develop similar technology independently. Additionally, patent
applications that we may file may not be issued and foreign intellectual property laws may
not protect our intellectual property rights. There is also a risk that patents licensed
by or issued to us will be challenged, invalidated or circumvented and that the rights
granted thereunder will not provide competitive advantages to us. Furthermore, others may
independently develop similar systems, duplicate our systems or design around the patents
licensed by or issued to us.

Litigation
could result in substantial cost and diversion of effort by us, which by itself could have
a detrimental effect on our financial condition, operating results and cash flows.
Further, adverse determinations in such litigation could result in our 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 systems. In
addition, licenses under third parties intellectual property rights may not be
available on reasonable terms, if at all.

Our customers are concentrated and
therefore the loss of a significant customer may harm our business.

Our
top five customers accounted for 80.0%, 84.8% and 88.2% of our systems revenues in fiscal
2005, 2004 and 2003, respectively. Three customers each accounted for more than 10% of net
systems sales in fiscal 2005. Although the composition of the group comprising our largest
customers may vary from year to year, the loss of a significant customer or any reduction
in orders by any significant customer, including reductions due to market, economic or
competitive conditions in the semiconductor manufacturing industry, may have a detrimental
effect on our business, financial condition, results of operations and cash flows. Our
ability to increase our sales in the future will depend, in part, upon our ability to
obtain orders from new customers, as well as the financial condition and success of our
existing customers and the general economy, which is largely beyond our ability to
control.

We are exposed to additional risks
associated with international sales and operations.

International
sales accounted for 70%, 67% and 66% of total revenue for fiscal 2005, 2004 and 2003,
respectively. International sales are subject to certain risks, including the imposition
of government controls, fluctuations in the U.S. dollar (which could increase the sales
price in local currencies of our systems in foreign markets), changes in export license
and other regulatory requirements, tariffs and other market barriers, political and
economic instability, potential hostilities, restrictions on the export or import of
technology, difficulties in accounts receivable collection, difficulties in managing
representatives, difficulties in staffing and managing international operations and
potentially adverse tax consequences. We cannot assure you that any of these factors will
not have a detrimental effect on our operations, financial results and cash flows.

We
generally attempt to offset a portion of our U.S. dollar denominated balance sheet
exposures subject to foreign exchange rate remeasurement by purchasing forward currency
contracts for future delivery. We cannot assure you that our future results of operations
and cash flows will not be adversely affected by foreign currency fluctuations. In
addition, the laws of certain countries in which our products are sold may not provide our
products and intellectual property rights with the same degree of protection as the laws
of the United States.

Evolving regulation of corporate
governance and public disclosure may result in additional expenses and continuing
uncertainty.

Changing
laws, regulations and standard relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Market rules are
creating uncertainty for public companies. We continually evaluate and monitor
developments with respect to new and proposed rules and cannot predict or estimate the
amount of the additional costs we may incur or the timing of such costs. These new or
changed laws, regulations and standards are subject to varying interpretations, in many
cases due to their lack of specificity, and as a result, their application in practice may
evolve over time as new guidance is provided by regulatory and governing bodies. This
could result in continuing uncertainty regarding compliance matters and higher costs
necessitated by ongoing revisions to disclosure and governance practices. We are committed
to maintaining high standards of corporate governance and public disclosure. As a result,
we have invested resources to comply with evolving laws, regulations and standards, and
this investment may result in increased general and administrative expenses and a
diversion of management time and attention from revenue-generating activities to
compliance activities. If our efforts to comply with new or changed laws, regulations and
standards differ from the activities intended by regulatory or governing bodies due to
ambiguities related to practice, regulatory authorities may initiate legal proceedings
against us and we may be harmed.

Our stock price is volatile and
could result in a material decline in the value of your investment in Tegal.

We
believe that factors such as announcements of developments related to our business,
fluctuations in our operating results, sales of our common stock into the marketplace,
failure to meet or changes in analysts expectations, general conditions in the
semiconductor industry or the worldwide economy, announcements of technological
innovations or new products or enhancements by us or our competitors, developments in
patents or other intellectual property rights, developments in our relationships with our
customers and suppliers, natural disasters and outbreaks of hostilities could cause the
price of our common stock to fluctuate substantially. In addition, in recent years the
stock market in general, and the market for shares of small capitalization stocks in
particular, have experienced extreme price fluctuations, which have often been unrelated
to the operating performance of affected companies. We cannot assure you that the market
price of our common stock will not experience significant fluctuations in the future,
including fluctuations that are unrelated to our performance.

Potential disruption of our supply
of materials required to build our systems could have a negative effect on our operations
and damage our customer relationships.

Materials
delays have not been significant in recent years. Nevertheless, we procure certain
components and sub-assemblies included in our systems from a limited group of suppliers,
and occasionally from a single source supplier. For example, we depend on MECS
Corporation, a robotic equipment supplier, as the sole source for the robotic arm used in
all of our 6500 series systems. We currently have no existing supply contract with MECS
Corporation, and we currently purchase all robotic assemblies from MECS Corporation on a
purchase order basis. Disruption or termination of certain of these sources, including our
robotic sub-assembly source, could have an adverse effect on our operations and damage our
relationship with our customers.

Any failure by us to comply with
environmental regulations imposed on us could subject us to future liabilities.

We
are subject to a variety of governmental regulations related to the use, storage,
handling, discharge or disposal of toxic, volatile or otherwise hazardous chemicals used
in our manufacturing process. We believe that we are currently in compliance in all
material respects with these regulations and that we have obtained all necessary
environmental permits generally relating to the discharge of hazardous wastes to conduct
our business. Nevertheless, our failure to comply with present or future regulations could
result in additional or corrective operating costs, suspension of production, alteration
of our manufacturing processes or cessation of our operations.

# Special Note Regarding
Forward Looking Statements

This
Form 10-Q includes or incorporates by reference forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements, which are based on assumptions and describe our future plans,
strategies and expectations, are generally identifiable by the use of the words
anticipate, believe, estimate, expect,
intend, project, or similar expressions. These forward-looking
statements are subject to risks, uncertainties and assumptions about us. Important factors
that could cause actual results to differ materially from the forward-looking statements
we make in this Form 10-Q are set forth under the caption Risk Factors and
elsewhere in this Report and the documents incorporated by reference in this Form 10-Q. If
one or more of these risks or uncertainties materialize, or if any underlying assumptions
prove incorrect, our actual results, performance or achievements may vary materially from
any future results, performance or achievements expressed or implied by these
forward-looking statements. All forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirely by the cautionary
statements in this paragraph.

# Item 3. Quantitative and
Qualitative Disclosures About Market Risk

Our
cash equivalents are principally comprised of money market accounts. As of September 30,
2005, we had cash and cash equivalents of $18,201. These accounts are subject to interest
rate risk and may fall in value if market interest rates increase. We attempt to limit
this exposure by investing primarily in short-term securities having a maturity of three
months or less. Due to the nature of our cash and cash equivalents, we have concluded that
there is no material market risk exposure.

We
have foreign subsidiaries that operate and sell our products in various global markets. As
a result, our cash flow and earnings are exposed to fluctuations in interest and foreign
currency exchange rates. We attempt to limit these exposures through the use of various
hedge instruments, primarily forward exchange contracts and currency option contracts
(with maturities of less than three months) to manage our exposure associated with firm
commitments and net asset and liability positions denominated in non-functional
currencies. There have been no material changes regarding market risk since the
disclosures made in our Form 10-K for the fiscal year ended March 31, 2005.

At
September 30, 2005, the Company had forward exchange contracts maturing at various dates
to exchange 250 million Japanese Yen into $2,288.

# Item 4. Controls and
Procedures

(a)       
          Evaluation of Disclosure Controls and Procedures.Based on their
          evaluation as of a date at the end of the quarter covered by this quarterly
          report on Form 10-Q, the Companys Chief Executive Officer and Chief
          Financial Officer have concluded that the Companys disclosure controls and
          procedures (as defined in Rules 13a-14(c) under the Securities Exchange Act of
          1934 are effective.

(b)       
          Changes in Internal Controls. There were no significant changes in the
          Companys internal controls or in other factors that could significantly
          affect these controls subsequent to the date of their evaluation.

---

# PART II  OTHER
INFORMATION

# Item 1. Legal Proceedings

Sputtered Films, Inc. v. Advanced
Modular Sputtering, et al., filed in Santa Barbara County Superior Court.

On
December 22, 2003, Sputtered Films, Inc. (SFI), a wholly owned subsidiary of
the Company, filed an action against two former employees, Sergey Mishin and Rose
Stuart-Curran, and a company they formed after leaving their employment with SFI named
Advanced Modular Sputtering, Inc. (AMS). Sergey Mishin and Rose Stuart-Curran
had each signed confidentiality and non-disclosure agreements regarding information
obtained while employed by SFI. The action contains causes of action for specific
performance, breach of contract, breach of the covenant of good faith and fair dealing,
misappropriation of trade secrets, unfair competition, unfair business practices,
interference with prospective economic advantage, conversion, unjust enrichment, and
declaratory relief. These claims arise out of information SFI received evidencing that AMS
possessed and used SFIs confidential, proprietary and trade secret drawings,
specifications and technology to manufacture the sputtering tool marketed by AMS.

The
parties stipulated to a protective order in order to commence the discovery phase, and SFI
has responded to the discovery propounded by AMS. SFI was prevented from commencing
discovery against AMS or other third party witnesses (in particular, Agilent Technologies,
Inc.) due to the trial courts ruling that SFI had not yet described its trade
secrets in sufficient detail pursuant to Code of Civil Procedure § 2019(d) (now
Section 2019.210). In February 2005, the trial court ruled that SFI could proceed with
discovery related to all causes of action, other than the trade secret cause of action.
AMS petitioned the Court of Appeal for a writ reversing the trial courts order that
SFI could conduct discovery on the non-trade secret causes of action, and SFI petitioned
the Court of Appeal for a writ reversing the trial courts order that SFIs
trade secret identification was not in compliance with Section 2019.210. On September 13,
2005, the Court of Appeal ruled that SFIs trade secret identification was in
compliance with Section 2019.210. The trial court independently reviewed SFIs
Section 2019.210 identification and indicated that it is in compliance with the standards
articulated by the Court of Appeal, and also indicated that it plans to order AMS and
Agilent to respond to SFIs discovery as soon as the case is returned to the trial
court. Prior to the trial court being able to enter such an order, AMS petitioned the
Supreme Court of California seeking to reverse the Court of Appeal decision. As of
November 4, 2005, the Supreme Court has not yet decided whether it will grant review of
the Court of Appeal decision. Pending a decision from the Supreme Court, no action is
being taken in the trial court, and no trial date or other deadlines have been set.

# Item 4. Submission of
Matters to a Vote of Security Holders

On
September 13, 2005, the Company held its annual meeting of the stockholders. There were
present at the meeting, in person or by proxy, the holders of 51,872,472 shares of common
stock of the Company, representing 87.32% of the total votes eligible to be cast,
constituting a majority and more than a quorum of the outstanding shares entitled to vote.

The
following individuals were re-elected to the board of directors:

|                   | Votes for | Votes Withheld
|------------------ | -------------- | --------------------
|Edward A. Dohring  | 50,177,533     | 1,694,939           
|Jeffrey M. Krauss  | 50,205,433     | 1,667,039           
|Brad Mattson       | 50,435,778     | 1,436,694           
|H. Duane Wadsworth | 50,219,954     | 1,652,518           

The proposal
to adopt an amendment to the Companys 1998 Equity Participation Plan to increase the
maximum authorized shares of common stock from 10,000,000 to 20,000,000 and to increase
the maximum number of shares that may be subject to awards granted to any individual under
the plan in any fiscal year from 1,600,000 to 4,000,000 was approved by the stockholders
as follows:

|                |           
|--------------- | ----------
|For             | 13,460,762
|Against         | 6,208,044 
|Abstain         | 129,896   
|Broker Non Vote | 32,073,770

The
proposal to adopt an amendment to the Companys Option Plan for Outside Directors to
increase the maximum authorized shares of common stock from 1,600,000 to 4,000,000 was
approved by stockholders as follows:

|                |           
|--------------- | ----------
|For             | 15,103,575
|Against         | 4,569,611 
|Abstain         | 125,506   
|Broker Non Vote | 32,073,780

The
proposal to adopt an amendment to the Companys Certificate of Incorporation to
increase the maximum authorized shares of common stock from 100,000,000 to 200,000,000,
was approved by stockholders as follows:

|        |           
|------- | ----------
|For     | 48,579,214
|Against | 2,402,078 
|Abstain | 891,180   

The
proposal to approve a financing transaction in which the company may sell and issue, to a
group of private investors, (a) up to 28,315,385 shares of common stock at a price of
$0.65 per share and (b) five-year warrants to purchase up to 14,157,692 shares of common
stock at an exercise price of $1.00 per shares, was approved by stockholders as follows:

|                |           
|--------------- | ----------
|For             | 17,966,499
|Against         | 1,655,703 
|Abstain         | 176,500   
|Broker Non Vote | 32,073,770

The
proposal to adopt an amendment to the Companys Certificate of Incorporation to allow
the Board of Directors to adopt, amend or repeal the Companys Bylaws, was approved
by stockholders as follows:

|        |           
|------- | ----------
|For     | 47,534,598
|Against | 4,113,392 
|Abstain | 224,482   

The
proposal to ratify the appointment of Moss Adams LLP as Independent Registered Public
Accounting Firm for the fiscal year ending March 31, 2006.

|        |           
|------- | ----------
|For     | 51,108,406
|Against | 635,953   
|Abstain | 128,113   

# Item 6. Exhibits

(a)Exhibits

|     |                                                                                                                                                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------
|31.1 | Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                         
|31.2 | Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                         
|32   | Certifications  of  the  Chief  Executive  Officer  and  Chief  Financial  Officer  pursuant  to  Section  906 of the
Sarbanes-Oxley Act of 2002.

---

*  Indicates a management contract
or compensatory plan or arrangement

---

# 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.

|                         |                                                                         
|------------------------ | ------------------------------------------------------------------------
|                         | TEGAL CORPORATION
(Registrant)                                          
|Dated: November 14, 2005 | /s/ CHRISTINE HERGENROTHER
Christine HergenrotherChief Financial Officer

---

EXHIBIT 31

# CERTIFICATION OF THE
CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas R. Mika, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Tegal Corporation;
|-- | ------------------------------------------------------------------------

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

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

|4. | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-14(e)) for the registrant and we have:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

|                        |                                                                          
|----------------------- | -------------------------------------------------------------------------
|Date: November 14, 2005 | /s/ Thomas R. Mika 
Chief Executive Officer and President

---

# CERTIFICATION OF THE
CHIEF FINANCIAL OFFICERPURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christine
Hergenrother, certify that:

|1. | I have reviewed this quarterly report on Form 10-Q of Tegal Corporation;
|-- | ------------------------------------------------------------------------

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

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

|4. | The registrants other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as defined in
          Exchange Act Rules 13a-15(e) and 15d-14(e)) for the registrant and we have:
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

|                        |                                                                    
|----------------------- | -------------------------------------------------------------------
|Date: November 14, 2005 | /s/ Christine Hergenrother 
Chief Financial Officer

EXHIBIT 32

# CERTIFICATION PURSUANT
TOSECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350)

In
connection with the Quarterly Report of Tegal Corporation, a Delaware corporation (the
Company), on Form 10-Q for the quarter ending June 30, 2005 as filed with the
Securities and Exchange Commission (the Report), I, Thomas R. Mika, President
and Chief Executive Officer of the Company, certify, pursuant to § 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to my knowledge:

(1)    
          The Report fully complies with the requirements of section 13(a) or 15(d) of the
          Securities Exchange Act of 1934, as amended; and   (2) The information
          contained in the Report fairly presents, in all material respects, the financial
          condition and result of operations of the Company.

/s/ Thomas R. MikaChief Executive Officer
and PresidentNovember 14, 2005

# CERTIFICATION PURSUANT
TOSECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002(18 U.S.C. SECTION 1350)

In
connection with the Quarterly Report of Tegal Corporation, a Delaware corporation (the
Company), on Form 10-Q for the quarter ending June 30, 2005 as filed with the
Securities and Exchange Commission (the Report), I, Christine Hergenrother,
Chief Financial Officer of the Company, certify, pursuant to § 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to my knowledge:

(1)    
          The Report fully complies with the requirements of section 13(a) or 15(d) of the
          Securities Exchange Act of 1934, as amended; and   (2) The information
          contained in the Report fairly presents, in all material respects, the financial
          condition and result of operations of the Company.

/s/   Christine
HergenrotherChief Financial OfficerNovember
14, 2005