UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







________________




FORM
10-Q


________________




(Mark
One)





þ                QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended
September 30, 2009





or


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





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 þ    No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes
þNo
o











Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
Accelerated Filer   o                                                                                                                    
Accelerated Filer  o





Non-Accelerated
Filer     o
(Do not check if a smaller reporting
company)                   Smaller
reporting company þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [  ]  No þ





As of November 12, 2009
therewere 8,415,676 of the
Registrant’s common stock outstanding.The number of shares
outstanding reflects a 1-for-12 reverse stock split effected by the Registrant
on July 25, 2006.











-2-


TEGAL
CORPORATION AND SUBSIDIARIES





INDEX





PagePART
      I. FINANCIAL INFORMATIONItem
      1.
            Condensed
      Consolidated Financial Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of September 30, 2009 and March 31,
      2009
            4Condensed
      Consolidated Statements of Operations for the three months and six months
      ended September 30, 2009 and September 30, 2008
            5Condensed
      Consolidated Statements of Cash Flows for the six months ended September
      30, 2009 and September 30, 2008
            6Notes
      to Condensed Consolidated Financial Statements
            7Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            12Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            16Item
      4.
            Controls
      and Procedures
            16PART
      II. OTHER INFORMATIONItem
      1A.
            Risk
      Factors
            17Item
      6.
            Exhibits
            18Signatures
            
            19





-3-


PART
I — FINANCIAL INFORMATION





Item
1. Condensed Consolidated
Financial Statements





TEGAL
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(Unaudited)


(In
thousands, except share data)











September 30,
            
            
            March 31,2009
            
            
            2009ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            8,616
            
            
            $
            12,491Accounts
      receivable, net of allowances for sales returns and doubtful accounts of
      $159 and $207 at September 30, 2009 and March 31, 2009
      respectively.
            
            
            2,469
            
            
            
            2,775Inventories,
      net
            
            
            14,484
            
            
            
            14,480Prepaid
      expenses and other current assets
            
            
            372
            
            
            
            372Total
      current assets
            
            
            25,941
            
            
            
            30,118Property
      and equipment, net
            
            
            1,176
            
            
            
            1,154Intangible
      assets, net
            
            
            2,673
            
            
            
            2,998Other
      assets
            
            
            62
            
            
            
            67Total
      assets
            
            $
            29,852
            
            
            $
            34,337LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable
            
            $
            1,545
            
            
            $
            1,487Accrued
      product warranty
            
            
            444
            
            
            
            702Common
      stock warrant liability
            
            
            444
            
            
            
            --Deferred
      revenue
            
            
            198
            
            
            
            113Accrued
      expenses and other current liabilities
            
            
            1,803
            
            
            
            2,004Total
      current liabilities
            
            
            4,434
            
            
            
            4,306Commitments
      and contingencies (Item 2)Stockholders’
      equity:Preferred
      stock; $0.01 par value; 5,000,000 shares authorized; none issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock; $0.01 par value; 50,000,000 shares authorized; 8,415,676 and
      8,412,676  shares issued and outstanding at September 30, 2009
      and March 31, 2009, respectively
            
            
            84
            
            
            
            84Additional
      paid-in capital
            
            
            127,952
            
            
            
            128,484Accumulated
      other comprehensive loss
            
            
            (504
            )
            
            
            (372
            )Accumulated
      deficit
            
            
            (102,114
            )
            
            
            (98,165
            )Total
      stockholders’ equity
            
            
            25,418
            
            
            
            30,031Total
      liabilities and stockholders’ equity
            
            $
            29,852
            
            
            $
            34,337








See
accompanying notes to condensed consolidated financial
statements.


-4-





TEGAL
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


(In
thousands, except per share data)














Three
      Months Ended
            
            
            Six
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenue
            
            $
            3,117
            
            
            $
            2,010
            
            
            $
            4,200
            
            
            $
            6,739Cost
      of revenue
            
            
            2,269
            
            
            
            989
            
            
            
            3,259
            
            
            
            3,391Gross
      profit
            
            
            848
            
            
            
            1,021
            
            
            
            941
            
            
            
            3,348Operating
      expenses:Research
      and development expenses
            
            
            1,170
            
            
            
            1,145
            
            
            
            2,411
            
            
            
            2,280Sales
      and marketing expenses
            
            
            670
            
            
            
            839
            
            
            
            1,374
            
            
            
            1,682General
      and administrative expenses
            
            
            810
            
            
            
            1,471
            
            
            
            1,973
            
            
            
            2,801Total
      operating expenses
            
            
            2,650
            
            
            
            3,455
            
            
            
            5,758
            
            
            
            6,763Operating
      loss
            
            
            (1,802
            )
            
            
            (2,434
            )
            
            
            (4,817
            )
            
            
            (3,415
            )Other
      income (expense), net
            
            
            114
            
            
            
            (65
            )
            
            
            471
            
            
            
            125Loss
      before income tax benefit
            
            
            (1,688
            )
            
            
            (2,499
            )
            
            
            (4,346
            )
            
            
            (3,290
            )Income
      tax expense (benefit)
            
            
            1
            
            
            
            -
            
            
            
            (50
            )
            
            
            -Net
      loss
            
            $
            (1,689
            )
            
            $
            (2,499
            )
            
            $
            (4,296
            )
            
            $
            (3,290
            )Net
      loss per share:Basic
            
            $
            (0.20
            )
            
            $
            (0.34
            )
            
            $
            (0.51
            )
            
            $
            (0.45
            )Diluted
            
            $
            (0.20
            )
            
            $
            (0.34
            )
            
            $
            (0.51
            )
            
            $
            (0.45
            )Weighted
      average shares used in per share computation:Basic
            
            
            8,415
            
            
            
            7,339
            
            
            
            8,415
            
            
            
            7,338Diluted
            
            
            8,415
            
            
            
            7,339
            
            
            
            8,415
            
            
            
            7,338











See
accompanying notes to condensed consolidated financial
statements.


-5-


TEGAL
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)











Six
      Months EndedSeptember
      302009
            
            
            2008Cash
      flows from operating activities:Net
      (Losses)
            
            $
            (4,296
            )
            
            $
            (3,290
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            617
            
            
            
            374Stock
      compensation expense
            
            
            313
            
            
            
            647Stock
      issued under stock purchase plan
            
            
            4
            
            
            
            14Fair
      value adjustment of common stock warrants
            
            
            (58
            )
            
            
            --(Recovery)
      provision for doubtful accounts and sales returns
    allowances
            
            
            (47
            )
            
            
            22Loss
      on disposal of property and equipment
            
            
            61
            
            
            
            16Changes
      in operating assets and liabilities:Accounts
      receivables
            
            
            491
            
            
            
            2,119Inventories,
      net
            
            
            (214
            )
            
            
            (746
            )Prepaid
      expenses and other assets
            
            
            (137
            )
            
            
            143Accounts
      payable
            
            
            9
            
            
            
            (872
            )Accrued
      expenses and other current liabilities
            
            
            (121
            )
            
            
            (1,687
            )Accrued
      product warranty
            
            
            (150
            )
            
            
            (848
            )Deferred
      revenue
            
            
            84
            
            
            
            8Net
      cash used in operating activities
            
            
            (3,444
            )
            
            
            (4,100
            )Cash
      flows used in investing activities:Purchases
      of property and equipment
            
            
            (376
            )
            
            
            (241
            )Net
      cash used in AMMS asset acquisition
            
            
            -
            
            
            
            (1,000
            )Net
      cash used in investing activities
            
            
            (376
            )
            
            
            (1,241
            )Cash
      flows used in financing activities:Payments
      on capital lease financing
            
            
            -
            
            
            
            (8
            )Net
      cash used in financing activities
            
            
            -
            
            
            
            (8
            )Effect
      of exchange rates on cash and cash equivalents
            
            
            (55
            )
            
            
            95Net
      decrease in cash and cash equivalents
            
            
            (3,875
            )
            
            
            (5,254
            )Cash
      and cash equivalents at beginning of period
            
            
            12,491
            
            
            
            19,271Cash
      and cash equivalents at end of period
            
            $
            8,616
            
            
            $
            14,017Supplemental
      disclosure of non-cash financing activities:Shares
      issued in asset acquisition
            
            $
            0
            
            
            $
            4,000Reclassification
      of common stock warrant liability upon adoption of EITF 07-05 (Topic
      815)
            
            $
            848
            
            
            $
            0





See
accompanying notes to condensed consolidated financial statements.








-6-


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, 2009 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 (“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 audited
consolidated financial statements and footnotes included in the Company’s Annual
Report on Form 10-K for the fiscal year ended March 31, 2009.  The
results of operations for the three and six months ended September 30, 2009 are
not necessarily indicative of results to be expected for the entire
year.





Our
consolidated financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business for the foreseeable
future.  We incurred net losses of ($4,296) and ($3,290) for the six
months ended September 30, 2009 and 2008, respectively. We used cash flows from
operations of $3,444 and $4,100 for the six months ended September 30, 2009
and  2008, respectively.  We believe that our outstanding
balances, combined with continued cost containment will be adequate to fund
operations through fiscal year 2010. Our business is dependent upon the sales of
our capital equipment, and projected sales may not materialize and unforeseen
costs may be incurred.  If the projected sales do not materialize, we
will need to reduce expenses further and/or raise additional capital which may
include capital raises 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 any needed funds
would materially adversely affect us.  It is not possible to predict
when our business and results of operations will improve in light of the current
economic downturn that continues to dramatically affect our
industry.  Therefore, the realization of assets and discharge of
liabilities are each subject to significant uncertainty.  Accordingly,
substantial doubt exists as to whether we will be able to continue as a going
concern.  If the going concern basis is not appropriate in future
filings, no adjustments will be necessary to the carrying amounts and/or
classification of assets and liabilities in our consolidated financial
statements included in such filings as the consolidated financial statements
have been prepared using the going concern basis, which assumes that we will be
able to realize our assets and discharge our liabilities in the normal course of
business for the foreseeable future.  We indicated this concern in our
Annual Report on Form 10-K for fiscal year ended March 31, 2009, which was also
reflected in the audit opinion at that time.





In
consideration of these circumstances, we have been in the process of evaluating
strategic alternatives for the Company, which may include a merger with or into
another company, a sale of all or substantially all of our assets and the
liquidation or dissolution of the Company, including through a bankruptcy
proceeding.  We cannot assure you that we will be successful in
pursuing any of these strategic alternatives.





Concentration
of Credit Risk





Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash investments and accounts receivable.
Substantially all of the Company’s liquid investments are invested in money
market funds. The Company’s accounts receivable are derived primarily from sales
to customers located in the United States, 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, 2009, two customers accounted for approximately 52% of the
accounts receivable balance.  As of September 30, 2008, two customers
accounted for approximately 48% of the accounts receivable balance.





During
the quarter ended September 30, 2009, Perkin Elmer and the University of
Michigan accounted for 38% and 23%, respectively, of total
revenue.  During the six months ended September 30, 2009, Perkin Elmer
and the University of Michigan accounted for 28% and 17%, respectively, of total
revenue.  During the quarter ended September 30, 2008, Abbot Point of
Care and International Rectifier accounted for 22% and 19%, respectively, of
total revenue.  During the six month ended September 30, 2008, SVTC
Tech, LLC, and a leading global manufacturer of power management components for
the communications, consumer electronics, and industrial markets accounted for
29% and 20% respectively, of our total revenue.





Intangible Assets





Intangible
assets include patents and trademarks that are amortized on a straight-line
basis over periods ranging from 5 years to 15 years.  The Company
performs an ongoing review of its identified intangible assets to determine if
facts and circumstances exist that indicate the useful life is shorter than
originally estimated or the carrying amount may not be
recoverable.  If such facts and circumstances exist, the Company
assesses the recoverability of identified intangible assets by comparing the
projected undiscounted net cash flow associated with the related asset or group
of assets over their remaining lives against their respective carrying
amounts.  Impairment, if any, is based on the excess of the carrying
amount over the fair value of those assets.  Based on reduced
estimates of future revenue and future negative cash flow, we identified a
potential indicator of impairment.  The Company recorded an impairment
charge of $497 for the fiscal year ended 2009.  No impairment charges
were recorded for the six month period ended September 30, 2009.





-7-


Stock-Based
Compensation





We have
adopted several stock plans that provide for issuance of equity instruments to
our employees and non-employee directors. Our plans include incentive and
non-statutory stock options and restricted stock awards.  These equity
awards generally vest ratably over a four-year period on the anniversary date of
the grant, and stock options expire ten years after the grant
date.  Certain restricted stock awards may vest on the achievement of
specific performance targets.  We also have an ESPP that allows
qualified employees to purchase Tegal shares at 85% of the fair market value on
specified dates.





Total
stock-based compensation expense related to stock options and restricted stock
units (“RSUs”) for the three months ended September 30, 2009and 2008 was $120 and $344, respectively.  Total stock-based
compensation expense related to stock options and restricted stock units
(“RSUs”) for the six months ended September 30, 2009and 2008 was $313 and $647, respectively.  The total
compensation expense related to non-vested stock options and RSUs not yet
recognized is $945.





The
Company used the following valuation assumptions to estimate the fair value of
options granted for the periods ended September 30, 2009 and 2008,
respectively:








STOCK
      OPTIONS:
            
            2009
            
            
            2008Expected
      life (years)
            
            
            6.0
            
            
            
            4.0Volatility
            
            
            80.0
            %
            
            
            64.7
            %Risk-free
      interest rate
            
            
            2.31
            %
            
            
            2.18
            %Dividend
      yield
            
            
            0
            %
            
            
            0
            %








ESPP
awards were valued using the Black-Scholes model with expected volatility
calculated using a six-month historical volatility.








ESPP:
            
            2009
            
            
            2008Expected
      life (years)
            
            
            0.5
            
            
            
            0.5Volatility
            
            
            79.8
            %
            
            
            74.4
            %Risk-free
      interest rate
            
            
            0.14
            %
            
            
            1.87
            %Dividend
      yield
            
            
            0
            %
            
            
            0
            %








During
the three months ended September 30, 2009, the Company granted no stock option
awards .





Stock
Options & Warrants





A
summary of stock option and warrant activity during the quarter ended September
30, 2009 is as follows:











WeightedWeighted
            
            AverageAverage
            
            Remaining
            AggregateExercise
            
            Contractual
            IntrinsicShares
            
            
            Price
            
            Term
      (in Years)
            ValueBeginning
      outstanding
            
            
            2,534,899
            
            
            $
            8.97GrantedPrice
      = market value
            
            
            --
            
            
            
            -Total
            
            
            --
            
            
            
            -Exercised
            
            
            --
            
            
            
            0.00CancelledForfeited
            
            
            (36,151
            )
            
            
            2.79Expired
            
            
            (12,265
            )
            
            
            15.08Total
            
            
            (48,416
            )
            
            
            5.90Ending
      outstanding
            
            
            2,486,483
            
            
            $
            9.03
            
            3.78
            $-Ending
      vested and expected to vest
            
            
            2,387,940
            
            
            $
            9.28
            
            3.57
            $-Ending
      exercisable
            
            
            1,912,515
            
            
            $
            10.79
            
            2.32
            $-







The
aggregate intrinsic value of stock options and warrants outstanding at September
30, 2009 is calculated as the difference between the exercise price of the
underlying options and the market price of our common stock as of September 30,
2009.





-8-


The
following table summarizes information with respect to stock options and
warrants outstanding as of September 30, 2009:





Weighted
            
            
            
            
            
            
            
            
            WeightedAverage
            
            
            
            
            
            
            
            
            AverageNumber
            
            
            Remaining
            
            
            Weighted
            
            
            Number
            
            
            ExerciseRange
      of
            
            
            Outstanding
            
            
            Contractual
            
            
            Average
            
            
            Exercisable
            
            
            PriceExercise
      Prices
            
            
            As of Sept 30, 2009
            
            
            Term
      ( in years)
            
            
            Exercise
      Price
            
            
            As
      of Sept 30, 2009
            
            
            As
      of Sept 30, 2009$
            2.34
            
            
            
            2.34
            
            
            
            343,847
            
            
            
            9.10
            
            
            
            2.34
            
            
            
            -
            
            
            
            -3.44
            
            
            
            4.20
            
            
            
            258,765
            
            
            
            8.18
            
            
            
            4.09
            
            
            
            84,922
            
            
            
            3.994.60
            
            
            
            4.68
            
            
            
            250,339
            
            
            
            6.61
            
            
            
            4.61
            
            
            
            201,458
            
            
            
            4.615.26
            
            
            
            8.28
            
            
            
            271,232
            
            
            
            3.97
            
            
            
            6.66
            
            
            
            265,085
            
            
            
            6.6812.00
            
            
            
            12.00
            
            
            
            1,284,990
            
            
            
            0.93
            
            
            
            12.00
            
            
            
            1,284,990
            
            
            
            12.0012.36
            
            
            
            46.50
            
            
            
            63,983
            
            
            
            3.38
            
            
            
            18.51
            
            
            
            62,733
            
            
            
            18.5656.28
            
            
            
            56.28
            
            
            
            6,248
            
            
            
            0.53
            
            
            
            56.28
            
            
            
            6,248
            
            
            
            56.2892.26
            
            
            
            92.26
            
            
            
            416
            
            
            
            0.44
            
            
            
            92.26
            
            
            
            416
            
            
            
            92.2692.52
            
            
            
            92.52
            
            
            
            4,165
            
            
            
            0.38
            
            
            
            92.52
            
            
            
            4,165
            
            
            
            92.5299.00
            
            
            
            99.00
            
            
            
            2,498
            
            
            
            0.49
            
            
            
            99.00
            
            
            
            2,498
            
            
            
            99.00$
            2.34
            
            
            $
            99.00
            
            
            
            2,486,483
            
            
            
            3.78
            
            
            $
            9.03
            
            
            
            1,912,515
            
            
            $
            10.79





As of
September 30,
2009, there was $777 of total unrecognized compensation cost related to
outstanding options and warrants which the Company expects to recognize over a
period of 2.67 years.





Restricted
Stock Units





The
following table summarizes the Company’s RSU activity for the three months ended
September 30,
2009:





Number
      of
            
            
            Weighted
      Avg.
              Grant
      DateShares
            
            
            Fair ValueBalance
      June 30, 2009
            
            
            87,224
            
            
            $
            1.28Granted
            
            
            -
            
            
            
            -Forfeited
            
            
            (2,500
            )
            
            $
            2.61Vested
            
            
            -
            
            
            
            -Balance,
      September 30, 2009
            
            
            84,724
            
            
            $
            1.28








Unvested
restricted stock at September 30, 2009





As of
September 30, 2009there was $167 of total unrecognized compensation cost related to
outstanding RSUs which the Company expects to recognize over a period of 1.13
years.





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. Any excess and obsolete
provision is released only if and when the related inventories is sold or
scrapped.   During the six months ended September 30, 2009 and
September 30, 2008, the Company sold or scrapped previously reserved inventory
of $77 and $29,
respectively.  The inventory provision balance atSeptember 30,
2009 and March 31, 2009 was $549 and $626,
respectively.





Inventories
for the periods presented consisted of:








September
      30,
            
            
            March
      31,2009
            
            
            2009Raw
      materials
            
            $
            5,509
            
            
            $
            5,634Work
      in progress
            
            
            4,317
            
            
            
            4,348Finished
      goods and spares
            
            
            4,658
            
            
            
            4,498$
            14,484
            
            
            $
            14,480





-9-








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.  Warranty
activity for the three and six months ended September 30, 2009 and 2008 is as
follows:





Warranty
      Activity for the
            
            
            Warranty
      Activity for theThree
      Months Ended
            
            
            Six
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Balance
      at the beginning of the period
            
            $
            522
            
            
            $
            1,315
            
            
            $
            702
            
            
            $
            1,770Additional
      warranty accruals for
            
            
            201
            
            
            
            20
            
            
            
            242
            
            
            
            182warranties
      issued during the periodWarranty
      expense during the period
            
            
            (279
            )
            
            
            (388
            )
            
            
            (500
            )
            
            
            (1,005
            )Balance
      at the end of the period
            
            $
            444
            
            
            $
            947
            
            
            $
            444
            
            
            $
            947








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.      Net
Loss Per Common Share (EPS):





Basic EPS
is computed by dividing loss available to common stockholders (numerator) by the
weighted average number of common shares outstanding (denominator) for the
period. Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period. The computation of diluted EPS uses the average
market prices during the period.





The
following table represents the calculation of basic and diluted net loss per
common share (in thousands, except per share data):








Three
      Months Ended
            
            
            Six
      Months EndedSeptember
      30,
            
            
            September
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      loss applicable to common stockholders
            
            $
            (1,689
            )
            
            $
            (2,499
            )
            
            $
            (4,296
            )
            
            $
            (3,290
            )Basic
      and diluted:Weighted-average
      common shares outstanding
            
            
            8,415
            
            
            
            7,339
            
            
            
            8,415
            
            
            
            7,338Weighted-average
      common shares used in diluted net (loss) income per common
      share
            
            
            8,415
            
            
            
            7,339
            
            
            
            8,415
            
            
            
            7,338Basic
      net loss per common share
            
            $
            (0.20
            )
            
            $
            (0.34
            )
            
            $
            (0.51
            )
            
            $
            (0.45
            )Diluted
      net loss per common share
            
            $
            (0.20
            )
            
            $
            (0.34
            )
            
            $
            (0.51
            )
            
            $
            (0.45
            )








Outstanding
options, warrants and RSUs of 2,594,981 and 2,549,587 shares of common stock at
a weighted-average exercise price per share of $8.69 and $9.70 on September 30,
2009 and 2008 respectively, were not included in the computation of diluted net
loss per common share for the periods presented as a result of their
anti-dilutive effect.  Such securities could potentially dilute
earnings per share in future periods.





-10-


5.      Stock-Based
Transactions:





Issuance
of Warrants to Consultants





The
Company issued no warrants to any party for the six months ended September 30,
2009 and 2008.





6.      Financial
Instruments:





The
carrying amount of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable, notes payable, accrued
expenses and other liabilities approximates fair value due to their relatively
short maturity. The Company has foreign subsidiaries, which operate and sell the
Company’s products in various global markets. As a result, the Company is
exposed to changes in foreign currency exchange rates.  The Company
does not hold derivative financial instruments for speculative
purposes.  Foreign currency transaction gains and (losses) included in
other income (expense), net were not significant for the six months ended
September 30, 2009 and 2008, respectively.  Periodically, the Company
enters into foreign exchange contracts to sell Euros, which are used to hedge a
sales transactions in which costs are denominated in U.S. dollars and the
related revenue are generated in Euros.   These contracts are
valued using Level 1 inputs as defined by SFAS No. 157 (Topic
820).  On April 7, 2009 the Company concluded a foreign exchange
contract for a net gain of $24.   As of September 30, 2009 the
Company had one outstanding foreign exchange contract due to expire November 5,
2009.








7.      AMMS
Asset Acquisition:





On
September 16, 2008, the Company acquired certain assets from Alcatel Micro
Machining Systems (“AMMS”) and Alcatel Lucent (“Alcatel”, and together with
AMMS, the “Sellers”), for an aggregate consideration of $5,000 comprised of
$1,000 in cash and 1,044,386 shares of the Company’s common stock.





In
connection with this acquisition, the Company obtained limited rights to use the
AMMS trademark pursuant to a trademark license agreement and agreed to purchase
certain equipment from an affiliate of the Sellers pursuant to a preferred
supplier agreement.





The
purchase price was allocated as follows (in thousands):








Assets
      acquired:Trademarks
            
            $
            428Patents
            
            
            2,648Total
      Intangible Assets
            
            
            3,076Fixed
      Assets
            
            
            24Inventory
            
            
            1,900Total
      Tangible Assets
            
            
            1,924Total
      Acquired Assets
            
            $
            5,000








8.           Geographical
Information:





The
Company operates in one segment for the manufacture, marketing and servicing of
integrated circuit fabrication equipment.  In accordance with SFAS No.
131, Disclosures About
Segments of an Enterprise and Related Information, (“SFAS 131”) (Topic
280) the Company’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.





For
geographical reporting, revenues are attributed to the geographic location in
which the customers’ facilities are located.  Long-lived assets
consist 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
            
            
            Revenue
      for theThree
      Months Ended
            
            
            Six
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Sales
      to customers located in:United
      States
            
            $
            2,512
            
            
            $
            1,166
            
            
            $
            3,152
            
            
            $
            4,874Asia
            
            
            193
            
            
            
            265
            
            
            
            395
            
            
            
            717Germany
            
            
            58
            
            
            
            60
            
            
            
            87
            
            
            
            175France
            
            
            121
            
            
            
            --
            
            
            
            181
            
            
            
            --Europe,
      excluding Germany & France
            
            
            233
            
            
            
            519
            
            
            
            385
            
            
            
            973Total
      sales
            
            $
            3,117
            
            
            $
            2,010
            
            
            $
            4,200
            
            
            $
            6,739











September 30Long-Lived
      assets at period-end:
            
            2009
            
            
            2008United
      States
            
            $
            879
            
            
            $
            1,200Europe
            
            
            297
            
            
            
            10Total
      Long-lived assets
            
            $
            1,176
            
            
            $
            1,210








-11-


9.      Recent
Accounting Pronouncements:





Effective
July 1, 2009, the Financial Accounting Standards Board’s (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 168 (Topic 105),
“The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles”.  Accounting Standards Codification
(“ASC”) became the single official source of authoritative, nongovernmental
generally accepted accounting principles (“GAAP”) in the United
States.  This standard establishes two levels of GAAP, authoritative
and non-authoritative. The FASB Accounting Standards Codification (the
“Codification”) became the source of authoritative, non-governmental GAAP,
except for rules and interpretive releases of the SEC, which are sources of
authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC
accounting literature not included in the Codification became
non-authoritative.  The Company adopted SFAS 168 (Topic 105) as of
July 1, 2009.   As the Codification was not intended to change or
alter existing GAAP, it did not have any impact on our Condensed Consolidated
Financial Statements.  However, references to specific accounting
standards in the footnotes to our consolidated financial statements have been
changed to also refer to the appropriate topic of ASC.





In
September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 157, Fair Value
Measurements (“SFAS 157”) or Topic 820.  SFAS 157 (Topic 820)
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS 157 (Topic 820) does not require
any new fair value measurements; rather, it applies under other accounting
pronouncements that require or permit fair value measurements. The provisions of
SFAS 157 (Topic 820) are to be applied prospectively as of the beginning of the
fiscal year in which it is initially applied, with any transition adjustment
recognized as a cumulative-effect adjustment to the opening balance of retained
earnings. The provisions of SFAS 157 (Topic 820) became effective for fiscal
years beginning after November 15, 2007.  The Company adopted SFAS 157
(Topic 820) as of April 1, 2008. There was no material effect to the
consolidated financial statements as a result.





In
February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Liabilities (“SFAS 159”) (Topic 825). SFAS 159 (Topic 825)
provides entities with the option to report selected financial assets and
liabilities at fair value. Business entities adopting SFAS 159 (Topic 825) will
report unrealized gains and losses in earnings at each subsequent reporting date
on items for which fair value option has been elected. SFAS 159 (Topic 825)
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 (Topic 825) requires
additional information that will help investors and other financial statement
users to understand the effect of an entity’s choice to use fair value on its
earnings.  SFAS 159 (Topic 825) became effective for fiscal years
beginning after November 15, 2007, with earlier adoption permitted. The Company
adopted SFAS 159 (Topic 825) on April 1, 2008 and chose not to elect the fair
value option for its financial assets and liabilities that had not previously
been carried at fair value.





In
December 2007, FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS
141R”) which replaces SFAS No. 141(Topic 805).  SFAS 141R (Topic 805)
retains the purchase method of accounting for acquisitions, but requires a
number of changes, including changes in the way assets and liabilities are
recognized in the purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS 141R
(Topic 805) became  effective for the Company beginning April 1, 2009
and will apply prospectively to business combinations completed on or after that
date.   The Company expects this to have a material impact on any
possible future acquisitions.




In
December 2007, FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statement, - an amendment of ARB No. 51, (“SFAS
160”) (Topic 810) which changes the accounting and reporting for minority
interests.  Minority interests will be recharacterized as
noncontrolling interests and will be reported as a component of equity separate
from the parent’s equity, and purchases or sales of equity interests that do not
result in a change in control will be accounted for as equity transactions. In
addition, net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement and,
upon a loss of control, the interest sold, as well as any interest retained,
will be recorded at fair value with any gain or loss recognized in earnings.
SFAS 160 (Topic 810) is effective for the Company beginning April 1, 2009 and
will apply prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively.  Adoption of this
standard did not have a material effect to the Company’s consolidated financial
statements.





In April
2008, FASB issued FASB Staff Position Statement of Financial Accounting
Standards 142-3, Determination
of the Useful Life of Intangible Assets (“FSP SFAS 142-3”) (Topic 350).
FSP SFAS 142-3 (Topic 350) provides guidance with respect to estimating the
useful lives of recognized intangible assets acquired on or after the effective
date and requires additional disclosure related to the renewal or extension of
the terms of recognized intangible assets. FSP SFAS 142-3 (Topic 350) became
effective for fiscal years and interim periods beginning after December 15,
2008. The Company adopted FSP SFAS 142-3 (Topic 350) as of December 31, 2008 and
it did not have a material impact on the Company’s consolidated financial
statements.





In June
2008, FASB ratified the EITF consensus on EITF Issue No. 07-05, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own Stock (“EITF Issue
07-05”) (Topic 815) which applies to the determination of whether any
freestanding financial instruments or embedded features that have the
characteristics of a derivative, as defined by SFAS No. 133 (Topic 815), Accounting for Derivative
Instruments and Hedging Activities, and to any freestanding financial
instruments are potentially indexed to an entity’s own common stock
..  EITF Issue No. 07-05(Topic 815) became effective for fiscal years
beginning after December 15, 2008.  The Company adopted EITF 07-05
(Topic 815) as of April 1, 2009.  As a result, warrants to purchase
1,427,272 shares of our common stock previously treated as equity pursuant to
the derivative treatment exemption were no longer afforded equity treatment. The
warrants had exercise prices ranging from $6.00-$99.00 and expire between
September 2009 and September 2013. As such, effective April 1, 2009, the Company
reclassified the fair value of these warrants to purchase common stock, which
had exercise price reset features, from equity to liability status as if these
warrants were treated as a derivative liability since their date of issue
between February 2000 and January 2006.  On April 1, 2009, the Company
reclassified from additional paid-in capital, as a cumulative effect adjustment,
$347 to beginning accumulated deficit and $501 to common stock warrant liability
to recognize the fair value of such warrants on such date.  As of
September 30, 2009, the fair value of the warrants was estimated using the
Black-Scholes pricing model with the following weighted average assumptions,
risk-free interest rate of 2.31%, expected life of 1.08 years, an expected
volatility factor of 75.05% and a dividend yield of 0.0%. The fair value of
these warrants to purchase common stock decreased to $444 as of September 30,
2009. As such, the Company recognized a $58 non-cash loss from the change in
fair value of these warrants for the three months ended September 30, 2009,
which is included in other income (expense), net.





Adoption
of this standard had a material non-cash impact on the Company’s consolidated
financial statements.








Item
2.   Management’s Discussion and Analysis
of Financial Condition and Results of Operations – (Amounts in
thousands)





Special
Note Regarding Forward Looking Statements





Information
contained or incorporated by reference in this report contains forward-looking
statements.  These forward-looking statements are based on current
expectations and beliefs and involve numerous risks and uncertainties that could
cause actual results to differ materially from expectations.  These
forward-looking statements should not be relied upon as predictions of future
events as we cannot assure you that the events or circumstances reflected in
these statements will be achieved or will occur.  You can identify
forward-looking statements 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 which constitutes
projected financial information.  These forward-looking statements are
subject to risks, uncertainties and assumptions about Tegal Corporation
including, but not limited to, industry conditions, economic conditions,
acceptance of new technologies and market acceptance of Tegal
Corporation’s  products and service.  For a discussion of
the factors that could cause actual results to differ materially from the
forward-looking statements, see the “Part Item 1A—Risk Factors” and the
“Liquidity and Capital Resources” section set forth in this
section  and such other risks and uncertainties as set forth below in
this report or detailed in our other SEC reports and filings. We assume no
obligation to update forward-looking statements.





We
design, manufacture, market and service plasma etch and deposition systems that
enable the production of micro-electrical mechanical systems (“MEMS”), power
integrated circuits (“ICs”) and optoelectronic devices found in products like
smart phones, networking gear, solid-state lighting and digital imaging. 
Our plasma etch and deposition tools enable sophisticated manufacturing
techniques, such as 3-D interconnect structures formed by intricate silicon
etch, also known as Deep Reactive Ion Etching (“DRIE”). Etching and deposition
constitute two of the principal device production process steps and each must be
performed numerous times in the production of such devices.





Our
business objective is to utilize the technologies that we have developed
internally or acquired externally in order to increase our market share in
process equipment for MEMS and power device fabrication, advanced 3-D packaging,
and certain areas of semiconductor manufacturing, including compound
semiconductors and light-emitting diodes (“LEDs”).  In the recent
past, we focused on competing with more established competitors by being
“designed-in” to the advanced device fabrication plans of our
customers.  We have done so primarily by engaging in research and
development activities on behalf of our customers that our more established
competitors were unwilling or unable to perform, including several applications
of our technology in certain types of new, non-volatile memory devices intended
as replacements for flash memory, such as MRAM, RRAM and FeRAM.  Many
of these advanced new memory devices promised substantial returns as consumer
demand for certain functions grew and new markets were created. However, the
timing of the emergence of such demand was highly uncertain and, as of today,
these markets as of today have not developed as expected.





In
September 2008, we took the step of acquiring the products lines of AMMS and the
related intellectual property of Alcatel, in order to pursue more fully the
smaller, but higher-growth markets of MEMS and 3-D packaging.  Our
acquisition of these products served two purposes: (1) to increase revenue, as
demand for our etch and deposition systems in more traditional semiconductor
markets fell dramatically with the collapse of semiconductor capital spending;
and (2) to enable us to focus our various technologies on specific applications
that served the common markets of MEMS and 3-D device manufacturing and
packaging.





At the
present time, we are continuing to transition our involvement in specialized
aspects of traditional semiconductor markets to the faster-growth but smaller
markets for MEMS, power devices and specialized compound semiconductors.
However, given the severe economic downturn generally, and in the semiconductor
capital equipment industry in particular, achieving wins with customers in these
markets has been extremely challenging for us.  We expect that orders
for our systems will continue to fluctuate from quarter to quarter, and we
expect demand to continue to be low and our ability to forecast demand will be
limited as the global financial crisis and the resulting recession
continues.  Although we have over the past several years streamlined
our cost structure by headcount reductions, salary and benefit reductions and
limits on discretionary spending of all types, our costs for maintaining our
research and development efforts and our service and manufacturing
infrastructure have remained constant or in some cases increased.  We
intend to continue our cost-containment measures, including outsourcing certain
activities, such as engineering and software development, and maintaining or
further reducing our headcount as we strive to improve operational efficiency
within this challenging economic environment.  However, since we are
unable to predict the timing of a stable reemergence of demand for our products
and services, we believe that the realization of assets and discharge of
liabilities are each subject to significant uncertainty and a substantial doubt
exists as to whether we will be able to continue as a going
concern.  In consideration of these circumstances, we have begun the
process of evaluating strategic alternatives for the Company, which may include
a merger with or into another company, a sale of all or substantially all of our
assets and the liquidation or dissolution of the Company, including through a
bankruptcy proceeding. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.








-12-


Critical
Accounting Policies and Estimates





Our
discussion and analysis of our 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 audited consolidated financial statements have been
prepared using the going concern basis, which assumes that we will be able to
realize our assets and discharge our liabilities in the normal course of
business for the foreseeable future.  However, it is not possible to
predict when our business and results of operations will improve in light of the
current economic downturn that continues to dramatically affect our
industry.  Therefore, the realization of assets and discharge of
liabilities are each subject to significant uncertainty.  Accordingly,
substantial doubt exists as to whether we will be able to continue as a going
concern.  If the going concern basis is not appropriate in future
filings, adjustments will be necessary to the carrying amounts and/or
classification of assets and liabilities in our consolidated financial
statements included in such filings.





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
ongoing basis, we evaluate our estimates, including those related to revenue
recognition, bad debts, sales returns allowance, inventory, intangible and long
lived assets, warranty obligations, restructure expenses, deferred taxes and
freight charged to customers. 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 are the most significant to
the presentation 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 consensus on Emerging Issues
Task Force Issue No. 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables (“EITF Issue 00-21”).  We first
refer to EITF Issue 00-21 in order to determine if there is more than one unit
of accounting and then we refer to Staff Accounting Bulletin (“SAB”) 104 (Topic
605) 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 collectability 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 deferred revenue.





Accounting
for Stock-Based Compensation





The
Company has adopted several stock plans that provide for issuance of equity
instruments to the Company’s employees and non-employee directors. The Company’s
plans include incentive and non-statutory stock options and restricted stock
awards and restricted stock units (“RSUs”).  Stock options and RSUs
generally vest ratably over a four-year period on the anniversary date of the
grant, and stock options expire ten years after the grant date.  On
occasion RSUs may vest on the achievement of specific performance
targets.  The Company also has an employee stock purchase plan (an
“ESPP”) that allows qualified employees to purchase Company shares at 85% of the
lower of the common stock’s market value on specified dates.  The
stock-based compensation for our ESPP was determined using the Black-Scholes
option pricing model and the provisions of Statement of Financial Accounting
Standards (“SFAS”) No. 123 (revised 2004), Share Based Payment,(“SFAS
123R”) (Topic 718).





Accounts
Receivable – Allowance for Sales Returns and Doubtful Accounts





The
Company maintains an allowance for doubtful accounts receivable for estimated
losses resulting from the inability of the Company’s customers to make required
payments. If the financial condition of the Company’s customers were to
deteriorate, or even a single customer was otherwise unable to make payments,
additional allowances may be required.  As of September 30, 2009, two
customers accounted for approximately 52% of the accounts receivable
balance.  As of September 30, 2008, two customers accounted for
approximately 48% of the accounts receivable balance.





The
Company’s return policy is for spare parts and components only.  A
right of return does not exist for systems. 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.




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. Any excess and
obsolete provision is released only if and when the related inventories is sold
or scrapped.  The inventory provision
balance atSeptember 30, 2009 and March 31, 2009 was $549 and $626,
respectively.  During the six months ended September 30, 2009,
and September 30, 2008, we reduced the reserve by $77 and $29,
respectively when the Company sold or scrapped previously
reserved inventory.





The
Company periodically analyzes any systems that are in finished goods inventory
to determine if they are suitable for current customer
requirements.  At the present time, the Company’s policy is that, if
after approximately 18 months, it determines 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 unsellable 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).





-13-


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. During the fourth quarter of 2009, we reviewed our
long-lived assets for indicators of impairment in accordance with SFAS No. 144,
Accounting for Impairment or
Disposal of Long-Lived Assets. (Topic 360) Based on reduced estimates of
future revenues and future negative cash flow, we identified a potential
indicator of impairment.  No impairment charge was recorded for the
six months ended September 30, 2009.  The company recorded an
impairment charge, related to intangibles, of $497 for the fiscal year ended
2009.  No impairment charges were recorded for the year ended
2008.





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.  The warranty reserve is based on historical cost data
related to warranty.  Should actual product failure rates, material
usage rates and labor efficiencies differ from our estimates, revisions to the
estimated warranty liability may be required.  Actual warranty expense
is typically low in the period immediately following installation.





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


The
following table sets forth certain financial data for the three and six months
ended September 30,
2009and 2008 as a percentage of revenue:








Three
      Months Ended
            
            
            Six
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenue
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of revenue
            
            
            72.8
            %
            
            
            49.2
            %
            
            
            77.6
            %
            
            
            50.3
            %Gross
      profit
            
            
            27.2
            %
            
            
            50.8
            %
            
            
            22.4
            %
            
            
            49.7
            %Operating
      expenses:Research
      and development
            
            
            37.5
            %
            
            
            57.0
            %
            
            
            57.4
            %
            
            
            33.8
            %Sales
      and marketing
            
            
            21.5
            %
            
            
            41.7
            %
            
            
            32.7
            %
            
            
            25.0
            %General
      and administrative
            
            
            26.0
            %
            
            
            73.2
            %
            
            
            47.0
            %
            
            
            41.6
            %Total
      operating expenses
            
            
            85.0
            %
            
            
            171.9
            %
            
            
            137.1
            %
            
            
            100.4
            %Operating
      loss
            
            
            (57.8
            %)
            
            
            (121.1
            %)
            
            
            (114.7
            %)
            
            
            (50.7
            %)Other
      income (expense), net
            
            
            3.7
            %
            
            
            (3.2
            %)
            
            
            11.2
            %
            
            
            1.9
            %Loss
      before income tax benefit
            
            
            (54.1
            %)
            
            
            (124.3
            %)
            
            
            (103.5
            %)
            
            
            (48.8
            %)Tax
      Expense
            
            
            --
            %
            
            
            --
            %
            
            
            (1.2
            %)
            
            
            --
            %Net
      loss
            
            
            (54.1
            %)
            
            
            (124.3
            %)
            
            
            (102.3
            %)
            
            
            (48.8
            %)











The
following table sets forth certain financial items for the three and six months
ended September 30,
2009and 2008:








Three
      Months Ended
            
            
            Six
      Months EndedSeptember 30,
            
            
            September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenue
            
            $
            3,117
            
            
            $
            2,010
            
            
            $
            4,200
            
            
            $
            6,739Cost
      of revenue
            
            
            2,269
            
            
            
            989
            
            
            
            3,259
            
            
            
            3,391Gross
      profit
            
            
            848
            
            
            
            1,021
            
            
            
            941
            
            
            
            3,348Operating
      expenses:Research
      and development expenses
            
            
            1,170
            
            
            
            1,145
            
            
            
            2,411
            
            
            
            2,280Sales
      and marketing expenses
            
            
            670
            
            
            
            839
            
            
            
            1,374
            
            
            
            1,682General
      and administrative expenses
            
            
            810
            
            
            
            1,471
            
            
            
            1,973
            
            
            
            2,801Total
      operating expenses
            
            
            2,650
            
            
            
            3,455
            
            
            
            5,758
            
            
            
            6,763Operating
      loss
            
            
            (1,802
            )
            
            
            (2,434
            )
            
            
            (4,817
            )
            
            
            (3,415
            )Other
      income (expense), net
            
            
            114
            
            
            
            (65
            )
            
            
            471
            
            
            
            125Loss
      before income tax benefit
            
            
            (1,688
            )
            
            
            (2,499
            )
            
            
            (4,346
            )
            
            
            (3,290
            )Income
      tax expense (benefit)
            
            
            1
            
            
            
            -
            
            
            
            (50
            )
            
            
            -Net
      loss
            
            $
            (1,689
            )
            
            $
            (2,499
            )
            
            $
            (4,296
            )
            
            $
            (3,290
            )Net
      loss per share:Basic
            
            $
            (0.20
            )
            
            $
            (0.34
            )
            
            $
            (0.51
            )
            
            $
            (0.45
            )Diluted
            
            $
            (0.20
            )
            
            $
            (0.34
            )
            
            $
            (0.51
            )
            
            $
            (0.45
            )Weighted
      average shares used in per share computation:Basic
            
            
            8,415
            
            
            
            7,339
            
            
            
            8,415
            
            
            
            7,338Diluted
            
            
            8,415
            
            
            
            7,339
            
            
            
            8,415
            
            
            
            7,338





-14-


Revenue





Revenue
of $3,117 for the three months ended September 30, 2009 increased by $1,107 from
revenue of $2,010 for the three months ended September 30, 2008, representing a
55% increase.  The revenue increase was due principally to the number
and mix of systems sold.  Revenue for the three months ended September
30, 2009 was mainly from the sale of one new SMT system and one DRIE system.
Revenue for the three months ended September 30, 2008 was mainly from the sale
of spares and service.  Revenue for the six months ended September 30,
2009 decreased by $2,539 from revenue for the six months ended September 30,
2008, representing a 38% decrease.  The revenue decrease was due
principally to the number and mix of systems sold and the global economic
recession that dramatically impacted our industry. Revenue for the six months
ended September 30, 2009 was mainly from the sale of two new SMT systems and one
new DRIE system. Revenue for the six months ended September 30, 2008 was mainly
from the sale of two used systems (one advanced etch, one Endeavor) and higher
spares sales.




As a
percentage of total revenue for the three months ended September 30, 2009
international sales was approximately 19%.  International sales as a
percentage of total revenue for the three monthsended
September 30, 2008 was approximately 42%.  The decrease in
international sales as a percentage of revenue can be attributed to fewer
systems sold.  As a percentage of total revenue for the six months
ended September 30, 2009 international sales was approximately
25%.  International sales as a percentage of total revenue for the
six monthsended September 30, 2008 was approximately 28%.  The Company
typically sells more systems in international markets.  Although the
systems sold in the six monthsended
September 30, 2009 and 2008 were domestic sales, we believe that international
sales will continue to represent a significant portion of our future
revenue.





Gross
Profit





Gross
profit of $848 for the three months ended September 30, 2009 decreased by $173
from gross profit of $1,021 for the three months ended September 30, 2008,
representing a 17% decrease.  The decrease in the gross margin was
attributable to the number of systems sold and product mix.  Gross
profit of $941 for the six months ended September 30, 2009 decreased by $2,407
from gross profit of $3,348 for the six months ended September 30, 2008,
representing a 72% decrease.  The decrease in the gross margin was
attributable to the number of systems sold and product mix.  Our gross
profit margin for the three months September 30, 2009 was 27% compared to 51%
for the same period last year.   The decrease in the gross margin
was attributable to the number of systems sold and the specific mix of sales
from different products.  Gross margins for our DRIE series systems
are typically lower than those of our more mature systems due to the competitive
differences in this segment of the market compared to the rest of the
semi-conductor industry.  The Company believes that the dominant business
model driving the lower margins in this market segment is unsustainable and
expects gross margins for this product to normalize to levels comparable with
our other products.





Our gross
profit as a percentage of revenue has been, and will continue to be, affected by
a variety of factors, including the mix and average selling prices of systems
sold and the costs to manufacture, service and support new product introductions
and enhancements.





Future
gross profit and gross margin are highly dependent on the level and product mix
included in net revenues. This includes the mix of sales between lower and
higher margin products.  Accordingly, we are not able to predict
future gross profit levels or gross margins with certainty.  However,
gross profit improvement is one of our highest priorities.  We believe
that the completion of the integration of our new product line and the results
of our expense reduction efforts will begin to exhibit themselves in gross
profit improvements, especially as we expect our sales volume to
increase.





Research and
Development





Research and
development (“R&D”) 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
spending increase of $25 and $131 for the three and six months ended September
30, 2009 compared to the three and six months ended September 30, 2008 resulted
primarily from an increase in the amortization of DRIE intangibles and offset by
lower spending on projects cost, legal fees for patent maintenance, and a
decrease in employee related expenses.  There were no engineering
reimbursements during the six months ended September 30, 2009.





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 of $169
and $308 in sales and marketing spending for the three and six months ended
September 30, 2009, as compared to the same periods in 2008 was primarily due
to the decrease of
employee costs, lower trade show expenses, and decreased sales commissions for
systems over the same period last year.





General
and Administrative





General
and administrative expenses consist of salaries, legal, accounting and related
administrative services and expenses associated with general management,
finance, information systems, human resources and investor relation’s
activities. The decrease of $661 and $828 for the three and six months,
respectively,  ended September 30, 2009 as compared to the three and
six months ended September 30, 2008 was primarily due to decreases in stock
related compensation expense, payroll costs, and consulting costs, offset by
higher legal expenses.





Other
Income (Expense), net





Other
income (expense), net consists of interest income, other income, gains and
losses on foreign exchange and gain and losses on the disposal of fixed
assets.  For the three and six months ended September 30, 2009 as
compared to the three and six months ended September 30, 2008, other income
(expense), net increased by $179 and $346, respectively, primarily due to
changes in foreign exchange rates, the change in fair value of the common stock
warrant liability pursuant to EITF 07-05 (Topic 815), and reimbursement monies
received from the French government  for R&D projects, offset by
the decrease in interest rate and value of the money market
account.





-15-


Contractual
Obligation





The
following summarizes our contractual obligations at September 30, 2009, and the
effect such obligations are expected to have on our liquidity and cash flows in
future periods (in thousands).








Contractual
      obligations:
            
            
            
            
            Less
      than
            
            
            
            
            
            
            
            
            AfterTotal
            
            
            1 Year
            
            
            1-3 Years
            
            
            3-5 Years
            
            
            5 YearsNon-cancelable
      operating lease obligations
            
            $
            681
            
            
            $
            503
            
            
            $
            165
            
            
            $
            13
            
            
            $
            -








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





Liquidity
and Capital Resources





For
thesix months endedSeptember 30, 2009, we financed our operations from existing cash on
hand.  In fiscal 2009 we financed our operations through net cash
provided by operations.  The primary significant changes in our cash
flow statement for the six months ended September 30, 2009 were decreases in
accounts receivable and stock compensation expense and increased depreciation
and amortization expense offset by our net loss of $4,296.  The
Company acquired significant intangible assets in the prior fiscal year as a
result of the AMMS acquisition.





Net cash
used in operations in the six months ending September 30, 2009 was $3,444,
primarily due to our net loss of $4,296 offset by decreases in accounts
receivable.  Net cash used in operations in the period ending
September 30, 2008 was $4,100, due primarily to the net loss of $3,290,
increases in inventory, accrued expenses, accrued product warranty, and accounts
payable.  This was offset by decreases in accounts
receivable.





Net cash
used in investing activities totaled $376 and $1,241 for the periods ending
September 30, 2009 and 2008, respectively. In both periods, net cash used in
investing activities was primarily for capital expenditures principally for
demonstration equipment, leasehold improvements and to acquire design tools,
analytical equipment and computers.  In fiscal 2009 net cash was also
used in AMMS asset acquisition.





The
consolidated financial statements contemplate the realization of assets and the
satisfaction of liabilities in the normal course of business for the foreseeable
future. We incurred net losses of $1,689 and $2,499 for the three months endedSeptember 30, 2009 and 2008,
respectively. We incurred net losses of $4,296 and $3,290 for the six months endedSeptember 30, 2009 and 2008,
respectively. We used cash flows from operations of $3,444 and $4,100 for the
six months ended September 30, 2009and 2008,
respectively.  We believe that our outstanding balances, combined with
continued cost containment will be adequate to fund operations through fiscal
year ending March 31, 2010. Our business is dependent upon the sales of our
capital equipment, and projected sales may not materialize and unforeseen costs
may be incurred.  If the projected sales do not materialize, we will
need to reduce expenses further and/or raise additional capital which may
include capital raises 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 any needed funds
would materially adversely affect us.  It is not possible to predict
when our business and results of operations will improve in light of the current
economic downturn that continues to dramatically affect our
industry.  Therefore, the realization of assets and discharge of
liabilities are each subject to significant uncertainty.  Accordingly,
substantial doubt exists as to whether we will be able to continue as a going
concern.  If the going concern basis is not appropriate in future
filings, no adjustments will be necessary to the carrying amounts and/or
classification of assets and liabilities in our consolidated financial
statements included in such filings as the consolidated financial statements
have been prepared using the going concern basis, which assumes that we will be
able to realize our assets and discharge our liabilities in the normal course of
business for the foreseeable future.





Item
3.  Quantitative and
Qualitative Disclosures About Market Risk





Foreign
Currency Exchange Risk





At
September 30, 2009 and 2008,all of
the Company’s investments were classified as cash equivalents in the
consolidated balance sheets. The investment portfolio at September 30, 2009
and 2008 was
comprised of money market funds.  Our exposure to foreign currency
fluctuations is primarily related to inventories held in Europe, which are
denominated in the Euro. Changes in the exchange rate between the Euro and the
U.S. dollar could adversely affect our operating results. Exposure to foreign
currency exchange rate risk may increase over time as our business evolves and
our products continue to be sold into international markets. For the most recent
three month period, fluctuations of the U.S. dollar in relation to the Euro were
immaterial to our financial statements.  These fluctuations primarily
affect cost of goods sold as it relates to varying levels of inventory held in
Europe and denominated in the Euro.





Interest
Rate Risk





We are
only marginally exposed to interest rate risk through interest earned on money
market accounts. Interest rates that may affect these items in the future will
depend on market conditions and may differ from the rates we have experienced in
the past. We do not hold or issue derivatives, commodity instruments or other
financial instruments for trading purposes.








Item
4.   Controls
and Procedures





Evaluation of Disclosure Controls
and Procedures.





As of the
period covered by this quarterly report, management performed, with the
participation of our Chief Executive Officer and Chief Financial Officer, an
evaluation of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act.  Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed in the report we file or submit under the Exchange Act
is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosures.   Based on the evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as of September 30, 2009,
such disclosure controls and procedures were effective.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting during the
quarter ended September 30, 2009 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.




Disclosure
Controls and Internal Controls for Financial Reporting




Disclosure
controls are procedures that are designed with the objective of ensuring that
information required to be disclosed in our reports filed under the Exchange Act
such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure. Internal controls for financial
reporting are procedures which are designed with the objective of providing
reasonable assurance that our transactions are properly authorized, our assets
are safeguarded against unauthorized or improper use and our transactions are
properly recorded and reported, all to permit the preparation of our financial
statements in conformity with U.S. GAAP.








-16-











PART
II — OTHER INFORMATION





Item
1A.  Risk
Factors





We
wish to caution you that there are risks and uncertainties that could affect our
business. A description of the risk factors associated with our business that
you should consider when evaluating our business is included under “Risk
Factors” contained in Item 1A. of our Annual Report on Form 10-K for the year
ended March 31, 2009. In addition to those factors and to other information in
this Form 10-Q, the following updates to the risk factors should be considered
carefully when evaluating Tegal or our business.





We
have incurred operating losses and may not be profitable in the
future.  Our plans to maintain and increase liquidity may not be
successful.





We had
net (losses) income of ($7,902), $18,104, and ($13,213) for the years ended
March 31, 2009, 2008, and 2007, respectively.  We (used) generated
cash flows from operations of ($5,541), ($5,057), and $12,772 in these
respective years.  For the three and six months ended September 30,
2009, we had a net loss of ($1,689) and ($4,296), respectively. Although we
believe that our outstanding cash balances, combined with continued cost
containment will be adequate to fund operations through fiscal year 2010, we
believe there is substantial doubt as to our ability to continue as a going
concern if there is not significant improvement in the semiconductor capital
equipment industry that has been dramatically impacted by the global economic
recession. Our long-term viability of our operations is dependent upon our
ability to generate sufficient cash to support our operating needs, fulfill
business objectives and fund continued investment in technology and product
development without incurring substantial indebtedness that will hinder our
ability to compete, adapt to market changes and grow our business in the future.
More specifically, our business is dependent upon the sales of our capital
equipment, and projected sales may not materialize and unforeseen costs may be
incurred.  If the projected sales do not materialize, we would need to
reduce expenses further and/or raise additional capital which may include
capital raises through the issuance of debt or equity securities in order to
continue our business.  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 any needed funds would materially adversely affect us.





In
consideration of these circumstances, we have engaged Cowen & Co., LLC to
assist us in evaluating strategic alternatives for the Company, which may
include a merger with or into another company, a sale of all or substantially
all of our assets and the liquidation or dissolution of the company, including
through a bankruptcy proceeding. We cannot assure you that we will be successful
in pursuing any of these strategic alternatives.  If we were to
liquidate or dissolve the company through or outside of a bankruptcy proceeding,
you could lose all of your investment in Tegal common stock.





If
we are not able to regain compliance with NASDAQ Stock Market rules, our common
stock could be delisted, which would makes our common stock significantly less
liquid.





On June
16, 2009, we notified The NASDAQ Stock Market that, as a result of the
resignation of Edward A. Dohring from our Board of Directors, we no longer
were in compliance with NASDAQ's independent directors requirement for continued
listing as set forth in NASDAQ Listing Rule 5606(b)(1) and NASDAQ's audit
committee composition requirements for continued listing as set forth in NASDAQ
Listing Rule 5605(c)(2)(A). We currently have four directors, only two of whom
the Board has determined to be an “independent director” as such term is defined
in NASDAQ Listing Rule 5605(a)(2).  On June 19, 2009, we received a
letter from NASDAQ indicating that, in accordance with Rules 5605(b)(1) and
5605(c)(4) of the NASDAQ Listing Rules, NASDAQ will provide us a cure period to
regain compliance equal to the earlier of our next annual shareholders' meeting
or June 16, 2010, or, if the next annual shareholders' meeting is held before
December 14, 2009, then the we must evidence compliance no later than December
14, 2009. We intend to evaluate candidates who are qualified to serve on the
Board and the Audit Committee of the Board.





If we are
unable to regain compliance with the NASDAQ rules, our common stock could be
delisted from the NASDAQ Capital Market.  We do not know if a market
maker would enable our common stock to be traded on the Pink Sheets, and even if
a market maker did so, trading on the Pink Sheets would not be within our
control and could be discontinued at any time if no market maker is willing to
offer a quote.   Furthermore, over-the-counter (OTC) transactions
involve risks in addition to those associated with transactions on a stock
exchange. Many OTC stocks trade less frequently and in smaller volumes than
stocks listed on an exchange. Accordingly, OTC-traded shares are less liquid and
are likely to be more volatile than exchange-traded
stocks.  Consequently, the liquidity of our common stock could be
greatly impaired, not only in the number of shares which could be bought and
sold, but also through difficulties in obtaining price quotations, reduction in
our coverage by security analysts and in the news media and lower prices for our
securities than might otherwise be attained. These circumstances could have an
adverse effect on the ability of an investor to sell any shares of our common
stock as well as on the selling price for such shares.





-17-





Item
6.   Exhibits





Exhibit


Number
            Description





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.


-18-


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)/s/  CHRISTINE
      HERGENROTHER
              Christine
      Hergenrother
              Chief
      Financial OfficerDate:
      November 13, 2009


-19-








EXHIBIT
31.1





CERTIFICATION
OF THE CHIEF EXECUTIVE OFFICER


PURSUANT
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 am 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 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)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;





(c)
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; and





(d)
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 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 13, 2009


/s/   Thomas
R. Mika


Chief
Executive Officer and President


-20-





EXHIBIT
31.2





CERTIFICATION
OF THE CHIEF FINANCIAL OFFICER


PURSUANT
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 am 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 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)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;





(c)
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; and





(d)
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 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 13, 2009


/s/  Christine
Hergenrother


Chief
Financial Officer

















-21-




EXHIBIT
32





CERTIFICATION
PURSUANT TO


SECTION
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 ended December 31, 2008 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 Sec. 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Sec. 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.
Mika


Chief
Executive Officer and President


November
13, 2009








-22-








CERTIFICATION
PURSUANT TO


SECTION
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 ended December  31,, 2008 as filed with the Securities and
Exchange Commission (the “Report”), I, Christine Hergenrother, Chief Financial
Officer of the Company, certify, pursuant to Sec. 906 of the Sarbanes-Oxley Act
of 2002 (18 U.S.C. Sec. 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
Hergenrother


Chief
Financial Officer


November
13, 2009