Tegal Corporation (Nasdaq:TGAL), a leading designer and manufacturer of DRIE, plasma etch, and deposition systems used in the production of MEMS, power semiconductor, and optoelectronic devices, today announced financial results for the third quarter Fiscal Year 2010, which ended December 31, 2009.

Third Quarter Highlights
•    Third quarter revenues reached their highest level since the fourth fiscal quarter of 2008, continuing a steady quarterly increase since the beginning of the Company's current fiscal year.
•    Shipments in the quarter included 4 DRIE tools to customers in the USA, Europe, Japan and Asia for MEMS devices and multiple silicon and dielectric film applications.
•    The Company announced that its full process portfolio for silicon DRIE applications has been made available for the new ProNova ICP source. The application suite includes its patented super high aspect ratio ("SHARP") process, as well as novel processes for integrated mask open and for high resist mask selectivity deep silicon etching
•    In connection with its on-going evaluation of strategic alternatives, the Company reviewed the value of its long-lived assets as required by FAS144, and determined that it should record a loss provision of $7.8 million against the carrying value of its inventory.
•    Excluding the non-cash charges and the loss provision, operating income for the third fiscal quarter would have been $0.2 million

Financial Results
Revenues for the third quarter of fiscal 2010 were $5.1 million, an increase from the same period last year of $600K and from the second quarter of fiscal 2010 by $2.0 million. Tegal reported a net loss of ($8.8) million, or ($1.04) per share, for the quarter, compared to net loss of ($1.4) million, or ($0.19) per share in the same period last year, and a net loss of ($1.7) million, or ($0.20) per share in the prior quarter. This quarter's net loss included an inventory impairment provision of $7.8 million.

Gross margin for the third quarter of fiscal 2010 was (109.2%) compared to 30.5% in the same period last year, and 27.2% in the prior quarter. The gross margin without the loss provision related to the carrying value of the inventory is 45% for the third quarter. The improved gross margin before the loss provision is attributed to the increase in revenues and an uptick in the Company's spares and service business during the quarter.

Operating loss for the third quarter was ($8.5) million, including approximately $0.9 million of non-cash charges and $7.8 million of a loss provision. Excluding the non-cash charges and the loss provision, the operating income for the quarter would have been $0.2 million. Operating loss in the same period last year was ($1.4) million. That period's operating expenses included $0.5 million of non-cash charges. The operating loss for Q2 of this fiscal year was ($1.8) million, which included $0.5 million of non-cash charges.

Operating expenses for the third quarter were $3.0 million, including $0.9 million of non-cash charges related to depreciation, amortization and stock compensation expense. Approximately $0.4 million of these non-cash charges were recorded in R&D expense. The majority of the increase in R&D expense in the third quarter is related to the non-cash charges. Total cash operating expenses for the quarter were $2.1 million - the lowest level of cash operating expenses incurred by the Company since Fiscal 2004.

Backlog at the end of the quarter was $3.0 million.

Cash at the end of the fiscal third quarter of 2010 was $7.8 million, a decrease of $0.8 million from the previous quarter. Over the same three month period, inventories decreased by $10.1 million to $4.4 million, accounts receivable increased by $1.8 million to $4.3 million, and accounts payable increased by $0.6 million to $1.5 million.

As of December 31, 2009, the Company's total shares outstanding were 8,412,676.

"In a still challenging market, our efforts to grow our DRIE business on the strong technology platform acquired from Alcatel are clearly paying dividends as we continue to make progress with new and existing customers. The sequential and year-over-year increase in revenues, along with our very tight control on expenses, resulted in a cash positive operating quarter for the first time since March of 2008," said Thomas Mika, President&CEO. "Our GAAP results included an impairment provision resulting from the application of FAS 144, but we believe that this is prudent as we continue to pursue possible strategic alternatives, including the sale of certain product lines and related IP. We are determined to continue streamlining our profitable operations and conserving our solid cash position during a period of significant transition for the Company."