<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-26824
TEGAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 68-0370244
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2201 SOUTH MCDOWELL BLVD.
PETALUMA, CALIFORNIA 94954
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER (707) 763-5600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 4, 1999, there were 10,784,234 shares of the registrant's
Common Stock outstanding.
================================================================================
<PAGE> 2
TEGAL CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations -- for the three and six months
ended September 30, 1999 and 1998.......................................................... 3
Condensed Consolidated Balance Sheets, as of September 30, 1999 and March 31, 1999......... 4
Condensed Consolidated Statements of Cash Flows -- for the six months
ended September 30, 1999 and 1998.......................................................... 5
Notes to Condensed Consolidated Financial Statements....................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................................. 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................. 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 12
SIGNATURES................................................................................. 13
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TEGAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue ............................. $ 4,700 $ 10,033 $ 11,359 $ 16,517
Cost of sales ....................... 3,164 7,321 7,666 11,422
-------- -------- -------- --------
Gross profit ...................... 1,536 2,712 3,693 5,095
Operating expenses:
Research and development .......... 2,496 2,373 5,124 5,013
Sales and marketing ............... 1,222 1,459 2,420 2,884
General and administrative ........ 1,923 2,173 4,224 4,088
-------- -------- -------- --------
Total operating expenses ....... 5,641 6,005 11,768 11,985
Operating loss ................. (4,105) (3,293) (8,075) (6,890)
Other income, net ................... 117 218 322 425
-------- -------- -------- --------
Net loss ............................ $ (3,988) $ (3,075) $ (7,753) $ (6,465)
======== ======== ======== ========
Net loss per common share:
Basic/Diluted .................. $ (0.37) $ (0.29) $ (0.72) $ (0.61)
Shares used in per share computation:
Basic/Diluted .................. 10,761 10,618 10,744 10,593
</TABLE>
See accompanying notes.
3
<PAGE> 4
TEGAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, MARCH 31,
1999 1999
------------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................... $ 10,107 $ 17,569
Receivables, net ............................... 6,558 4,831
Inventories .................................... 14,627 12,226
Prepaid expenses and other current assets ...... 1,249 1,478
-------- --------
Total current assets ................... 32,541 36,104
Property and equipment, net ...................... 2,402 3,185
Other assets, net ................................ 355 363
-------- --------
$ 35,298 $ 39,652
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .................................. $ 3,463 $ 223
Accounts payable ............................... 1,863 2,254
Accrued expenses and other current liabilities . 6,712 6,329
-------- --------
Total current liabilities .............. 12,038 8,806
Long-term portion of capital lease obligation .... 4 30
-------- --------
Total liabilities ...................... 12,042 8,836
-------- --------
Stockholders' equity:
Common stock ................................... 108 107
Additional paid-in capital ..................... 55,733 55,635
Cumulative translation adjustment .............. 250 156
Accumulated deficit ............................ (32,835) (25,082)
-------- --------
Total stockholders' equity ............. 23,256 30,816
-------- --------
$ 35,298 $ 39,652
======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
TEGAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $ (7,753) $ (6,465)
Adjustments to reconcile net loss to cash provided by (used
in) operating activities:
Deferred income taxes ........................................ 0 918
Depreciation and amortization ................................ 813 1,135
Allowance for doubtful accounts and sales return allowances 141 49
Changes in operating assets and liabilities:
Accounts receivable ....................................... (1,869) (1,214)
Inventory ................................................. (2,400) (405)
Prepaid expenses and other assets ......................... 229 (10)
Accounts payable and other current liabilities ............ 14 549
Changes in operating assets and liabilities:
Net cash used in operating activities ................. (10,825) (5,443)
-------- --------
Cash flows used in investing activities -- purchases of property
and equipment ................................................... (30) (434)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock ........................ 99 172
Borrowings under lines of credit .............................. 3,240 185
Repayment of capital lease financing .......................... (40) (138)
-------- --------
Net cash provided by financing activities ............. 3,299 219
-------- --------
Effect of exchange rates on cash and cash equivalents ........... 94 297
-------- --------
Decrease in cash and cash equivalents ........................... (7,462) (5,361)
Cash and cash equivalents at beginning of period ................ 17,569 25,660
-------- --------
Cash and cash equivalents at end of period ...................... $ 10,107 $ 20,299
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 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, 1999
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 financial statements
and footnotes included in the annual report on Form 10-K of Tegal Corporation
(the "Company") for the year ended March 31, 1999. The results of operations for
the three and six months ended September 30, 1999 are not necessarily indicative
of results to be expected for the entire year.
2. INVENTORIES:
Inventories consisted of:
<TABLE>
<CAPTION>
SEPT. 30, MARCH 31,
1999 1999
--------- --------
<S> <C> <C>
Raw materials...................... $ 2,544 $ 2,554
Work in progress................... 5,461 1,590
Finished goods and spares.......... 6,622 8,082
------- --------
$14,627 $ 12,226
======= ========
</TABLE>
3. NET LOSS PER COMMON SHARE:
Options to purchase 3,421,455 and 2,029,642 shares of common stock were
outstanding at September 30, 1999 and September 30, 1998, respectively, but were
not reflected in the computations of diluted Earnings Per Share ("EPS") because
the Company recorded a net loss in those periods and to do so would have been
anti-dilutive.
4. INCOME TAX EXPENSE:
No provision for federal or state income tax has been recorded for the three
and six month periods ended September 30, 1999 and 1998, respectively, as the
Company has recorded a net loss before taxes for those periods. The Company did
not recognize a benefit for these net losses before taxes because any benefit
derived would require offsetting current losses against future profitability
where such profitability's timing and magnitude are uncertain.
5. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS 133 requires that all derivatives
be recognized in the balance sheet at their fair market value, and the
corresponding derivative gains or losses be either reported in the statement of
operations or as a deferred item depending on the type of hedge relationship
that exists with respect to such derivative. Adopting the provisions of SFAS 133
are not expected to have a material effect on the Company's consolidated
financial statements, which will be effective for the Company's fiscal year
ending March 31, 2002.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information herein contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995, which can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"anticipate," "estimate," or "continue" or the negative thereof or other
variations thereon or comparable terminology or which constitute projected
financial information. The forward-looking statements relate to the near-term
semiconductor capital equipment industry outlook, demand for the Company's
products, the Company's quarterly revenue and earnings prospects for the
near-term future and other matters contained herein. Such statements are based
on current expectations and beliefs and involve a number of uncertainties and
risks that could cause the actual results to differ materially from those
projected. Such uncertainties and risks include, but are not limited to, the
recent soft demand for semiconductor manufacturing equipment, particularly for
equipment procured for capacity additions such as the Company's non-critical
etch systems, the cyclicality of the semiconductor industry, dependence on
recently introduced systems for the critical etch markets, impediments to
customer acceptance, fluctuations in quarterly operating results, competitive
pricing pressures, the introduction of competitor products having technological
and/or pricing advantages, product volume and mix and other risks detailed from
time to time in the Company's SEC reports. For further information, refer to the
business description and additional risk factors sections included in the
Company's Form 10-K for the year ended March 31, 1999, as filed with the SEC.
RESULTS OF OPERATIONS
The Company designs, manufactures, markets and services plasma etch systems
used in the fabrication of integrated circuits, read-write heads for the disk
drive industry, printer heads and small flat panel displays.
The following table sets forth certain financial items as a percentage of
revenue for the three and six month periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue ..................... 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Cost of sales ............... 67.3 73.0 67.5 69.2
------ ------ ------ ------
Gross profit .............. 32.7 27.0 32.5 30.8
------ ------ ------ ------
Operating expenses:
Research and development .. 53.1 23.6 45.1 30.3
Sales and marketing ....... 26.0 14.5 21.3 17.5
General and administrative 40.9 21.7 37.2 24.7
------ ------ ------ ------
Total operating expenses 120.0 59.8 103.6 72.5
------ ------ ------ ------
Operating loss ......... (87.3) (32.8) (71.1) (41.7)
Other income, net ........... 2.4 2.2 2.8 2.6
------ ------ ------ ------
Net loss .................... (84.9) (30.6) (68.3) (39.1)
====== ====== ====== ======
</TABLE>
Revenue. Revenue for the three and six months ended September 30, 1999 was
$4.7 million and $11.4 million respectively, down 53.2% and 31.2% over the
comparable periods in 1998. The decrease of $5.3 million for the three months
ended September 30, 1999 was principally due to the sale of one less 6500 series
system, a change in the mix from 980 series systems to used 900 series that
carry a substantially lower average selling price and reduced service sales. The
decrease of $5.2 million for the six months ended September 30, 1999, was
principally due to the change in mix from the 980 series to the used 900 series
and to reduced sales in both service and spare parts.
Revenue from spare parts and service sales was $3.2 million and $6.7 million
for the three and six month periods ended September 30, 1999, down from $4.0
million and $8.1 million for the comparable periods in the prior year, which the
Company believes is a result of customers curtailing spare parts purchases
during the recent industry slowdown and to a lesser extent to increased
competition from third party spare parts suppliers.
7
<PAGE> 8
International sales as a percentage of the Company's revenue was
approximately 55.3% and 75.1% for the three months and 64.9% and 71.6% for the
six months ended September 30, 1999 and 1998, respectively. The Company believes
that international sales will continue to represent a significant portion of its
revenue.
Gross profit. Gross profit as a percentage of revenue (gross margin) was
32.7% and 27.0% for the three months and 32.5% and 30.8% for the six months
ended September 30, 1999 and 1998, respectively. The increase in gross margin
for the three and six months ended September 30, 1999, compared to the
comparable periods in the prior year was principally attributable to improved
spare parts and service gross margins which were primarily due to an improved
parts mix and to reduced service function expenses.
Research and development. Research and development expenses consist primarily
of salaries, prototype material and other costs associated with the Company's
ongoing systems and process technology development, applications and field
process support efforts. Research and development expenses were $2.5 million and
$2.4 million for the three months and $5.1 and $5.0 million for the six months
ended September 30, 1999 and 1998, respectively, representing 53.1%, 23.6%,
45.1% and 30.3% of revenue, respectively.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, commissions, trade show promotion and travel and living expenses
associated with those functions. Sales and marketing expenses were $1.2 million
and $1.5 million for the three months and $2.4 million and $2.9 million for the
six months ended September 30, 1999 and 1998, respectively, representing 26.0%,
14.5%, 21.3% and 17.5% of revenue, respectively. The decrease in sales and
marketing expense for the three and six months ended September 30, 1999,
compared to the comparable periods in the prior year was due principally to
reduced sales commissions on a lower revenue base and to reduced advertising
expenses.
General and administrative. General and administrative expenses consist
primarily of compensation for general management, accounting and finance, human
resources, information systems and investor relations functions and for legal,
consulting and accounting fees of the Company. General and administrative
expenses were $1.9 million and $2.2 million for the three months and $4.2
million and $4.1 million for the six months ended September 30, 1999 and 1998,
respectively, representing 40.9%, 21.7%, 37.2% and 24.7% of revenue,
respectively. The decrease in general and administrative spending for the three
month period ended September 30, 1999, compared to the comparable period in the
prior year was primarily attributable to reduced legal expenses in the recent
quarter. The increase for the six month period ended September 30, 1999,
compared to the comparable period in the prior year was primarily due to
incurring additional legal expenses in connection with the Company's patent
disputes with Austria Mikro Systeme International AG and AMS Austria Mikro
Systeme International, Inc. ("AMS") and Tokyo Electron Limited ("TEL") during
the first quarter of fiscal 2000. See "Part II, Item 1. Legal Proceedings."
Other income, net. Other income, net consists primarily of interest income on
outstanding cash balances and gains and losses on foreign exchange.
Income tax expense. No provision for federal or state income tax has been
recorded for the three and six months ended September 30, 1999 and 1998,
respectively, as the Company has recorded a net loss before taxes in those
periods. The Company did not recognize a benefit for this net loss before taxes
in those periods because any benefit derived would require offsetting current
losses against future profitability where such profitability's timing and
magnitude is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
For the six month period ended September 30, 1999, the Company financed its
operations through the use of outstanding cash balances and borrowings against
its promissory note borrowing facilities in Japan. For the six month period
ended September 30, 1998, the Company financed its operations through the use of
outstanding cash balances.
Net cash used in operations was $10.8 million during the six months ended
September 30, 1999, due principally to a net loss of $6.9 million after
adjusting for depreciation, an increase in accounts receivable and inventory and
a decrease in prepaid expenses. Net cash used in operations was $5.4 million for
the six months ended September 30, 1998, due principally to a net loss of $5.3
million after adjusting for depreciation.
Net capital expenditures totaled $30,000 and $0.4 million for the six months
ended September 30, 1999 and 1998, respectively. Capital expenditures in both
periods were incurred principally for leasehold improvements and to acquire
design tools, analytical equipment and computers.
8
<PAGE> 9
Net cash provided by financing activities totaled $3.3 million and $0.2
million for the six months ended September 30, 1999 and 1998, respectively. In
both periods, the increase was due principally to increased borrowings under the
Company's two Japanese borrowing facilities offset, in part, by repayment of
capital lease obligations.
As of September 30, 1999, the Company had approximately $10.1 million of cash
and cash equivalents. In addition to cash and cash equivalents, the Company's
other principal sources of liquidity consisted of the unused portions of several
bank borrowing facilities. At September 30, 1999, the Company had a maximum
borrowing capacity of $12.5 million available under a domestic line of credit
secured by substantially all of the Company's assets which is additionally
limited by the amount of accounts receivable and inventory and on the Company's
balance sheet. The facility is available until August 15, 2000. In addition to
the foregoing facility, as of September 30, 1999, the Company's Japanese
subsidiary had available a 282 million Yen (approximately $2.7 million at
exchange rates prevailing on September 30, 1999) unused portion of two Japanese
bank lines of credit totaling 650 million Yen (approximately $6.1 million at
exchange rates prevailing on September 30, 1999) secured by Japanese customer
promissory notes held by such subsidiary in advance of payment on customers'
accounts receivable.
The Company believes that anticipated cash flow from operations, funds
available under its lines of credit and existing cash and cash equivalent
balances will be sufficient to meet the Company's cash requirements for the next
nine to twelve months. The Company is currently pursuing several avenues for
additional financing. There can be no assurance that such financing will be
available when required or on reasonable terms.
YEAR 2000 COMPLIANCE
In the past, many information technology products were designed with two
digit year codes that did not recognize century and millennium fields. As a
result these hardware and software products may not function or may give
incorrect results when Year 2000 dates are used. The "Year 2000 Issue" is faced
by substantially every company which relies on computer systems. In order to
address this issue, such hardware and software products may need to be upgraded
or replaced in order to correctly process dates beginning in the Year 2000.
The Company has formed a team and named an executive sponsor to identify
remedies and test and develop contingency plans for the Year 2000 Issue. The
tasks identified by this team have been substantially completed. The Company has
evaluated, upgraded and tested its internal systems, and has evaluated its
products and the readiness of its key suppliers and other third parties to
determine their Year 2000 status.
The Company's Enterprise Resource Planning (ERP) system is provided by a
software vendor and contains some custom modifications to meet the Company's
business requirements. The vendor-provided software is certified Year 2000
compliant by the Information Technology Association of America. The custom
modifications have been evaluated to identify the changes necessary to make them
compliant and the required modifications have been completed. The Company's
current product offerings have been tested and determined to either be Year 2000
compliant or, where they are not compliant, an upgrade program is available to
address the problem.
The Company completed its Year 2000 risk assessment and its corrective action
and contingency plans in April 1999. The risk assessment has evaluated the
readiness of its key suppliers and other third parties and the effect their
compliance readiness might have on the Company. For key suppliers where the risk
of non-compliance has been assessed as high, backup or contingency plans have
been developed and documented and audits of those vendors for Year 2000
compliance have been performed. The Company is not currently planning on
assessing the compliance readiness of its customers. The Company's customers are
generally considerably larger than the Company and are unlikely to complete any
questionnaire which the Company might furnish to its customers to assess Year
2000 compliance. The Company does not anticipate that its ability to conduct its
business operations with its suppliers or customers is likely to be materially
adversely impacted by Year 2000 issues since purchase and sales order
transactions are generally transmitted by mail, phone or facsimile between
parties as opposed to through some form of electronic data interchange.
The total expense of preparing the Company for Year 2000 compliance has been
approximately $0.4 million, which is not material to the Company's business
operations or financial condition. Nevertheless, satisfactorily addressing the
Year 2000 Issue is dependent on many factors, some of which are not within the
Company's control. Should the Company's internal systems, or the internal
systems of one or more of its significant vendors, customers, or other third
parties fail to achieve Year 2000 compliance, the Company's business, financial
condition and results of operations could be materially adversely affected.
9
<PAGE> 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has an investment portfolio of securities principally comprised
of money market funds. These funds are subject to interest rate risk and may
fall in value if market interest rates increase. The Company attempts to limit
this exposure by investing primarily in short-term securities having a maturity
of three months or less.
The Company has foreign subsidiaries which operate and sell the Company's
products in various global markets. As a result, the Company's cash flow and
earnings are exposed to fluctuations in interest and foreign currency exchange
rates. The Company attempts to limit these exposures through the use of various
hedge instruments, primarily forward exchange contracts and currency option
contracts (with maturities of less than three months) to manage its exposure
associated with firm obligations and net asset and liability positions
denominated in non-functional currencies. There have been no material changes
regarding market risk since the disclosures made in the Company's Form 10-K for
the year ended March 31, 1999.
10
<PAGE> 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company. However,
on June 10, 1996, Lucent Technologies Inc. ("Lucent") filed a lawsuit with the
United States District Court for the Northern District of California alleging
patent infringement by Austria Mikro Systeme International AG and AMS Austria
Mikro Systeme International, Inc. ("AMS") for the sale of integrated circuits
manufactured with the Company's dry plasma etch systems. In March 1995, the
Company executed an agreement with AMS, containing an indemnification provision
covering certain uses of select equipment sold to AMS. Lucent and AMS settled
the U.S. claim and AMS was seeking indemnification from the Company through an
arbitration proceeding with respect to the U.S. claim. The Company has been
informed that Lucent filed a claim for patent infringement in Germany against
AMS for the worldwide sale of integrated circuits manufactured with the
Company's dry plasma etch systems. Lucent and AMS have settled that matter with
respect to worldwide sales and AMS has also requested indemnification for that
matter. The arbitration was settled on both the U.S. and worldwide matters in a
manner favorable to the Company.
On March 17, 1998, the Company filed a suit in the United States District
Court in the Eastern District of Virginia against Tokyo Electron Limited and
several of its U.S. subsidiaries (collectively, "TEL") alleging that TEL's
current generation of etch equipment infringes certain of the Company's patents.
The suit was tried to the court in May, 1999, and on August 31, 1999, the court
found both patents-in-suit valid, and found that TEL had willfully infringed
Tegal's `223 dual-frequency triode etcher patent. The court enjoined TEL from
further sales or service of its IEM etchers. In addition, the court ordered TEL
to pay attorney's fees and court costs to the Company. TEL has filed an appeal
of the court's ruling. No assurance can be given as to the outcome of that
appeal or as to the effect of any such outcome on the Company. A companion suit
against TEL's parent company, Tokyo Electron Ltd., seeking damages and
injunctive relief for infringement of the `223 patent, is currently pending in
the same court. That case is in its early stages, and no assurance can be given
as to the outcome of that lawsuit or as to the effect of any such outcome on the
Company.
In addition, on September 1, 1999, the Company filed a patent infringement
action against Lam Research Corporation ("Lam"), asserting infringement of the
`223 patent and a second, related patent. That suit was also filed in the
Eastern District of Virginia, Richmond Division. The Company is seeking
injuctive relief barring Lam from manufacturing, selling and supporting products
that incorporate the Company's patented technology. The Company is further
seeking punitive damages for willful infringement of its patents. Lam has filed
a motion to dismiss that action for lack of jurisdiction, or in the alternative
to transfer that action to the Northern District of California. No discovery has
been conducted to date in that action. No assurance can be given as to the
outcome of that lawsuit or as to the effect of any such outcome on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Stockholders' Meeting held on September 21, 1999, the
following individuals were re-elected to the Board of Directors:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
---------- --------------
<S> <C> <C>
Michael L. Parodi 10,019,716 38,141
Jeffrey M. Krauss 10,019,190 38,667
Thomas R. Mika 10,019,216 38,641
Fred Nazem 10,018,690 39,167
Edward A. Dohring 10,019,116 38,741
</TABLE>
The proposal to adopt an amendment to the Company's Employee Qualified Stock
Purchase Plan to increase the maximum authorized shares from 250,000 to 500,000
shares was approved by the stockholders as follows:
<TABLE>
<S> <C>
Votes For 7,364,461
Votes Against 199,189
Abstentions 9,841
Broker Non-Votes 2,484,366
</TABLE>
11
<PAGE> 12
The proposal to adopt an amendment to the Company's 1998 Equity Participation
Plan to increase the maximum authorized shares from 600,000 to 900,000 shares
was approved by the stockholders as follows:
<TABLE>
<S> <C>
Votes For 7,265,808
Votes Against 298,112
Abstentions 9,571
Broker Non-Votes 2,484,266
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
None.
12
<PAGE> 13
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.
Dated: November 5, 1999
TEGAL CORPORATION
(Registrant)
/s/ DAVID CURTIS
---------------------------------------------
David Curtis
Chief Financial Officer, Treasurer and
Secretary (Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 10,107
<SECURITIES> 0
<RECEIVABLES> 6,963
<ALLOWANCES> 405
<INVENTORY> 14,627
<CURRENT-ASSETS> 32,541
<PP&E> 13,988
<DEPRECIATION> 11,586
<TOTAL-ASSETS> 35,298
<CURRENT-LIABILITIES> 12,038
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> 23,148
<TOTAL-LIABILITY-AND-EQUITY> 35,298
<SALES> 4,700
<TOTAL-REVENUES> 4,700
<CGS> 3,164
<TOTAL-COSTS> 3,164
<OTHER-EXPENSES> 2,496
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (3,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,988)
<EPS-BASIC> (.37)
<EPS-DILUTED> (.37)
</TABLE>
