UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
(Mark One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
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ACT
OF 1934
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For
the fiscal year ended March 31, 2009
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
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ACT
OF 1934
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Commission
file number: 0-26824
Tegal
Corporation
(Exact
name of Registrant as specified in its Charter)
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Delaware
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68-0370244
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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2201
South McDowell Boulevard
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Petaluma,
California
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94954
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code: (707) 763-5600
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
Registered Pursuant to Section 12(g) of the Act:
Common
Stock, $0.01 Par Value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No
þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.
Yes o No
þ
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. þ
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 (§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
þ No
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. (Check one):
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 Act.
Yes o No
þ
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based on the closing sale price of the common
stock on March 31, 2009 as reported on the NASDAQ Capital Market, was
$9,253,944. As of June 25, 2009, 8,412,676 shares of the registrant’s common
stock were outstanding.
The number of shares outstanding reflects a 1-for-12 reverse stock split
effected by the Registrant on July 25, 2006.
DOCUMENTS
INCORPORATED BY REFERENCE
The
information required by Part III of this Form 10-K will be incorporated by
reference from the Registrant’s Proxy Statement for its 2009 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
close of the registrant’s fiscal year.
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1.
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Business
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3
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Item
1A.
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Risk
Factors
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5
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Item
1B
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Unresolved
Staff
Comments
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6
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Item
2.
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Properties
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7
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Item
3.
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Legal
Proceedings
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7
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Item
4.
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Submission
of Matters to a Vote of Security
Holders
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7
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issue
Purchases of Equity Securities
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8
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Item
6.
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Selected
Financial
Data
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8
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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9
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Item
7A.
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Quantitative
and Qualitative Disclosure about Market
Risks
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11
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Item
8.
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Financial
Statements and Supplementary
Data
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11
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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24
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Item
9A.
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Controls
and
Procedures
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24
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Item
9B.
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Other
Information
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24
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PART
III
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Item
10.
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Directors
and Executive Officers of the
Registrant
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Item
11.
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Executive
Compensation
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and related
Stockholder Matters
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Item
13.
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Certain
Relationships and Related
Transactions
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Item
14.
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Principal
Accountant Fees and
Services
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PART
IV
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Item
15.
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Exhibits
and Financial Statement
Schedule
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26
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Signatures
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PART
I
Item
1. Business
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 “Part II, Item
7—Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” beginning on page 18 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.
All
dollar amounts are in thousands unless specified otherwise.
The
Company
Tegal
Corporation, a Delaware corporation (“Tegal” or the “Company”), designs,
manufactures, markets and services 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.
The Company’s 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.
The
Company was formed in December 1989 to acquire the operations of the former
Tegal Corporation, a division of Motorola, Inc. Our predecessor
company was founded in 1972 and acquired by Motorola, Inc. in 1978. We completed
our initial public offering in October 1995.
On August
30, 2002, we acquired all of the outstanding common stock of Sputtered Films,
Incorporated (“SFI”), a privately held California corporation. SFI is
a leader in the design, manufacture and service of high performance physical
vapor deposition sputtering systems for particular applications in the
semiconductor and semiconductor packaging industry. SFI was founded
in 1967 with the development of its core technology, the S-Gun.
On
November 11, 2003, we acquired substantially all of the assets and certain
liabilities of Simplus Systems Corporation, (“Simplus”), a development stage
company. Simplus had developed a deposition cluster tool and certain
patented processes for barrier, copper seed and high-K dielectric
applications. Simplus had coined the term “nano-layer deposition” or
“NLD” to describe its unique approach to molecular organic chemical vapor
deposition (“MOCVD”). We are continuing to develop these NLD
processes and related tools, and are in the process of marketing them to a
limited number of key customers and joint development partners.
On May
28, 2004, we purchased substantially all of the assets and assumed certain
liabilities of First Derivative Systems, Inc. (“FDSI”). FDSI, a
privately held development stage company, was founded in 1999 as a spin-off of
SFI. FDSI had developed a high-throughput, low cost-of-ownership
physical vapor deposition (“PVD”) system with highly differentiated technology
for leading edge memory and logic device production on 200 and 300 millimeter
wafers. We have canceled further internal development of
products based on this technology, and have fully written off the value of the
acquired technology and associated intellectual
property.
On
September 16, 2008, the Company acquired certain assets from Alcatel Micro
Machining Systems (“AMMS”) and Alcatel Lucent. With this acquisition,
we entered the Deep Reactive Ion Etch (“DRIE”) market. DRIE is a
highly anisotropic etch process used to create deep, steep-sided holes and
trenches in wafers, with aspect ratios of 20:1 or more. DRIE was
developed for micro-electro-mechanical systems (MEMS), which require these
features, but is also used to excavate trenches for high-density capacitors for
DRAM and more recently for creating through wafer via's (“TSVs”) in advanced 3-D
wafer level packaging technology. The acquisition was designed to enable us to
pursue the high-growth markets in MEMS and certain segments of integrated
semiconductor device manufacturing and packaging. Current end-markets
include production of a variety of MEMS and power devices, memory stacking
(flash and DRAM), logic, RF-SiP, and CMOS image sensors.
Semiconductor
Industry Background
Over the
past thirty years, the semiconductor industry has experienced significant
growth. This growth has resulted from the increasing demand for ICs from
traditional IC markets, such as personal computers, telecommunications, consumer
electronics, automotive electronics and office equipment, as well as developing
markets, such as wireless communications, multimedia and portable and network
computing. As a result of this increased demand, semiconductor device
manufacturers have periodically expended significant amounts of capital to build
new semiconductor fabrication facilities (“fabs”) and to expand existing
fabs. More recently, growth has slowed, and the industry is maturing
as the cost of building new wafer fabs has increased
dramatically. Similarly, the rate of semiconductor sales growth has
slowed as the industry feels the effects of the current economic environment and
the average selling prices of chips continue to decline. The industry
faces a period of uncertainty with a steep decline in consumer confidence and
caution in the enterprise segment. There is growing pressure on semiconductor
device manufacturers to reduce manufacturing costs while increasing the value of
their products. The semiconductor industry has also been historically
cyclical, with periods of rapid expansion followed by periods of
over-capacity. Currently, the industry is experiencing a severe
down-turn, heightened by tighter credit markets and the negative economic
environment. These circumstances have caused customers to delay or
reconsider expenditures on capital equipment.
Historically,
growth in the semiconductor industry has been driven, in large part, by advances
in semiconductor performance at a decreasing cost per function. Advanced
semiconductor processing technologies increasingly allow semiconductor
manufacturers to produce ICs with smaller features, thereby increasing
processing speed and expanding device functionality and memory capacity. As ICs
have become more complex, however, both the number and price of state of the art
process tools required to manufacture ICs have increased significantly. As a
result, the cost of semiconductor manufacturing equipment has become an
increasingly large part of the total cost of producing advanced
ICs.
To create
an IC, semiconductor wafers are subjected to a large number of complex process
steps. The three primary steps in manufacturing ICs are (1) deposition, in which
a layer of insulating or conducting material is deposited on the wafer surface,
(2) photolithography, in which the circuit pattern is projected onto a light
sensitive material (the photoresist), and (3) etch, in which the unmasked parts
of the deposited material on the wafer are selectively removed to form the IC
circuit pattern.
Each step
of the manufacturing process for ICs requires specialized manufacturing
equipment. Today, plasma-based systems are used for the great majority of both
deposition and etching processes. During physical vapor deposition the
semiconductor wafer is exposed to a plasma environment that forms continuous
thin films of electrically insulating or electrically conductive layers on the
semiconductor wafer. During a plasma etch process (also known as “dry etch”), a
semiconductor wafer is exposed to a plasma composed of a reactive gas, such as
chlorine, which etches away selected portions of the layer underlying the
patterned photoresist layer.
During
the global financial crisis, the demand for most types of semiconductor devices
has declined as purchasing of consumer electronics, automobiles, cell phones,
wireless devices and other products has fallen. As a result,
semiconductor and other electronic device manufactures have dramatically cut
spending on new fabs, and have idled or sold off much of their existing
equipment. As reported by industry trade groups, fab construction
projects have declined quarterly since 2008 and, on a year-over-year basis, are
expected to fall by 56% in 2009. At less than $2 billion, fab construction
spending in 2009 will be at the lowest level in the past ten years. Spending on
equipping facilities (research and development {“R&D”}, pilot and volume
fabs) is expected to decline by 50% in 2009. The lack of
capital spending has had an immediate and direct effect on virtually all
providers of capital equipment for the industry, including Tegal.
Business
Strategy
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 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 revenues, 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 our transition of the Company’s 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.
In order
to achieve our business strategy, we are focused on the following key
elements:
Establishing Market Leadership in
Silicon and Dielectric Deep Reactive Ion Etching (“DRIE”) – With our
acquisition of the AMMS DRIE product lines, we are focused on supplying DRIE
equipment to the growing markets in 3-D microelectronics fabrication for
applications like MEMS, power ICs and optoelectronic devices. DRIE
for MEMS and for complex 3-D interconnects using TSVs, is a key manufacturing
challenge for our customers. Our DRIE systems address these crucial
processes with value-driven solutions. Our advanced silicon and
dielectric DRIE technologies produce superior process results in
high-productivity platforms to meet the growing needs of the MEMS and packaging
markets. Tegal intends to continue the development of the AMMS DRIE
product lines, including the integration of AMMS process modules onto our
standard wafer processing platforms, by completing the productization of 300mm
DRIE process chambers, and by assuming full responsibility for joint development
programs with key DRIE customers, research and academic institutions, and
industry consortia.
Maintaining our Focus in New
Materials Etch – We are a leading provider of etch process solutions for
a set of new materials central to the production of an array of advanced
semiconductor and nanotechnology devices in emerging
markets. Incorporation of these new materials is essential to
achieving the higher device densities, lower power consumption and novel
functions exhibited by the newest generation of cell phones, computer memories,
fiber optic switches and remote sensors. Currently, we supply etch
solutions to makers of various advanced “non-volatile” memories, as well as to
device makers incorporating compound metals and certain high-K dielectric
materials into their devices. Our new materials expertise also
includes the etching of so-called “compound-semi” materials, such as gallium
arsenide, gallium nitride and indium phosphide, used in telecom device
production, as well as expanding use in growth markets such as mobile terminals,
digital home appliances and enterprise applications, such as wireless local area
networks. The advantages of compound semiconductor devices over traditional
silicon devices include higher operating speeds, lower power consumption,
reduced noise and distortion, higher operable temperature, light emitting and
detecting properties, higher light emission efficiency and longer product
life. In
addition, we are known for our capability to etch certain noble metals, such as
gold and platinum, as well as certain proprietary compound metals. We
believe this capability is increasingly important in advanced memory development
and in the production of MEMS. We intend to maintain our focus in new materials
etch through our own internal development efforts and through various joint
development programs and production efforts with leading device
manufacturers.
Strengthening our Position in
Deposition Process Equipment – Our deposition tools that incorporate
“sputter-up” technology enable the production of highly-oriented, thin
piezoelectric films composed of aluminum nitride. Such films are
incorporated into high frequency filters called Bulk Acoustic Wave (“BAW”) and
Film Bulk Acoustic Resonators (“FBARs”) used in cellular telephone and wireless
communications. In addition, our PVD products are well-suited
for applications within so-called “back-end” semiconductor manufacturing
processes, including backside metallization of ultra-thin wafers and underbump
metal processes. These processes are important to power devices, as
well as certain advanced, wafer-level packaging schemes, which are increasingly
being used for high-pin-count logic and memory devices.
Introducing a New Product into
Established Equipment Market - The continued development of our Nano
Layer Deposition (“NLD”) technology represents our belief that we have a
compelling solution to a critical process need in present day and future
semiconductor device fabrication. As device geometries continue to
shrink, conventional chemical vapor deposition (“CVD”) process equipment is
increasingly incapable of depositing thin conformal films in high aspect ratio
trenches and vias. In addition, there appear to be significant
applications of our NLD technology in barrier films and high-K materials
deposition. Atomic Level Deposition (“ALD”) is one technology for
satisfying this deposition requirement. However, ALD has several
shortcomings, including low throughput and limitations on film type and quality,
which we believe our NLD technology overcomes.
Leveraging our Service Leadership
Position -- Tegal has been consistently recognized by
our customers for providing a high level of customer support, a fact that has
been noted by our top ranking for eight of the last ten consecutive years in the
annual survey conducted by VLSI Research, Inc. We expect to maintain
and build on this reputation as we seek new customers in both emerging and
established markets.
Products
Etch
Technologies
Tegal’s
historical strength has been in plasma etch technologies. We
currently offer products that address widely divergent needs of semiconductor
and nanotechnology device manufacturers.
As ICs
become increasingly complex, certain etch steps required to manufacture a state
of the art IC demand leading edge etch technology, where the ability to perform
the etch process is more important than the cost of the tool. In
other applications, low cost-of-ownership and high performance in routine
process steps are essential.
Today,
the semiconductor industry is faced with the need to develop and adopt an
unprecedented number of new materials as conventional films are running out of
the physical properties needed to support continuing shrinks in die size and to
provide improved performance. Certain of these new materials present unique etch
production problems. For example, the use of certain films, such as platinum,
iridium and Lead Zirconate Titanate (“PZT”), currently being used in the
development of non-volatile memories and integrated passive devices, is
presenting new challenges to semiconductor manufacturers. Magnetic
random access memory devices incorporate unique magnetic materials in the device
structures, as do certain proposed resistive random access memory
devices. While these new films contribute to improved device
performance and reduced die size, their unique properties make them particularly
difficult to etch and, therefore, require more advanced etch process
technologies.
Tegal
DRIE Etch Products
We have a
broad line of silicon and dielectric DRIE etching systems used for process
development activities and for the production fabrication of various kinds of
MEMS and Semiconductor devices. The main application markets for our
DRIE products are the telecommunication, automotive, aerospace, computer
peripheral, biomedical industries and semiconductor markets, including power
devices and wafer level packaging applications.
We offer
these DRIE products:
Our DRIE products are either single chamber (Tegal DRIE 80, 110, 200) or cluster
tool (Tegal DRIE 3200, 4200) systems featuring high density inductively coupled
plasma etch reactors with magnetic plasma confinement. Our tools can run Tegal’s
patented SHARP–Super High Aspect Ratio Process, achieving etched feature aspect
ratios of > 100:1 in production environments. Together with their
high reliability, broad process windows, and high etch rates, our DRIE products
are critical enablers for etching silicon and dialectic materials found in the
Power Device, MEMS/MOEMS, photovoltaic, bio-tech, and hi-voltage
markets. We believe our DRIE systems address crucial processes in
these markets, and that our focus on specific technology challenges in these
markets, and our focus supplying robust, reliable DRIE systems that provide an
easy transition from R&D to pilot line to volume production, .will help our
customers overcome the technical and productivity challenges they
encounter in the laboratory and on the production floor.
6500
Series Etch Products
We offer
several models of our 6500 series etch products configured to address film types
and applications desired by our customers. We introduced the 6500
series tool in 1994 and since that time have extended the product line to
address new applications including:
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new
high-K dielectrics and associated materials used in capacitors at sub-0.5
micron for non-volatile memories and integrated passive
devices;
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shallow
trench isolation used to isolate transistors driven by increased packing
densities used in memory devices employing design rules at or below 0.25
micron;
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sub-0.5
micron multi-layer metal films composed of
aluminum/copper/silicon/titanium
alloys;
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sub-0.5
micron polysilicon;
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compound
semiconductor III-V materials; and
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leading
edge thin film head materials.
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All 6500
Series Plasma Etch systems feature either Tegal's patented dual-frequency HRe™
CCP or Spectra™ ICP process module technology. The production tested cluster
platform design incorporated on all 6500 systems accommodates either one or two
etch process modules for processing of 100 to 200mm wafers. Each module can be
configured to run independent processes-optimizing flexibility, minimizing
downtime and maximizing wafer throughput. The 6500 system comes standard with
one vacuum cassette elevator for wafer input/output. Optionally, a second vacuum
cassette elevator or patented Rinse-Strip-Rinse™ corrosion passivation station
may be added within the standard frame. Each system incorporates full cluster
tool technology with the latest innovations in contamination control and factory
automation. We believe our 6500 Series systems have demonstrated their
effectiveness in addressing the challenges of etching new materials in a
production environment.
900
Series Etch Products
We
introduced our 900 series family of etch systems in 1984 as the advanced etch
tool of that era. Over the years, we have enhanced the 900 series family as
systems capable of performing certain routine etch steps required in the
production of silicon-based IC devices and, more recently, as etch tools for
advanced specialty devices such as gallium arsenide for high-speed
telecommunications devices. The 900 series etch systems are aimed at pad, zero
layer, non-selective nitride, backside, planarization and small flat panel
display applications, thin film etch applications used in the manufacture of
read-write heads for the disk drive industry and gallium arsenide and other
III-V materials used in high-speed digital wireless telecommunications
applications.
The
900ACSÔ was introduced in July
2000. This system has enhanced the functionality of the 900 series with added
features such as user-friendly GUI (graphical user interface) touch screens,
better process control and an improved transport system that increase
efficiency, while preserving durability.
Deposition
Technologies
Certain
deposition technologies or processes are better suited than others for
depositing different types of films. PVD is used for both metallic
thin film deposition and, in reactive PVD processes, for dielectric thin film
deposition. An important application for PVD is the deposition of thin films
where residual film stress must be closely controlled in order to create
specific desired electrical results, as in precision thin film resistor
fabrication, or to avoid physically deforming the substrate, as in the
fabrication of power MOS devices on ultra-thin silicon wafers. We
believe that enabling tight control of stress and other process parameters,
along with minimizing overall contamination levels during PVD thin film
deposition processes, is increasingly recognized by IC manufacturers as key
features that differentiate PVD tool products and PVD tool makers. We
also believe these capabilities will be important to device makers in the
related industries of compound semiconductor device fabrication, LED
fabrication, optical communication device manufacturing, in MEMS fabrication,
and in the field of wafer-level packaging processes for microelectronic
devices.
Our
established 200mm PVD technologies address the following
applications:
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dielectric
layers for surface acoustic wave (SAW) and film bulk acoustic resonators
(FBARs);
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chip
packaging technologies requiring stress control in multi-layer under bump
metallization (UBM);
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IC
front side interconnect
metallization;
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Ohmic
contact formation and metallization of thinned wafers for high power
transistors;
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deposition
of thin film resistors with fine tuning of thermal capacitance of
resistance (TCR);
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barrier
and seed layer deposition in deep
vias;
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encapsulating
films for light emitting diodes
(LED);
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dielectric
layers for integrated gate bipolar transistors (IGBT);
and
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automobile
electronics requiring high adhesion properties of the backside metal film
stacks.
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EndeavorÔ PVDProducts
We offer
several models of our Endeavor PVD products configured to address film types and
applications desired by the customer. We introduced the Endeavor series tool in
1992 and since that time have expanded the product line to address new
applications. The Endeavor PVD cluster tool features our patented S-Gun™
magnetron sputtering source. The platform is designed to accept up to five
process modules including a wide array of both dielectric and metal sputtering
configurations in addition to plasma pre-clean modules. The transport system can
accommodate 50 to 200mm wafers or 6" square reticles, in a unique "sputter-up"
orientation that is extremely gentle and reliable. The unique handling system is
especially advantageous for backside metallization on delicate ultra-thin
silicon wafers, as it handles them without flipping or applying any mechanical
pressure. Each system incorporates state-of-the-art cluster tool technology with
the latest innovations in contamination control and factory
automation.
AMSÔ PVD Products
As a
result of the settlement of our litigation with AMS and others, the assets and
know-how related to a series of PVD system products were transferred to us on
March 1, 2007. The AMS PVD systems are targeted specifically at the
deposition of aluminum nitride for BAW and FBAR filtering devices for cell
phones and other wireless devices, are the cornerstone of commercial RfMEMS
fabrication today. We currently offer the AMS systems in two
configurations, including a single-module system (“SMS”) and a multiple-module
system (“MMS”).
Compact™
NLD
We are
currently developing the Compact™ 360 NLD cluster tool as a new
200mm/300mm-capable bridge tool that will serve as the introductory platform for
Tegal's patented Nano-Layer Deposition process. NLD is a unique cyclic MOCVD
process for highly conformal coatings that incorporates plasma film treatment
with each deposition cycle. This offers the benefits of atomic layer deposition
with the potential for a much higher deposition rate. NLD also offers the
benefit of utilizing common MOCVD precursor materials that are readily available
for a wide variety of metal, metal oxide and metal nitride films. The Tegal
Compact platform can accommodate all wafer sizes from 100 to 300mm in one, two
or three process module configurations, with a wide variety of front-end
loadlock options including FOUP and EFEM.
Customers
The
composition of our top five customers changes from year to year, but net system
sales to our top five customers in fiscal 2009, 2008, and 2007 accounted for
89.2%, 87.2%, and 77.8%, respectively, of our total net system
sales. A leading supplier in the integrated circuit and MEMS sensor
market, SVTC Tech, LLC, and Diodes Fab Tech Inc. accounted for 15.7%, 15.3% and
13.9%, respectively, of our total revenue in fiscal 2009. ST
Microelectronics accounted for 57.8% of our total revenue in fiscal
2008. ST Microelectronics and International Rectifier accounted for
43.1% and 13.4% respectively, of our total revenue in fiscal
2007. Other than these customers, no single customer represented more
than 10% of our total revenue in fiscal 2009, 2008, and
2007. Although the composition of the group comprising our largest
customers may vary from year to year, and quarter to quarter, the loss of a
significant customer or any reduction in orders by any significant customer,
including reductions due to market, economic or competitive conditions in the
semiconductor and related device manufacturing industry, would have a material
adverse effect on us.
We
schedule production of our systems based upon order backlog and customer
commitments. We include in our backlog only orders for which written purchase
orders have been accepted and shipment dates within the next 12 months have been
assigned. As of March 31, 2009 and 2008, our order backlog was $1,580 and $250,
respectively. Booked system orders are subject to cancellation by the customer,
but with substantial penalties except in the case of orders for evaluation
systems or for systems that have not yet incurred production costs. Orders may
be subject to rescheduling with limited or no penalty. Some orders are received
for systems to be shipped in the same quarter as the order is received. As a
result, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period.
Marketing,
Sales and Service
We sell
our systems worldwide through a network of five direct sales personnel and eight
independent sales representatives in sales offices located throughout the world.
In the United States, we market our systems through direct sales personnel
located in two regional sales offices located in San Jose, California and
Petaluma, California. In addition, we provide field service and applications
engineers through our regional locations and our Petaluma headquarters in order
to ensure dedicated technical and field process support throughout the United
States on short notice.
We
maintain direct sales, service and process support capabilities in the United
States and Germany as well as through third-party representatives in Japan,
Korea, China, Taiwan and Singapore. In addition to these international direct
sales and support organizations, we also market our systems through independent
sales representatives in Israel and India.
International
sales, which consist of export sales from the United States either directly to
the end user or to one of our foreign subsidiaries, accounted for approximately
28%, 72%, and 67%, of total revenue for fiscal 2009, 2008, and 2007,
respectively. The decrease in international sales as a percentage of
revenue can be attributed to fewer systems sold. The Company
typically sells more systems in international markets. Despite this
decrease we believe that international sales will continue to represent a
significant portion of our revenue.
Revenues
by region for each of the last three fiscal years were as follows:
|
|
|
Years Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United
States
|
|
$ |
9,359 |
|
|
$ |
9,262 |
|
|
$ |
7,398 |
|
|
Asia
|
|
|
1,046 |
|
|
|
10,775 |
|
|
|
9,050 |
|
|
Germany
|
|
|
791 |
|
|
|
2,879 |
|
|
|
3,115 |
|
|
Europe,
excluding Germany
|
|
|
1,874 |
|
|
|
10,009 |
|
|
|
2,700 |
|
|
Total
sales
|
|
$ |
13,070 |
|
|
$ |
32,925 |
|
|
$ |
22,263 |
|
We
generally sell our systems on 30-to-60 day credit terms to our domestic and
European customers. Customers in Asia, other than Japan, are generally required
to deliver a letter of credit payable in U.S. dollars no later than the system
shipment date. Sales to other international customers, including Japan, are
billed either in local currency or U.S. dollars. We anticipate that
international sales will continue to account for a significant portion of
revenue in the foreseeable future.
We
generally warrant our new systems for 12 months and our refurbished systems for
6 months from shipment. Our field engineers provide customers with call-out
repair and maintenance services for a fee. Customers may also enter into repair
and maintenance service contracts covering our systems. We train customer
service engineers to perform routine services for a fee and provide telephone
consultation services generally for a fee.
The sales
cycles for our systems vary depending upon whether the system is an initial
design-in, reorder or used equipment. Initial design-in sales cycles are
typically 12 to 18 months, particularly for 6500 and Endeavor series systems. In
contrast, reorder sales cycles are typically 4 to 6 months, and used system
sales cycles are generally 1 to 3 months. The initial design-in sales cycle
begins with the generation of a sales lead, which is followed by qualification
of the lead, an analysis of the customer’s particular applications needs and
problems, one or more presentations to the customer (frequently including
extensive participation by our senior management), 2 to 3 wafer sample
demonstrations, followed by customer testing of the results and extensive
negotiations regarding the equipment’s process and reliability
specifications. Initial design-in sales cycles are monitored by
senior management for correct strategic approach and resource prioritization. We
may, in some rare instances, need to provide the customer with an evaluation
system for 3 to 6 months prior to the receipt of a firm purchase
order.
Research
and Development
The
market for semiconductor capital equipment is characterized by rapid
technological change. We believe that continued and timely development of new
systems and enhancements to existing systems is necessary for us to maintain our
competitive position. Accordingly, we have devoted a significant portion of our
personnel and financial resources to research and development programs and seek
to maintain close relationships with our customers in order to be responsive to
their system needs.
Our
research and development encompasses the following areas: plasma etch, physical
vapor deposition and chemical vapor deposition (especially NLD) technologies,
process characterization and development, material sciences applicable to etch
and deposition environments, systems design and architecture, electro-mechanical
design and software engineering. We emphasize advanced plasma and reactor
chamber modeling capabilities in order to accelerate bringing advanced chamber
designs to market. We employ multi-discipline teams to facilitate short
engineering cycle times and rapid product development.
As of
March 31, 2009, we had
17 full-time employees
dedicated to equipment design engineering, process support and research and
development. Research and development expenses for fiscal 2009, 2008, and 2007
were $5,210, $3,705, and $4,646, respectively, and represented 39.9%, 11.3%, and
20.9% of total revenue, respectively. Such expenditures were primarily used for
the development of new processes, continued enhancement and customization of
existing systems, processing customer samples in our demonstration labs and
providing process engineering support at customer sites.
Manufacturing
Both our
etch and deposition systems are produced at our manufacturing facility in
Petaluma, California. Our manufacturing activities consist of assembling and
testing components and sub-assemblies, which are then integrated into finished
systems. We have structured our production facilities to be driven either by
orders or by forecasts and have adopted a modular system architecture to
increase assembly efficiency and design flexibility. We have also implemented
“just-in-time” manufacturing techniques in our assembly processes. Through the
use of such techniques, 900 series system manufacturing cycle times take
approximately 14 days, cycle times for our Endeavor systems and our 6500 series
products take 2 to 3 months. Our new DRIE systems are manufactured
primarily in Annecy France. As this new product line becomes more
integrated into our processes, primary manufacturing will move to our Petaluma
facility. DRIE systems manufacturing cycle times are currently 3 to 4
months.
Competition
The
semiconductor capital equipment industry is highly competitive. Our principal
competitors are Sumitomo Precision Products / Surface Technology Systems, Aviza
Technology, Inc., OC Oerlikon Corporation AG, Plasma-Therm LLC, Ulvac Japan,
Ltd., and Canon Anelva Technix Corporation, as well as Applied Materials, Inc.,
Lam Research Corporation, Novellus, Tokyo Electron Limited, Oxford Instruments,
and NEXX Systems. We believe that the principal competitive factor in
the critical segments of the equipment industry is technical performance of the
system, followed closely by the existence of customer relationships, the system
price, the ability to provide service and technical support on a global basis
and other related cost factors. We believe that the principal competitive factor
in the non-critical segments of the equipment industry is system price, followed
closely by the technical performance of the system, the existence of established
customer relationships, the ability to provide service and technical support on
a global basis and other related cost factors.
Intellectual
Property
We hold an exclusive
license or ownership of approximately 80 U.S. patents, including both deposition
and etch products, and approximately 22 corresponding foreign patents covering
various aspects of our systems. We have also applied for approximately 17
additional U.S. patents and approximately 25 additional foreign patents. Of
these patents, two expire as early as 2009, others expire as late as 2024 with
the average expiration occurring in approximately 2020. We believe that the
duration of such patents generally exceeds the life
cycles of the technologies disclosed and claimed therein. Such 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. We believe that although the patents we have exclusively licensed or
hold directly will be of value, they will not determine our success, which
depends principally upon our engineering, marketing, service and manufacturing
skills. However, in the absence of patent protection, we may be vulnerable to
competitors who attempt to imitate our systems, processes and manufacturing
techniques. In addition, other companies and inventors may receive patents that
contain claims applicable to our systems and processes. The sale of our systems
covered by such patents could require licenses that may not be available on
acceptable terms, if at all. We also rely on trade secrets and other proprietary
technology that we seek to protect, in part, through confidentiality agreements
with employees, vendors, consultants and other parties. There can be no
assurance that these agreements will not be breached, that we will have adequate
remedies for any breach or that our trade secrets will not otherwise become
known to or independently developed by others.
DRIE
systems
The
original version of the system software for our DRIE series systems was
developed by AMMS. The enhanced version of this software has
undergone multiple releases of the original software, and such enhancements were
also developed by AMMS. No other party has any right to use our
current release of the system software. However, we cannot make any
assurances that this software will not be illegally copied or reverse-engineered
by either customers or third parties.
6500
Series
The
original versions of the system software for our etch and deposition systems
were either developed internally or jointly developed by us and third-party
software vendors. We hold perpetual, non-exclusive, non-royalty-bearing licenses
to use and enhance this software. The enhanced versions of the software
currently used on etch and deposition systems have undergone multiple releases
of the original software, and such enhancements were developed exclusively by
us. Neither the software vendor nor any other party has any right to use our
current release of the system software. However, we cannot make any
assurances that this software will not be illegally copied or reverse-engineered
by either customers or third parties.
Endeavor
The
original version of the system software for our Endeavor series systems was
developed by Sputtered Films, Inc. The enhanced version of this software
currently used on our Endeavor series systems has undergone multiple releases of
the original software, and such enhancements were developed exclusively by
us. No other party has any right to use our current release of the
system software. However, we cannot make any assurances that this
software will not be illegally copied or reverse-engineered by either customers
or third parties.
9xx ACS
The
original version of the system software for our 9xx series systems was developed
by Tegal. The enhanced version of this software currently used on our 9xx ACS
series systems has undergone multiple releases of the original software, and
such enhancements were developed exclusively by us. No other party
has any right to use our current release of the system
software. However, we cannot make any assurances that this software
will not be illegally copied or reverse-engineered by either customers or third
parties.
Compact
The
original version of the system software for our Compact series systems was
developed jointly with Adventa Control Technologies. For each shipment of a
Compact system, we purchase from ACT a perpetual, non-exclusive license to use
and ship this software. Neither the software vendor nor any other party has any
right to use our current release of this system software. However, we
cannot make any assurances that this software will not be illegally copied or
reverse-engineered by either customers or third parties.
Employees
As of
March 31, 2009 we had a total of 62 regular employees, 2 part-time contract
personnel and no full-time contract personnel. Of our regular employees, 17 are
in engineering, and research and development, 11 are in manufacturing and
operations, 21 are in marketing, sales and customer service and support and 13
are in executive and administrative positions. Many of our employees are highly
skilled, and our success will depend in part upon our ability to attract, retain
and develop such employees. Skilled employees, especially employees with
extensive technological backgrounds, remain in demand. There can be no assurance
we will be able to attract or retain the skilled employees that may be necessary
to continue our research and development, manufacturing or marketing programs.
The loss of any such persons, as well as the failure to recruit additional key
personnel in a timely manner, could have a material adverse effect on
us.
None of
our employees are represented by a labor union or covered by a collective
bargaining agreement. We consider our employee relations to be
good.
Item
1A. Risk
Factors
We
wish to caution you that there are risks and uncertainties that could affect our
business. These risks and uncertainties include, but are not limited to, the
risks described below and elsewhere in this report, particularly in
“Forward-Looking Statements.” The following is not intended to be a complete
discussion of all potential risks or uncertainties, as it is not possible to
predict or identify all risk factors.
We
have incurred operating losses and may not be profitable in the
future. Our plans to maintain and increase liquidity may not be
successful.
We had
net (loss) 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. 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.
The
semiconductor industry is cyclical and may experience periodic downturns that
may negatively affect customer demand for our products and result in losses such
as those experienced in the past.
Our
business depends upon the capital expenditures of semiconductor manufacturers,
which in turn depend on the current and anticipated market demand for ICs. The
semiconductor industry is highly cyclical and historically has experienced
periodic downturns, including the dramatic downturn we are currently
experiencing, which often have had a detrimental effect on the semiconductor
industry’s demand for semiconductor capital equipment, including etch and
deposition systems manufactured by us. In response to the current prolonged
industry slowdown, we have continued our substantial cost containment program
and completed a corporate-wide restructuring to preserve our cash. However, the
need for continued investment in research and development, possible capital
equipment requirements and extensive ongoing customer service and support
requirements worldwide will continue to limit our ability to reduce expenses in
response to the current and any future downturns. As a result, we may
continue to experience operating losses such as those we have experienced in the
past, which could materially adversely affect us.
We
are exposed to risks associated with the ongoing financial crisis and weakening
global economy.
The
recent severe tightening of the credit markets, turmoil in the financial markets
and weakening global economy are contributing to slowdowns in the industries in
which we operate, which slowdowns are expected to worsen if these economic
conditions are prolonged or deteriorate further. The markets for ICs
depend largely on consumer spending. Economic uncertainty exacerbates
negative trends in consumer spending and may cause our customers to push out,
cancel or refrain from placing equipment or service orders, which may reduce our
revenue. Difficulties in obtaining capital and deteriorating market
conditions may also lead to the inability of some customers to obtain affordable
financing, resulting in lower Tegal sales. These conditions may also
similarly affect key suppliers, which could affect their ability to deliver
parts and result in delays for our products. Further, these
conditions and the uncertainty about future economic conditions make it
challenging for us to forecast operating results, make business decisions and
identify the risks that may affect our business, financial condition and results
of operations. If we are not able to timely and appropriately adapt
to changes resulting from the difficult economic environment, our business,
financial condition or results of operations will be materially and adversely
affected.
Our
customers are concentrated and therefore the loss of a significant customer may
harm our business.
The
composition of our top five customers has changed from year to year, but net
system sales to our top five customers in fiscal 2009, 2008, and 2007, accounted
for 89.2%, 87.2%, and 77.8%, respectively, of our total net system sales. A
leading supplier in the integrated circuit and MEMS sensor market, SVTC Tech,
LLC, and Diodes Fab Tech Inc accounted for 15.7%, 15.3% and 13.9%, respectively,
of our total revenue in fiscal 2009. ST Microelectronics accounted
for 57.8% of our total revenue in fiscal 2008. ST Microelectronics
and International Rectifier accounted for 43.1% and 13.4% respectively, of our
total revenue in fiscal 2007. Other than these customers, no single
customer represented more than 10% of our total revenue in fiscal 2009, 2008,
and 2007. Although the composition of the group comprising our
largest customers may vary from year to year, and quarter to quarter, the loss
of a significant customer or any reduction in orders by any significant
customer, including reductions due to market, economic or competitive conditions
in the semiconductor and related device manufacturing industry, would have a
material adverse effect on us.
Our
competitors have greater financial resources and greater name recognition than
we do and therefore may compete more successfully in the semiconductor capital
equipment industry than we can.
We
believe that to be competitive, we will require significant financial resources
in order to offer a broad range of systems, to maintain customer service and
support centers worldwide, and to invest in research and development. Our
existing and potential competitors include Sumitomo Precision Products / Surface
Technology Systems, Aviza Technology, Inc.; OC Oerlikon Corporation
AG; Plasma-Therm LLC, Ulvac Japan, Ltd. and Canon Anelva Technix Corporation, as
well as Applied Materials, Inc., Lam Research Corporation, Novellus, Tokyo
Electron Limited, Oxford Instruments, and NEXX Systems. In most cases
they have substantially greater financial resources; more extensive engineering,
manufacturing, marketing, and customer service capabilities; larger installed
bases of current generation production equipment; broader process equipment
offerings; and greater name recognition than we do. We cannot assure you that we
will be able to compete successfully against these companies in the United
States or worldwide.
Our
potential customers may not adopt our products because of their significant cost
or because our potential customers are already using a competitor’s
tool.
A
substantial investment is required to install and integrate capital equipment
into a semiconductor production line. Additionally, we believe that once a
device manufacturer has selected a particular vendor’s capital equipment, that
manufacturer generally relies upon that vendor’s equipment for that specific
production line application and, to the extent possible, subsequent generations
of that vendor’s systems. Accordingly, it may be extremely difficult to achieve
significant sales to a particular customer once that customer has selected
another vendor’s capital equipment unless there are compelling reasons to do so,
such as significant performance or cost advantages. Any failure to gain access
and achieve sales to new customers will adversely affect the successful
commercial adoption of our products and could have a material adverse effect on
us.
We
depend on sales of our advanced products to customers that may not fully adopt
our product for production use.
We have
designed our advanced etch and deposition products for customer applications in
emerging new films, polysilicon and metal which we believe to be the leading
edge of critical applications for the production of advanced semiconductor and
other microelectronic devices. Revenue from the sale of our advanced etch and
deposition systems accounted for 58%, 80%, and 69% of total revenue in fiscal
2009, 2008, and 2007, respectively. Our advanced systems are currently being
used primarily for research and development activities or low volume production.
For our advanced systems to achieve full market adoption, our customers must
utilize these systems for volume production. We cannot assure you that the
market for devices incorporating emerging films, polysilicon or metal will
develop as quickly or to the degree we expect. If our advanced
systems do not achieve significant sales or volume production due to a lack of
full customer adoption, we will be materially adversely affected.
We
face risks associated with acquisitions, divestitures and other
transactions.
We face
risks associated with acquisitions, divestitures and other
transactions. We have made, and may in the future make, acquisitions
of or significant investments in businesses with complementary products,
services and/or technologies. Acquisitions, including the recently completed
acquisition of DRIE (Deep Reactive Ion Etch) and PECVD (Plasma-Enhanced Chemical
Vapor Deposition) products and related intellectual property from AMMS, involve
numerous risks, including, but not limited to:
|
·
|
Difficulties
in integrating the operations, technologies, products and personnel of
acquired companies;
|
|
·
|
Lack
of synergies or the inability to realize expected synergies and cost
savings;
|
|
·
|
Revenue
and expense levels of acquired entities differing from those anticipated
at the time of the acquisitions;
|
|
·
|
Difficulties
in managing geographically dispersed
operations;
|
|
·
|
The
potential loss of key employees, customers and strategic partners of
acquired companies;
|
|
·
|
Claims
by terminated employees, shareholders of acquired companies or other third
parties related to the transaction;
|
|
·
|
The
issuance of dilutive securities, assumption or incurrence of additional
debt obligations or expenses, or use of substantial portions of our
cash;
|
|
·
|
Diversion
of management’s attention from normal daily operations of the business;
and
|
|
·
|
The
impairment of acquired intangible assets as a result of technological
advancements, or worse-than-expected performance of acquired
companies.
|
When we make a decision
to sell assets or a business, we may encounter difficulty completing the
transaction as a result of a range of possible factors such as new or changed
demands from the buyer. These circumstances may cause us to incur additional
time or expense or to accept less favorable terms, which may adversely affect
the overall benefits of the transaction. Acquisitions, divestitures,
and other transactions are inherently risky, and we cannot provide any assurance
that our previous or future transactions will be successful. The inability to
effectively manage the risks associated with these transactions could materially
and adversely affect our business, financial condition or results of
operations.
Our
quarterly operating results may continue to fluctuate.
Our
revenue and operating results have fluctuated and are likely to continue to
fluctuate significantly from quarter to quarter, and we cannot assure you that
we will achieve profitability in the future.
Our 900
series etch systems typically sell for prices ranging between $250,000 and
$600,000, while prices of our 6500 series critical etch systems and our Endeavor
deposition system typically range between $1.8 million and $3.0 million. To the
extent we are successful in selling our 6500 and Endeavor series systems, the
sale of a small number of these systems will probably account for a substantial
portion of revenue in future quarters, and a transaction for a single system
could have a substantial impact on revenue and gross margin for a given
quarter.
Other
factors that could affect our quarterly operating results include:
|
·
|
our
timing of new systems and technology announcements and releases and
ability to transition between product
versions;
|
|
·
|
changes
in the mix of our revenues represented by our various products and
customers;
|
|
·
|
adverse
changes in the level of economic activity in the United States or other
major economies in which we do
business;
|
|
·
|
foreign
currency exchange rate
fluctuations;
|
|
·
|
expenses
related to, and the financial impact of, possible acquisitions of other
businesses; and
|
|
·
|
changes
in the timing of product orders due to unexpected delays in the
introduction of our customers’ products, due to lifecycles of our
customers’ products ending earlier than expected or due to market
acceptance of our customers’
products.
|
Some
of our sales cycles are lengthy, exposing us to the risks of inventory
obsolescence and fluctuations in operating results.
Sales of
our systems depend, in significant part, upon the decision of a prospective
customer to add new manufacturing capacity or to expand existing manufacturing
capacity, both of which typically involve a significant capital commitment. We
often experience delays in finalizing system sales following initial system
qualification while the customer evaluates and receives approvals for the
purchase of our systems and completes a new or expanded facility. Due to these
and other factors, our systems typically have a lengthy sales cycle (often 12 to
18 months in the case of critical etch and deposition systems) during which we
may expend substantial funds and management effort. Lengthy sales cycles subject
us to a number of significant risks, including inventory obsolescence and
fluctuations in operating results over which we have little or no
control.
Because
technology changes rapidly, we may not be able to introduce our products in a
timely enough fashion.
The
semiconductor manufacturing industry is subject to rapid technological change
and new system introductions and enhancements. We believe that our future
success depends on our ability to continue to enhance our existing systems and
their process capabilities, and to develop and manufacture in a timely manner
new systems with improved process capabilities. We may incur substantial
unanticipated costs to ensure product functionality and reliability early in our
products’ life cycles. We cannot assure you that we will be successful in the
introduction and volume manufacture of new systems or that we will be able to
develop and introduce, in a timely manner, new systems or enhancements to our
existing systems and processes which satisfy customer needs or achieve market
adoption.
Our
financial performance may adversely affect the morale and performance of our
personnel and our ability to hire new personnel.
Our
common stock has declined in value below the exercise price of many options
granted to employees pursuant to our stock option plans. Thus, the intended
benefits of the stock options granted to our employees, the creation of
performance and retention incentives, may not be realized. As a result, we may
lose employees whom we would prefer to retain and may have difficulty in hiring
new employees to replace them. As a result of these factors, our remaining
personnel may seek employment with larger, more established companies or
companies perceived as having less volatile stock prices. The loss of
any significant employee or a large number of employees over a short period of
time could have a material adverse effect on us.
We
may not be able to protect our intellectual property or obtain licenses for
third parties’ intellectual property and therefore we may be exposed to
liability for infringement or the risk that our operations may be adversely
affected.
Although
we attempt to protect our intellectual property rights through patents,
copyrights, trade secrets and other measures, we may not be able to protect our
technology adequately and competitors may be able to develop similar technology
independently. Additionally, patent applications that we may file may not be
issued and foreign intellectual property laws may not protect our intellectual
property rights. There is also a risk that patents licensed by or issued to us
will be challenged, invalidated or circumvented and that the rights granted
thereunder will not provide competitive advantages to us. Furthermore, others
may independently develop similar systems, duplicate our systems or design
around the patents licensed by or issued to us.
Litigation
to protect our intellectual property could result in substantial cost and
diversion of effort by us, which by itself could have a material adverse effect
on our financial condition, operating results and cash flows. Further, adverse
determinations in such litigation could result in our loss of proprietary
rights, subject us to significant liabilities to third parties, require us to
seek licenses from third parties or prevent us from manufacturing or selling our
systems. In addition, licenses under third parties’ intellectual property rights
may not be available on reasonable terms, if at all.
We
are exposed to additional risks associated with international sales and
operations.
International
sales accounted for 28%, 72%, and 67% of total revenue for fiscal 2009, 2008,
and 2007, respectively. International sales are subject to certain risks,
including the imposition of government controls, fluctuations in the U.S. dollar
(which could increase the sales price in local currencies of our systems in
foreign markets), changes in export license and other regulatory requirements,
tariffs and other market barriers, political and economic instability, potential
hostilities, restrictions on the export or import of technology, difficulties in
accounts receivable collection, difficulties in managing representatives,
difficulties in staffing and managing international operations and potentially
adverse tax consequences. We cannot assure you that any of these factors will
not have a detrimental effect on our operations, financial results and cash
flows.
We cannot
assure you that our future results of operations and cash flows will not be
adversely affected by foreign currency fluctuations. In addition, the laws of
certain countries in which our products are sold may not provide our products
and intellectual property rights with the same degree of protection as the laws
of the United States.
Our
stock price is volatile and could result in a material decline in the value of
your investment in Tegal.
We
believe that factors such as announcements of developments related to our
business, fluctuations in our operating results, sales of our common stock into
the marketplace, failure to meet or changes in analysts’ expectations, general
conditions in the semiconductor industry or the worldwide economy, announcements
of technological innovations or new products or enhancements by us or our
competitors, developments in patents or other intellectual property rights,
developments in our relationships with our customers and suppliers, natural
disasters and outbreaks of hostilities could cause the price of our common stock
to fluctuate substantially. In addition, in recent years the stock market in
general, and the market for shares of small capitalization stocks in particular,
have experienced extreme price fluctuations, which have often been unrelated to
the operating performance of affected companies. We cannot assure you that the
market price of our common stock will not experience significant fluctuations in
the future, including fluctuations that are unrelated to our
performance.
The
exercise of outstanding warrants, options and other rights to obtain additional
shares will dilute the value of our shares of common stock and could cause the
price of our shares of common stock to decline.
As of
March 31, 2009, there were 8,412,676 shares of our common stock issued and
outstanding, 2,697,966 shares of our common stock reserved for issuance
of shares issuable upon exercise of outstanding warrants, and shares
underlying equity awards created or available for grant under our equity
incentive plans, and shares available under our stock purchase
plan.
The
exercise of these warrants and options and the issuance of the common stock
pursuant to our equity incentive plans will result in dilution in the value of
the shares of our outstanding common stock and the voting power represented
thereby. In addition, the exercise price of the warrants may be lowered under
the price adjustment provisions in the event of a “dilutive issuance,” that is,
if we issue common stock at any time prior to their maturity at a per share
price below such conversion or exercise price, either directly or in connection
with the issuance of securities that are convertible into, or exercisable for,
shares of our common stock. A reduction in the exercise price may result in the
issuance of a significant number of additional shares upon the exercise of the
warrants.
The
outstanding warrants do not establish a “floor” that would limit reductions in
such conversion price or exercise price. The downward adjustment of
the exercise price of these warrants could result in further dilution in the
value of the shares of our outstanding common stock and the voting power
represented thereby.
No
prediction can be made as to the effect, if any, that future sales of shares of
our common stock, or the availability of shares for future sale, will have on
the market price of our common stock prevailing from time to time. Sales of
substantial amounts of shares of our common stock in the public market, or the
perception that such sales could occur, may adversely affect the market price of
our common stock and may make it more difficult for us to sell our equity
securities in the future at a time and price which we deem
appropriate.
To the
extent our stockholders and the other holders of our warrants and options
exercise such securities and then sell the shares of our common stock they
receive upon exercise, our stock price may decrease due to the additional amount
of shares available in the market. The subsequent sales of these shares could
encourage short sales by our security holders and others, which could place
further downward pressure on our stock price. Moreover, holders of these
warrants and options may hedge their positions in our common stock by shorting
our common stock, which could further adversely affect our stock
price.
Potential
disruption of our supply of materials required to build our systems could have a
negative effect on our operations and damage our customer
relationships.
Materials
delays have not been significant in recent years. Nevertheless, we procure
certain components and subassemblies included in our systems from a limited
group of suppliers, and occasionally from a single source supplier. Such
components and subassemblies include robots, electrostatic chucks, power
supplies and flow control devices. Disruption or termination of
certain of these sources could have an adverse effect on our operations and
damage our relationship with our customers.
Any
failure by us to comply with environmental regulations imposed on us could
subject us to future liabilities.
We are
subject to a variety of governmental regulations related to the use, storage,
handling, discharge or disposal of toxic, volatile or otherwise hazardous
chemicals used in our manufacturing process. We believe that we are currently in
compliance in all material respects with these regulations and that we have
obtained all necessary environmental permits generally relating to the discharge
of hazardous wastes to conduct our business. Nevertheless, our failure to comply
with present or future regulations could result in additional or corrective
operating costs, suspension of production, alteration of our manufacturing
processes or cessation of our operations.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
We
maintain our headquarters, encompassing our executive office, manufacturing,
engineering and research and development operations, in one leased 39,717 square
foot facility in Petaluma, California. We have a primary lease which
expired in September 2008 with an option to extend for an additional two
one-year terms until 2010. The Company extended the primary lease for
one year in both February 2008 and 2009. We own all of the machinery
and equipment used in our facilities.
We have
office space in a leased 13,300 square foot facility in San Jose,
California. We have a sublease agreement for the premises, signed on
December 30, 2005, which expired on January 31, 2008. In addition, we
have a primary lease for the same premise which commenced on February 1, 2008
and expires on January 31, 2010.
We lease
sales, service and process support space in Maisach, Germany.
Item
3. Legal
Proceedings
As of
March 31, 2009, we had no pending material legal proceedings. From
time to time, we are involved in other legal proceedings in the normal course of
business and do not expect them to have a material adverse effect on our
business.
Item
4. Submission of
Matters to a Vote of Security Holders
No matter was submitted to a vote of
security holders during the fourth quarter of fiscal year 2009.
PART
II
Item
5. Market for the
Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Our common stock is
currently traded on the NASDAQ Capital Market under the symbol TGAL. The
following table sets forth the range of high and low sales prices for our common
stock for each quarter during the prior two fiscal years.
The approximate number of holders on
record of our common stock as of March 31, 2009 was 350. We have not paid any
cash dividends since our inception and do not anticipate paying cash dividends
in the foreseeable future.
|
|
|
High
|
|
|
Low
|
|
|
FISCAL
YEAR 2008
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
6.45 |
|
|
$ |
3.11 |
|
|
Second
Quarter
|
|
|
6.50 |
|
|
|
4.00 |
|
|
Third
Quarter
|
|
|
7.18 |
|
|
|
5.28 |
|
|
Fourth
Quarter
|
|
|
6.59 |
|
|
|
4.40 |
|
|
|
|
|
|
|
|
|
|
|
|
FISCAL
YEAR 2009
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
5.00 |
|
|
$ |
3.92 |
|
|
Second
Quarter
|
|
|
4.60 |
|
|
|
3.22 |
|
|
Third
Quarter
|
|
|
3.23 |
|
|
|
1.04 |
|
|
Fourth
Quarter
|
|
|
1.56 |
|
|
|
0.93 |
|
|
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options and
restricted stock awards
|
|
|
Weighted-average
exercise price of outstanding options
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in
column(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity
compensation Plans approved by security holders:
|
|
|
|
|
|
|
|
|
Equity
Incentive Plan
|
|
|
416 |
|
|
$ |
105.00 |
|
|
|
- |
|
|
1990
Stock Option Plan
|
|
|
1,664 |
|
|
|
52.32 |
|
|
|
- |
|
|
1998
Equity Participation Plan
|
|
|
388,777 |
|
|
|
5.67 |
|
|
|
296,066 |
|
|
2007
Equity Participation Plan
|
|
|
678,572 |
|
|
|
3.14 |
|
|
|
105,735 |
|
|
Directors
Stock Option Plan
|
|
|
115,323 |
|
|
|
9.94 |
|
|
|
12,706 |
|
|
Total
|
|
|
1,184,752 |
|
|
|
4.74 |
|
|
|
414,507 |
|
|
Warrants
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Number
of securities to be issued upon exercise of outstanding
warrants
|
|
|
1,486,440 |
|
|
|
1,511,523 |
|
|
|
1,527,784 |
|
|
Weighted-average
exercise price of outstanding warrants
|
|
$ |
12.07 |
|
|
$ |
12.69 |
|
|
$ |
12.60 |
|
Item
6. Selected
Financial Data
|
|
|
Year Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In
thousands, except per share data)
|
|
|
Consolidated
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
13,070 |
|
|
$ |
32,925 |
|
|
$ |
22,263 |
|
|
$ |
21,757 |
|
|
$ |
14,888 |
|
|
Gross
profit
|
|
|
5,198 |
|
|
|
14,014 |
|
|
|
5,527 |
|
|
|
6,016 |
|
|
|
3,267 |
|
|
Operating
(loss) income
|
|
|
(7,942 |
) |
|
|
1,595 |
|
|
|
(13,375 |
) |
|
|
(8,839 |
) |
|
|
(13,522 |
) |
|
Income
tax expense (benefit)
|
|
|
- |
|
|
|
504 |
|
|
|
- |
|
|
|
(532 |
) |
|
|
- |
|
|
Net
(loss) income
|
|
|
(7,902 |
) |
|
|
18,104 |
|
|
|
(13,213 |
) |
|
|
(8,880 |
) |
|
|
(15,363 |
) |
|
Net
(loss) income per share: (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(1.01 |
) |
|
$ |
2.53 |
|
|
$ |
(1.87 |
) |
|
$ |
(1.50 |
) |
|
$ |
(3.93 |
) |
|
Diluted
|
|
$ |
(1.01 |
) |
|
$ |
2.48 |
|
|
$ |
(1.87 |
) |
|
$ |
(1.50 |
) |
|
$ |
(3.93 |
) |
|
Weighted
average shares used in per share computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,858 |
|
|
|
7,159 |
|
|
|
7,065 |
|
|
|
5,903 |
|
|
|
3,907 |
|
|
Diluted
|
|
|
7,858 |
|
|
|
7,288 |
|
|
|
7,065 |
|
|
|
5,903 |
|
|
|
3,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In
thousands, except per share data)
|
|
|
Consolidated
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12,491 |
|
|
$ |
19,271 |
|
|
$ |
25,776 |
|
|
$ |
13,787 |
|
|
$ |
7,093 |
|
|
Working
capital
|
|
|
25,811 |
|
|
|
30,724 |
|
|
|
11,729 |
|
|
|
22,579 |
|
|
|
8,056 |
|
|
Total
assets
|
|
|
34,337 |
|
|
|
40,079 |
|
|
|
41,656 |
|
|
|
31,491 |
|
|
|
20,092 |
|
|
Debt
obligations (excluding capital leases, and litigation suspense,
convertible debentures)
|
|
|
- |
|
|
|
- |
|
|
|
13 |
|
|
|
13 |
|
|
|
159 |
|
|
Stockholders’
equity
|
|
|
34,337 |
|
|
|
32,930 |
|
|
|
14,417 |
|
|
|
26,040 |
|
|
|
13,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See Note 4 of our
Consolidated Financial Statements for an explanation of the computation of
earnings per share.
|
|
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
All
dollar amounts are in thousands unless specified otherwise.
Share
and per share amounts give effect to the 1-for-12 reverse stock split effected
on July 25, 2006
Company
Overview
Tegal
Corporation, a Delaware corporation (“Tegal” or the “Company”), designs,
manufactures, markets and services 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.
The Company’s 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 revenues, 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 our transition of the Company’s 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 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. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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 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. As of March 31, 2009 and 2008
deferred revenue as related to systems was $103 and $252.
Revenue
related to sales of spare parts is recognized upon shipment. Revenue
related to maintenance and service contracts is recognized ratably over the
duration of the contracts. Unearned maintenance and service revenue
is included in deferred revenue. As of March 31, 2009 and 2008, $11 and $0
of deferred revenue was related to service contracts.
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.
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 March 31, 2009 five
customers accounted for approximately 75% of the accounts receivable
balance. As of March 31, 2008 three customers accounted for
approximately 56% of the accounts receivable balance.
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
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).
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.” Based on reduced estimates of future revenues and future negative cash
flow, we identified a potential indicator of impairment. The company
recorded an impairment charge, related to intangibles, of $497 for the fiscal
year ended 2009. No impairment charges were recorded for the years
ended 2008 and 2007.
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 as of March 31, 2009,
2008 and 2007. 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.
Accounting
for Stock-Based Compensation
The
Company has adopted several stock plans that provide for the 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”).
Effective
April 1, 2006, we adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (SFAS
123R) using the modified prospective transition method. Under that transition
method, we recognized compensation expense of $1,803 for the fiscal year 2007,
and $1,022 the fiscal year 2008, which included: (a) compensation expense for
all share-based payments granted prior to but not yet vested as of April 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123, and (b) compensation expense for all
share-based payments granted or modified on or after April 1, 2006, based on the
grant date fair value estimated in accordance with the provisions of SFAS 123R.
For the fiscal year 2009, we recognized $892 in compensation
expense. Compensation expense is recognized only for those awards
that are expected to vest, whereas prior to the adoption of SFAS 123R, we
recognized forfeitures as they occurred. In addition, we elected the
straight-line attribution method as our accounting policy for recognizing
stock-based compensation expense for all awards that are granted on or after
April 1, 2006. Results in prior periods have not been
restated.
Accounting
for Freight Charged to Customers
Spares
and systems are typically shipped “freight collect,” therefore no shipping
revenue or cost is associated with the sale. When freight is charged,
the amount charged to customers is booked to revenue and freight costs incurred
are offset in the cost of revenue accounts pursuant to Financial Accounting
Standards Board’s (“FASB”) EITF 00-10.
Results
of Operations
The
following table sets forth certain financial items for the years
indicated:
|
|
|
Year Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
13,070 |
|
|
$ |
32,925 |
|
|
$ |
22,263 |
|
|
Cost
of revenue
|
|
|
7,872 |
|
|
|
18,911 |
|
|
|
16,736 |
|
|
Gross
profit
|
|
|
5,198 |
|
|
|
14,014 |
|
|
|
5,527 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
5,210 |
|
|
|
3,705 |
|
|
|
4,646 |
|
|
Sales
and marketing expenses
|
|
|
3,156 |
|
|
|
4,163 |
|
|
|
3,909 |
|
|
General
and administrative expenses
|
|
|
4,774 |
|
|
|
4,551 |
|
|
|
10,347 |
|
|
Total
operating expenses
|
|
|
13,140 |
|
|
|
12,419 |
|
|
|
18,902 |
|
|
Operating
(loss) income
|
|
|
(7,942 |
) |
|
|
1,595 |
|
|
|
(13,375 |
) |
|
Other
income (expense), net
|
|
|
40 |
|
|
|
17,013 |
|
|
|
162 |
|
|
(Loss)
income before income tax expense (benefit)
|
|
|
(7,902 |
) |
|
|
18,608 |
|
|
|
(13,213 |
) |
|
Tax
Expense
|
|
|
- |
|
|
|
504 |
|
|
|
- |
|
|
Net
(loss) income
|
|
$ |
(7,902 |
) |
|
$ |
18,104 |
|
|
$ |
(13,213 |
) |
The
following table sets forth certain financial data for the years indicated as a
percentage of revenue:
|
|
|
Year Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost
of revenue
|
|
|
60.2 |
% |
|
|
57.4 |
% |
|
|
75.2 |
% |
|
Gross
profit
|
|
|
39.8 |
% |
|
|
42.6 |
% |
|
|
24.8 |
% |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
39.9 |
% |
|
|
11.3 |
% |
|
|
20.9 |
% |
|
Sales
and marketing
|
|
|
24.1 |
% |
|
|
12.6 |
% |
|
|
17.6 |
% |
|
General
and administrative
|
|
|
36.5 |
% |
|
|
13.8 |
% |
|
|
46.5 |
% |
|
Total
operating expenses
|
|
|
100.5 |
% |
|
|
37.7 |
% |
|
|
85.0 |
% |
|
Operating
(loss) income
|
|
|
(60.8 |
%) |
|
|
4.8 |
% |
|
|
(60.2 |
%) |
|
Other
income (expense), net
|
|
|
0.3 |
% |
|
|
51.7 |
% |
|
|
0.9 |
% |
|
(Loss)
income before income tax expense (benefit)
|
|
|
(60.5 |
%) |
|
|
56.5 |
% |
|
|
(59.3 |
%) |
|
Tax
Expense
|
|
|
- |
% |
|
|
1.5 |
% |
|
|
- |
% |
|
Net
(loss) income
|
|
|
(60.5 |
%) |
|
|
55.0 |
% |
|
|
(59.3 |
%) |
Years
Ended March 31, 2009, 2008, and 2007
Revenue
Our
revenue is derived from sales of new and refurbished systems, spare parts and
non-warranty service. Revenue decreased 60.3% in fiscal 2009 from fiscal 2008
(to $13,070 from $32,925). 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 increased 47.9% in fiscal 2008 from
fiscal 2007 (to $32,925 from $22,263). The revenue increase was due
principally to the product mix and number of systems sold, as well as to setting
higher selling prices for some of our advanced systems compared to the prior
year.
International
sales accounted for approximately 28%, 72%, and 67%, of total revenue in fiscal
2009, 2008, and 2007, respectively. We expect that international sales will
continue to account for a significant portion of our revenue.
Gross
Profit
Our gross
profit as a percentage of revenue (gross margin) decreased to 39.8% in fiscal
2009 compared to 42.6% in fiscal 2008. The decrease in the gross
margin in fiscal 2009 compared to 2008 was due to the number of systems sold and
product mix. The principle reason for the decreased margin was
increased costs associated with the introduction and integration of the new DRIE
systems acquired from AMMS into our manufacturing structure. Our
gross profit as a percentage of revenue (gross margin) increased to 42.6% in
fiscal 2008 compared to 24.8% in fiscal 2007. The increase in the
gross margin in fiscal 2008 compared to 2007 was due to the product mix and
number of systems sold, as well as to cost reductions in manufacturing overhead,
primarily in payroll expense.
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. Gross margins for our 6500 series systems are
typically lower than those of our more mature 900 series systems due to the
inefficiencies and lower vendor discounts associated with lower order volumes
and increased service, installation and warranty support. 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.
During
the fiscal year ended March 31, 2009, we recorded a severance charge of
approximately $109 related to staff reductions of 13 employees, of which
approximately $7 was classified as research and development, $70 as sales and
marketing, and $32 as cost of sales. We had an outstanding severance
liability of approximately $15 as of March 31, 2009.
There
were no severance charges and no outstanding liability during fiscal years ended
March 31, 2008 and 2007.
Research
and Development
Research
and development expenses consist primarily of salaries, prototype material and
other costs associated with our ongoing systems and process technology
development, applications and field process support efforts.
Research
and development expenses increased to $5,210 in fiscal 2009 from $3,705 in
fiscal 2008. The increase in spending was due primarily to increase
in spending for consulting, prototype material costs, employee related costs and
legal fees for patent maintenance all primarily related to the AMMS
acquisition. In addition, amortization expense increased resulting
from the $497 write-off of the FDSI patent. Research and
development expenses decreased to $3,705 in fiscal 2008 from $4,646 in fiscal
2007. The decrease in spending was due primarily to reimbursement for
prototype costs as well as lower depreciation costs.
Sales
and Marketing
Sales and
marketing expenses primarily consist of salaries, commissions, trade show
promotion and advertising expenses. Expenses decreased to $3,156 in fiscal 2009
from $4,163 in fiscal 2008. The decrease in spending was due
primarily to the decrease in agent commission, employee commission and other
employee related costs. Sales and marketing expenses remained fairly flat in
fiscal 2008 compared to fiscal 2007 despite a significant increase in
revenue.
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. General and administrative cost remained fairly flat in fiscal 2009
compared to fiscal 2008. General and administrative costs decreased
to $4,551 in fiscal 2008 from $10,347 in fiscal 2007 primarily due to decreased
legal fees as a result of the settlement of the AMS litigation (described
below), a buyout provision in fiscal 2007 in the Petaluma lease and SFI
consolidation costs.
Other
Income (Expense), Net
In fiscal
2009 other income (expense), net, was mostly interest income offset by gains and
losses on foreign exchange. In fiscal 2008 other income (expense), net,
consisted principally of settling of the Sputtered Films, Inc. v. Advanced
Modular Sputtering lawsuit (the “AMS litigation”), interest income, gains
and losses on foreign exchange, and retirement of fixed assets. We recorded
other income (expense) of $17,013 in fiscal 2008. In addition to
recording the net $14,705 from the settlement of the AMS litigation, we also
recorded $682 from the recognition of foreign exchange differences between
current and historical valuations of investment as a result of the dissolution
of our Japan subsidiary completed in December 2007. Net interest
income was also higher in the current fiscal year due to higher cash balances as
a result of the settlement of the AMS litigation earning higher
interest. We recorded other income (expense), net of $162 in fiscal
2007.
In
connection with the settlement of the AMS litigation, we agreed to make a
donation of at least $350 to the University of California at Santa
Barbara. The donation endowed the Director of the California Nano
Systems Institute, a position currently occupied by Professor Evelyn
Hu. The position is known as the Peter A. Clarke Professor and
Director of the California Nano Systems Institute, in honor of Peter Clarke, the
founder of Sputtered Films, Inc., which Tegal acquired in August
2002. At March 31, 2007, $350 has been expensed to other income
(expense), net. This amount was paid in September 2007.
Income
Taxes
In fiscal
2009 our effective tax rate was 0%.
In fiscal
2008 our effective tax rate was 2.7%. The company recorded $504 as
tax expense for the income realized in fiscal 2008. Our effective tax
rate was 0% in fiscal 2007. In fiscal 2006, our effective rate was a
benefit of 5.7%. The Company recorded a tax benefit of $532 for the
losses incurred in fiscal 2006. All deferred tax assets have been
fully reserved.
In the
fiscal years prior to fiscal 2006, the Company recorded a reserve for the
possibility of an audit of our transfer pricing policy for sales in foreign
countries. During fiscal 2006, the contingency reserve in the amount
of $532 was reversed. Based on a review at that time of this reserve,
and in accordance with requirements at that time, the Company believed the
probability of such an audit was less than 70%, and therefore, reversed the
reserve.
Liquidity
and Capital Resources
In fiscal
2009 we financed our operations through net cash provided by
operations. In fiscal 2008 we financed our operations through net
cash provided by operations. The primary significant changes in our
cash flow statement for fiscal 2009 were in inventories and depreciation and
amortization expense. The Company increased both inventories and
intangible assets as a result of the AMMS acquisition and in anticipation of
manufacturing for the new product line.
Accounts
receivable decreased $3,967 due to the decreased number of systems sold in
fiscal 2009. Accounts receivable was comparatively flat from fiscal
2007 to fiscal 2008 despite our additional sales. Final payment is
due from customers when system installations are complete. The
Company, through its own field service employees and contract employees,
completed installations of advanced systems, primarily sold in the second and
third quarters of fiscal 2008.
Net cash
used in operations in fiscal 2009 was $5,541, primarily due to our net loss of
$7,902 and our increase in inventory. This was offset by decreases in
accounts receivable, accrued expenses, and product warranty. Net cash
used in operations in fiscal 2008 was $5,057; due primarily to the non cash
income from the lawsuit settlement amount of $19,500 partially offset by a net
income of $18,104 and increased inventories. Net cash provided
by operations was $12,772 in fiscal 2007; due primarily to the litigation
suspense amount of $19,500 partially offset by a net loss of $13,213 partially
offset by non cash stock compensation expense, and inventory write-off
provisions.
Net cash
used in investing activities totaled $1,455, $483, and $691 in fiscal 2009,
2008, and 2007, respectively. Cash used was primarily for capital expenditures
in all three years principally for demonstration equipment, leasehold
improvements and to acquire design tools, analytical equipment and
computers. Fiscal 2009 also included net cash of $1,000 used for the
AMMS asset acquisition.
Notes
payable, consisting of capital lease obligations on fixed assets totaling $14
during 2008, were paid off during 2009. There was a $0 balance at the
end of the 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 (loss) income of ($7,902), $18,104, and
($13,213) for fiscal 2009, 2008, and 2007, respectively. We (used) generated
cash flows from operations of ($5,541), ($5,057), and $12,772 for fiscal 2009,
2008, and 2007, respectively. To finance our operations, in fiscal 2007 we
received $19,500 representing the gross cash proceeds from the settlement of the
AMS litigation. 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, 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
following summarizes our contractual obligations at March 31, 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
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Non-cancelable
capital lease obligations
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Non-cancelable
operating lease obligations
|
|
|
1,680 |
|
|
|
828 |
|
|
|
828 |
|
|
|
24 |
|
|
|
- |
|
|
Total
contractual cash obligations
|
|
$ |
1,680 |
|
|
$ |
828 |
|
|
$ |
828 |
|
|
$ |
24 |
|
|
$ |
- |
|
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.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board, (“FASB”) issued
Statement of Financial Standards No. 157, “Fair Value Measurements”
(“SFAS 157”). SFAS 157 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 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 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 are effective for fiscal years beginning after
November 15, 2007. The Company adopted SFAS 157 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”). SFAS 159 provides entities with the
option to report selected financial assets and liabilities at fair value.
Business entities adopting SFAS 159 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 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
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 is effective for fiscal years beginning
after November 15, 2007, with earlier adoption permitted. The Company adopted
SFAS 159 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. SFAS 141R 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 No. 141R is 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”) 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 No. 160 is effective for the Company beginning April 1, 2009 and will apply
prospectively, except for the presentation and disclosure requirements, which
will apply retrospectively. The Company does not anticipate a
material effect to the consolidated financial statements.
In March
2008, FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133” (“SFAS 161”), which requires enhanced disclosures about an entity’s
derivative and hedging activities and thereby improves the transparency of
financial reporting. The statement requires disclosure about (a) why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning after November 15, 2008. The
Company does not anticipate a material effect to the consolidated financial
statements.
In May
2008, FASB issued SFAS No. 162 "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of
generally accepted accounting principles in the United States. SFAS 162 is
effective sixty days following the SEC's approval of PCAOB amendments to AU
Section 411, "The Meaning of
'Present fairly in conformity with generally accepted accounting
principles'". The Company does not anticipate a material effect to the
consolidated financial statements.
In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts” (“SFAS 163”). The new standard clarifies how SFAS
60, “Accounting and Reporting
by Insurance Enterprises”, applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. SFAS 163 is effective
for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the impacts and disclosures of this standard, but does not
expect SFAS 163 to have a material effect on the Company’s consolidated
financial statements.
In June
2007, FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on EITF
Issue No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities” (“EITF Issue No. 07-3”) that would
require nonrefundable advance payments made by the Company for future research
and development activities to be capitalized and recognized as an expense as the
goods or services are received by the Company. EITF Issue No. 07-3 is effective
for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the impacts and disclosures of this standard, but does not
expect EITF Issue No. 07-3 to have a material impact on the Company’s
consolidated financial statements.
In
December 2007, FASB ratified the EITF consensus on EITF Issue No. 07-1, “Accounting for Collaborative
Arrangements” (“EITF Issue 07-01”) that discusses how parties
to a collaborative arrangement (which does not establish a legal entity within
such arrangement) should account for various activities. The consensus indicates
that costs incurred and revenues generated from transactions with third parties
(i.e., parties outside of the collaborative arrangement) should be reported by
the collaborators on the respective line items in their income statements
pursuant to EITF Issue No. 99-19, “Reporting Revenue Gross as a
Principal Versus Net as an Agent.” Additionally, the consensus
provides that income statement characterization of payments between the
participants in a collaborative arrangement should be based upon existing
authoritative pronouncements, analogy to such pronouncements if not within their
scope, or a reasonable, rational, and consistently applied accounting policy
election. EITF Issue No. 07-1 is effective for fiscal years beginning after
December 15, 2008 and is to be applied retrospectively to all periods presented
for collaborative arrangements existing as of the date of adoption. The Company
is currently evaluating the impacts and disclosures of this standard, but does
not expect EITF Issue No. 07-1 to have a material impact on the Company’s
consolidated financial statements.
In April
2008, the FASB issued FASB Staff Position Statement of Financial Accounting
Standards 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP SFAS 142-3”). FSP SFAS 142-3 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 is effective for fiscal years and interim periods
beginning after December 15, 2008. The Company adopted FSP FAS 142-3 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”) 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, “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 is
effective for fiscal years beginning after December 15, 2008 and early
application is not allowed. The Company is currently evaluating the
impacts and disclosures of this standard, but does not expect EITF Issue No.
07-05 to have a material impact on the Company’s consolidated financial
statements.
Item
7A. Quantitative
and Qualitative Disclosure about Market Risk
Market
Risk Disclosure
Foreign
Exchange Risk
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 fiscal year, 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
8. Financial
Statements and Supplementary Data
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
of Tegal
Corporation:
We have
audited the accompanying consolidated balance sheets of Tegal Corporation and
its subsidiaries (“the Company”) as of March 31, 2009 and 2008, and
the related consolidated statements of operations, stockholders’ equity,
and cash flows for each of the three years in the period ended March 31,
2009. Our audit also included the financial statement schedule as of and for the
years ended March 31, 2009 and 2008 listed in the Index at Item
15(a)(2). These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor have we been
engaged to perform, an audit of the Company’s internal control over financial
reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tegal
Corporation and its subsidiaries as of March 31, 2009 and 2008 and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 2009 in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, the
information presented in the related financial statement schedule as of and for
the years ended March 31, 2009 and 2008, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects the information set forth therein.
The
accompanying financial statements have been prepared assuming that Tegal
Corporation will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations, has experienced a significant decrease in demand for its
products, and is evaluating certain strategic alternatives which may
significantly alter its ability to recover its assets in the normal course of
business over the next twelve months. These factors raise substantial
doubt about its ability to continue as a going concern. Management’s plans
regarding those matters also are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Burr,
Pilger & Mayer LLP
San
Francisco, California
June 25,
2009
TEGAL
CORPORATION
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except share and per share data)
|
|
|
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
12,491 |
|
|
$ |
19,271 |
|
|
Accounts
receivable, net of allowances for sales returns and doubtful accounts of
$207 and $191 at March 31, 2009 and 2008, respectively
|
|
|
2,775 |
|
|
|
6,758 |
|
|
Inventories,
net
|
|
|
14,480 |
|
|
|
11,056 |
|
|
Prepaid
expenses and other current assets
|
|
|
372 |
|
|
|
788 |
|
|
Total
current assets
|
|
|
30,118 |
|
|
|
37,873 |
|
|
Property
and equipment, net
|
|
|
1,154 |
|
|
|
1,213 |
|
|
Intangible
assets, net
|
|
|
2,998 |
|
|
|
903 |
|
|
Other
assets
|
|
|
67 |
|
|
|
90 |
|
|
Total
assets
|
|
$ |
34,337 |
|
|
$ |
40,079 |
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Capital
lease payable
|
|
$ |
- |
|
|
$ |
14 |
|
|
Accounts
payable
|
|
|
1,487 |
|
|
|
1,469 |
|
|
Accrued
product warranty
|
|
|
702 |
|
|
|
1,770 |
|
|
Deferred
revenue
|
|
|
113 |
|
|
|
252 |
|
|
Accrued
expenses and other current liabilities
|
|
|
2,004 |
|
|
|
3,644 |
|
|
Total
current liabilities
|
|
|
4,306 |
|
|
|
7,149 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 8)
|
|
|
|
|
|
|
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; 8,412,676 and
7,242,736 shares issued and outstanding at March 31, 2009 and
2008, respectively
|
|
|
84 |
|
|
|
72 |
|
|
Additional
paid-in capital
|
|
|
128,484 |
|
|
|
123,567 |
|
|
Accumulated
other comprehensive loss
|
|
|
(372 |
) |
|
|
(446 |
) |
|
Accumulated
deficit
|
|
|
(98,165 |
) |
|
|
(90,263 |
) |
|
Total
stockholders’ equity
|
|
|
30,031 |
|
|
|
32,930 |
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
34,337 |
|
|
$ |
40,079 |
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
TEGAL
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
|
|
|
Year Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
13,070 |
|
|
$ |
32,925 |
|
|
$ |
22,263 |
|
|
Cost
of revenue
|
|
|
7,872 |
|
|
|
18,911 |
|
|
|
16,736 |
|
|
Gross
profit
|
|
|
5,198 |
|
|
|
14,014 |
|
|
|
5,527 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
5,210 |
|
|
|
3,705 |
|
|
|
4,646 |
|
|
Sales
and marketing expenses
|
|
|
3,156 |
|
|
|
4,163 |
|
|
|
3,909 |
|
|
General
and administrative expenses
|
|
|
4,774 |
|
|
|
4,551 |
|
|
|
10,347 |
|
|
Total
operating expenses
|
|
|
13,140 |
|
|
|
12,419 |
|
|
|
18,902 |
|
|
Operating
(loss) income
|
|
|
(7,942 |
) |
|
|
1,595 |
|
|
|
(13,375 |
) |
|
Other
income (expense), net
|
|
|
40 |
|
|
|
17,013 |
|
|
|
162 |
|
|
(Loss)
income before income tax expense (benefit)
|
|
|
(7,902 |
) |
|
|
18,608 |
|
|
|
(13,213 |
) |
|
Tax
Expense
|
|
|
- |
|
|
|
504 |
|
|
|
- |
|
|
Net
(loss) income
|
|
$ |
(7,902 |
) |
|
$ |
18,104 |
|
|
$ |
(13,213 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(1.01 |
) |
|
$ |
2.53 |
|
|
$ |
(1.87 |
) |
|
Diluted
|
|
$ |
(1.01 |
) |
|
$ |
2.48 |
|
|
$ |
(1.87 |
) |
|
Weighted
average shares used in per share computation:
|
|
|
|
|
|
|
Basic
|
|
|
7,858 |
|
|
|
7,159 |
|
|
|
7,065 |
|
|
Diluted
|
|
|
7,858 |
|
|
|
7,288 |
|
|
|
7,065 |
|
See
accompanying notes to consolidated financial statements.
TEGAL
CORPORATION
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
Other
|
|
|
|
|
|
Total
Stock
|
|
|
Comprehensive
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid - in Capital
|
|
|
Comprehensive Income (loss)
|
|
|
Accumulated Deficit
|
|
|
holders Equity
|
|
|
Income / Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at March 31, 2006
|
|
|
7,021,088 |
|
|
$ |
70 |
|
|
$ |
120,592 |
|
|
$ |
532 |
|
|
$ |
(95,154 |
) |
|
$ |
26,040 |
|
|
|
|
|
Common
stock issued stock purchase plans
|
|
|
2,664 |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
|
|
Warrants
and options to purchase common stock issued for services
rendered
|
|
|
- |
|
|
|
- |
|
|
|
69 |
|
|
|
- |
|
|
|
- |
|
|
|
69 |
|
|
|
|
|
Repurchase
of fractional shares
|
|
|
(219 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
Restricted
Stock Units - Vested
|
|
|
83,334 |
|
|
|
1 |
|
|
|
138 |
|
|
|
- |
|
|
|
- |
|
|
|
139 |
|
|
|
|
|
Stock
Compensation Expense
|
|
|
- |
|
|
|
- |
|
|
|
1,664 |
|
|
|
- |
|
|
|
- |
|
|
|
1,664 |
|
|
|
|
|
Net
Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,213 |
) |
|
|
(13,213 |
) |
|
$ |
(13,213 |
) |
|
Cumulative
translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(292 |
) |
|
|
- |
|
|
|
(292 |
) |
|
|
(292 |
) |
|
Total
Comprehensive Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
(13,505 |
) |
|
Balances
at March 31, 2007
|
|
|
7,106,867 |
|
|
|
71 |
|
|
|
122,473 |
|
|
|
240 |
|
|
|
(108,367 |
) |
|
|
14,417 |
|
|
|
|
|
|
Common
stock issued stock purchase plans
|
|
|
5,734 |
|
|
|
- |
|
|
|
42 |
|
|
|
- |
|
|
|
- |
|
|
|
42 |
|
|
|
|
|
|
Warrants
and options to purchase common stock issued for services
rendered
|
|
|
40,940 |
|
|
|
- |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
29 |
|
|
|
|
|
|
Restricted
Stock Units - Vested
|
|
|
89,195 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
|
|
|
Stock
Compensation Expense
|
|
|
- |
|
|
|
- |
|
|
|
1,023 |
|
|
|
- |
|
|
|
- |
|
|
|
1,023 |
|
|
|
|
|
|
Net
Income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18,104 |
|
|
|
18,104 |
|
|
$ |
18,104 |
|
|
Cumulative
translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(686 |
) |
|
|
- |
|
|
|
(686 |
) |
|
|
(686 |
) |
|
Total
Comprehensive Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
17,418 |
|
|
Balances
at March 31, 2008
|
|
|
7,242,736 |
|
|
|
72 |
|
|
|
123,567 |
|
|
|
(446 |
) |
|
|
(90,263 |
) |
|
|
32,930 |
|
|
|
|
|
|
Common
stock issued stock purchase plans
|
|
|
7,563 |
|
|
|
- |
|
|
|
22 |
|
|
|
- |
|
|
|
- |
|
|
|
22 |
|
|
|
|
|
|
Warrants
and options to purchase common stock issued for services
rendered
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
|
|
|
Restricted
Stock Units - Vested
|
|
|
117,991 |
|
|
|
2 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
|
|
|
|
Stock
Compensation Expense
|
|
|
- |
|
|
|
- |
|
|
|
890 |
|
|
|
- |
|
|
|
- |
|
|
|
890 |
|
|
|
|
|
|
Stock
issued for asset purchase
|
|
|
1,044,386 |
|
|
|
10 |
|
|
|
3,990 |
|
|
|
- |
|
|
|
- |
|
|
|
4,000 |
|
|
|
|
|
|
Net
Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,902 |
) |
|
|
(7,902 |
) |
|
$ |
(7,902 |
) |
|
Cumulative
translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
74 |
|
|
|
- |
|
|
|
74 |
|
|
|
74 |
|
|
Total
Comprehensive Loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
(7,828 |
) |
|
Balances
at March 31, 2009
|
|
|
8,412,676 |
|
|
$ |
84 |
|
|
$ |
128,484 |
|
|
$ |
(372 |
) |
|
$ |
(98,165 |
) |
|
$ |
30,031 |
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
TEGAL
CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
Year
Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
$ |
(7,902 |
) |
|
$ |
18,104 |
|
|
$ |
(13,213 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,002 |
|
|
|
734 |
|
|
|
840 |
|
|
Intangible
asset impairment charge
|
|
|
497 |
|
|
|
-- |
|
|
|
-- |
|
|
Stock
compensation expense
|
|
|
892 |
|
|
|
1,022 |
|
|
|
1,803 |
|
|
Stock
issued under stock purchase plan
|
|
|
22 |
|
|
|
42 |
|
|
|
10 |
|
|
Fair
value of warrants and options issued for services rendered
|
|
|
15 |
|
|
|
29 |
|
|
|
69 |
|
|
Provision
for doubtful accounts and sales returns allowances
|
|
|
16 |
|
|
|
(222 |
) |
|
|
208 |
|
|
Loss
on disposal of property and equipment
|
|
|
19 |
|
|
|
144 |
|
|
|
663 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivables
|
|
|
3,967 |
|
|
|
160 |
|
|
|
(1,524 |
) |
|
Inventories,
net
|
|
|
(1,583 |
) |
|
|
(5,428 |
) |
|
|
1,951 |
|
|
Prepaid
expenses and other assets
|
|
|
440 |
|
|
|
271 |
|
|
|
239 |
|
|
Accounts
payable
|
|
|
27 |
|
|
|
(481 |
) |
|
|
(508 |
) |
|
Accrued
expenses and other current liabilities
|
|
|
(1,664 |
) |
|
|
22 |
|
|
|
1,582 |
|
|
Accrued
product warranty
|
|
|
(1,150 |
) |
|
|
858 |
|
|
|
565 |
|
|
Litigation
suspense
|
|
|
-- |
|
|
|
(19,500 |
) |
|
|
19,500 |
|
|
Deferred
revenue
|
|
|
(139 |
) |
|
|
(812 |
) |
|
|
587 |
|
|
Net
cash used in operating activities
|
|
|
(5,541 |
) |
|
|
(5,057 |
) |
|
|
12,772 |
|
|
Cash
flows used in investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(455 |
) |
|
|
(483 |
) |
|
|
(691 |
) |
|
Net
cash used in AMMS asset acquisition
|
|
|
(1,000 |
) |
|
|
-- |
|
|
|
-- |
|
|
Net
cash used in investing activities:
|
|
|
(1,455 |
) |
|
|
(483 |
) |
|
|
(691 |
) |
|
Cash
flows used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
under notes payable and bank lines of credit
|
|
|
- |
|
|
|
-- |
|
|
|
(14 |
) |
|
Payments
on capital lease financing
|
|
|
(14 |
) |
|
|
3 |
|
|
|
(2 |
) |
|
Net
cash used in financing activities
|
|
|
(14 |
) |
|
|
3 |
|
|
|
(16 |
) |
|
Effect
of exchange rates on cash and cash equivalents
|
|
|
230 |
|
|
|
(968 |
) |
|
|
(76 |
) |
|
Net
decrease in cash and cash equivalents
|
|
|
(6,780 |
) |
|
|
(6,505 |
) |
|
|
11,989 |
|
|
Cash
and cash equivalents at beginning of period
|
|
|
19,271 |
|
|
|
25,776 |
|
|
|
13,787 |
|
|
Cash
and cash equivalents at end of period
|
|
$ |
12,491 |
|
|
$ |
19,271 |
|
|
$ |
25,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
6 |
|
|
Supplemental
disclosure of non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in AMMS asset acquisition
|
|
$ |
4,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
Transfer
of demo lab equipment between inventory and fixed assets
|
|
$ |
11 |
|
|
$ |
143 |
|
|
$ |
314 |
|
TEGAL
CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(All
amounts in thousands, except share and per
share
data, unless otherwise noted)
Note
1. Description of
Business and Summary of Significant Accounting Policies
Description
of Business
Tegal
Corporation, a Delaware corporation (“Tegal” or the “Company”), designs,
manufactures, markets and services 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.
The Company’s 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.
The
Company was formed in December 1989 to acquire the operations of the former
Tegal Corporation, a division of Motorola, Inc. The predecessor
company was founded in 1972 and acquired by Motorola, Inc. in 1978. Tegal
completed its initial public offering in October 1995.
On August
30, 2002, the Company acquired all of the outstanding common stock of Sputtered
Films, Incorporated (“SFI”), a privately held California
corporation. SFI is a leader in the design, manufacture and service
of high performance physical vapor deposition sputtering systems for particular
applications in the semiconductor and semiconductor packaging
industry. SFI was founded in 1967 with the development of its core
technology, the S-Gun.
On
November 11, 2003, the Company acquired substantially all of the assets and
certain liabilities of Simplus Systems Corporation, (“Simplus”), a development
stage company. Simplus had developed a deposition cluster tool and
certain patented processes for barrier, copper seed and high-K dielectric
applications. Simplus had coined the term “nano-layer deposition” or
“NLD” to describe its unique approach to molecular organic chemical vapor
deposition (“MOCVD”). The Company is continuing to develop these NLD
processes and related tools, and are in the process of marketing them to a
limited number of key customers and joint development partners.
On May
28, 2004, the Company purchased substantially all of the assets and assumed
certain liabilities of First Derivative Systems, Inc. (“FDSI”). FDSI,
a privately held development stage company, was founded in 1999 as a spin-off of
SFI. FDSI had developed a high-throughput, low cost-of-ownership
physical vapor deposition (“PVD”) system with highly differentiated technology
for leading edge memory and logic device production on 200 and 300 millimeter
wafers. We have canceled further internal development of
products based on this technology, and have fully written off the value of the
acquired technology and associated intellectual property.
On
September 16, 2008, the Company acquired certain assets from Alcatel Micro
Machining Systems (“AMMS”) and Alcatel Lucent. With this acquisition,
we entered into the Deep Reactive Ion Etch (“DRIE”) market. DRIE is a
highly anisotropic etch process used to create deep, step-sided holes and
trenches in wafers, with aspect ratios of 20:1 or more. DRIE was
developed for MEMS, which require these features, but is also used to excavate
trenches for high-density capacitors for dynamic random access memory (“DRAM”)
and more recently for creating through wafer via's (“TSVs”) in advanced 3-D
wafer level packaging technology. The acquisition was designed to enable us to
pursue the high-growth markets in MEMS and certain segments of semiconductor
device manufacturing. Current end-markets include production of a
variety of MEMS and power devices, memory stacking (flash and DRAM), logic,
radio frequency system-in-package (“RF-SiP”), and complementary metal-oxide
semi-conductor (“CMOS”) image sensors.
The
Company has suffered recurring losses from operations, and experienced a
significant decrease in demand for its products. At the present time, we are
continuing our transition of the Company’s 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
liablities 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 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. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Principles
of Consolidation and Foreign Currency Transactions
The
consolidated financial statements include the accounts of the Company and all of
its subsidiaries and have been prepared in conformity with accounting principles
generally accepted in the United States. Intercompany transactions
and balances are eliminated in consolidation. Accounts denominated in foreign
currencies are translated using the foreign currencies as the functional
currencies. Assets and liabilities of foreign operations are translated to U.S.
dollars at current rates of exchange and revenues and expenses are translated
using weighted average rates. The effects of translating the financial
statements of foreign subsidiaries into U.S. dollars are reported as accumulated
other comprehensive income (loss), a separate component of stockholders’ equity.
Gains and losses from foreign currency transactions are included in the
statements of operations as a component of other income (expense), net, and were
not material in all periods presented.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles (“GAAP”) in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could vary from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments having a maturity of three
months or less on the date of purchase to be cash equivalents.
At March
31, 2009 and 2008 all of the Company’s investments are classified as cash
equivalents in the consolidated balance sheets. The investment portfolio at
March 31, 2009 and 2008 is comprised of money market funds. At March 31, 2009
and 2008, the fair value of the Company’s investments approximated
cost.
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 years ended March 31,
2009, 2008, and 2007. On September 24, 2008, the Company
entered into a foreign exchange contract to sell Euros, which was used to hedge
a sales transaction in which costs are denominated in U.S. dollars and the
related revenues are generated in Euros. The contract was
valued using Level 1 inputs as defined by SFAS No. 157. As of
December 31, 2008 the Company concluded the foreign exchange contract for a net
gain of $8.
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 March 31,
2009, five customers accounted for approximately 75.3% of the accounts
receivable balance. As of March 31, 2008, three customers accounted
for approximately 55.8% of the accounts receivable balance. As of
March 31, 2007, three customers accounted for approximately 86.3% of the
accounts receivable balance.
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. The Company estimates the effects of excess and
obsolescence on the carrying values of our inventories based upon estimates of
future demand and market conditions. The Company establishes a provision for
inventories in excess of production demand. Should actual production demand
differ from the Company’s estimates, additional inventory provision may be
required. The excess and obsolete provision is only released if and when the
related inventory is sold or scrapped. The inventory provision
balance at March 31, 2009 and 2008 was $626 and $3,695,
respectively. The inventory provision write down for the years ended
March 31, 2009 and 2008 was ($3,069) and ($213), respectively. The
change in the inventory provision in both FY09 and FY08 was the result of
scrap. The increase in FY09 results from the expectation that
our new DRIE product line will generate greater market acceptance.
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).
Warranty
Costs
We
provide for the estimated cost of our product warranties at the time revenue is
recognized. 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. Standard warranties for new tools is one year and for
used tools six months.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets, ranging from
three to seven years. Leasehold improvements are stated at cost and are
amortized using the straight-line method over the shorter of the estimated
useful life of the improvements or the lease term. Significant
additions and improvements are capitalized, while repairs and maintenance are
charged to expense as incurred. When assets are disposed of,
the cost and related accumulated depreciation are removed from the accounts and
the resulting gains or losses are included in the results of operations. The
Company generally depreciates its assets over the following
periods:
|
|
Years
|
|
Furniture
and machinery and
equipment
|
7
|
|
Computer
and
software
|
3 –
5
|
|
Leasehold
improvements
|
5
or remaining lease life
|
Identified
Intangible Assets
Intangibles
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 revenues 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 years ended 2008
and 2007.
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.”
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.
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.
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 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. As of March 31, 2009 and 2008, deferred
revenue as related to systems was $102 and $252, respectively. 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. At March 31, 2009 and 2008,
respectively, $11 and $0 of deferred revenue was related to service
contracts.
Accounting
for Freight Charged to Customers
Spares
and systems are typically shipped “freight collect,” therefore no shipping
revenue or cost is associated with the sale. When freight is charged,
the amount charged to customers is booked to revenue and freight costs incurred
are offset in the cost of revenue accounts pursuant to Financial Accounting
Standards Board’s (“FASB”) EITF 00-10.
Income
Taxes
Effective
April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainties
in Income Taxes — An Interpretation of FASB Statement No. 109” (FIN
48). FIN 48 requires recognition on the
financial statements of the effects of a tax position when it is more
likely than not, based on the technical merits, that the position will be
sustained upon examination. FIN 48 provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods and disclosure related to uncertain income tax positions.
Deferred income taxes are recognized for the differences between the tax
bases of assets and liabilities and their financial reporting amounts based on
enacted tax rates. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. In
accordance with its accounting policy, the Company recognizes accrued interest
and penalties related to unrecognized tax benefits as a component of income tax
expense. The impact on adoption of FIN 48 is more fully described in Note 6,
“Income Taxes.”
Basic
earnings per share (“EPS”) is computed by dividing net income (loss) available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS is computed using the weighted
average number of common shares outstanding plus any potentially dilutive
securities, except when the effect of including such changes is
antidilutive.
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.
Effective
April 1, 2006, we adopted the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” (“SFAS
123R”) using the modified prospective transition method.
The
Company used the following valuation assumptions to estimate the fair value of
options granted for the years ended March 31, 2009, 2008, and 2007,
respectively:
|
STOCK
OPTIONS:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected
life (years)
|
|
|
6.0 |
|
|
|
4.0 |
|
|
|
4.0 |
|
|
Volatility
|
|
|
92 |
% |
|
|
70 |
% |
|
|
87 |
% |
|
Risk-free
interest rate
|
|
|
2.61 |
% |
|
|
3.80 |
% |
|
|
5.00 |
% |
|
Dividend
yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
ESPP
awards were valued using the Black-Scholes model with expected volatility
calculated using a six-month historical volatility.
|
ESPP:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Expected
life (years)
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
Volatility
|
|
|
102 |
% |
|
|
46 |
% |
|
|
51 |
% |
|
Risk-free
interest rate
|
|
|
1.28 |
% |
|
|
4.00 |
% |
|
|
5.00 |
% |
|
Dividend
yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Comprehensive
Income/(Loss)
Comprehensive
income (loss) is defined as the change in equity of the Company during a period
from transactions and other events and circumstances excluding transactions
resulting from investments by owners and distributions to owners. The primary
difference between net income (loss) and comprehensive income (loss) for the
Company is attributable to foreign currency translation adjustments.
Comprehensive income (loss) is shown in the consolidated statement of
stockholders’ equity.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board, (“FASB”) issued
Statement of Financial Standards No. 157, “Fair Value Measurements”
(“SFAS 157”). SFAS 157 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 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 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 are effective for fiscal years beginning after
November 15, 2007. The Company began complying with SFAS 157 as of
April 1, 2008 as follows: Before September 26, 2008, the Company held no
derivatives, commodity instruments or other financial instruments for trading
purposes. The only assets and liabilities valued using a fair value
methodology were related to stock based compensation. The Company has
been using this valuation method since April 1, 2006 when it adopted the fair
value recognition provisions of SFAS 123R. On September 26, 2008, the
Company became a party to a foreign exchange contract to sell
Euros.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Liabilities” (“SFAS 159”). SFAS 159 provides entities with the
option to report selected financial assets and liabilities at fair value.
Business entities adopting SFAS 159 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 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
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 is effective for fiscal years beginning
after November 15, 2007, with earlier adoption permitted. The Company adopted
SFAS 159 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. SFAS 141R 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 No. 141R is 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”) 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 No. 160 is effective for the Company beginning April 1, 2009 and will apply
prospectively, except for the presentation and disclosure requirements, which
will apply retrospectively. The Company does not anticipate a
material effect to the consolidated financial statements.
In March
2008, FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133” (“SFAS 161”), which requires enhanced disclosures about an entity’s
derivative and hedging activities and thereby improves the transparency of
financial reporting. The statement requires disclosure about (a) why an entity
uses derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and its related interpretations, and
(c) how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. SFAS 161
is effective for fiscal years beginning after November 15, 2008. The
Company does not anticipate a material effect to the consolidated financial
statements.
In May
2008, FASB issued SFAS No. 162 "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS 162"). SFAS 162 identifies the sources of
generally accepted accounting principles in the United States. SFAS 162 is
effective sixty days following the SEC's approval of PCAOB amendments to AU
Section 411, "The Meaning of
'Present fairly in conformity with generally accepted accounting
principles'". The Company does not anticipate a material effect to the
consolidated financial statements.
In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts” (“SFAS 163”). The new standard clarifies how SFAS
60, “Accounting and Reporting
by Insurance Enterprises”, applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities. It also requires expanded
disclosures about financial guarantee insurance contracts. SFAS 163 is effective
for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the impacts and disclosures of this standard, but does not
expect SFAS 163 to have a material effect on the Company’s consolidated
financial statements.
In June
2007, FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on EITF
Issue No. 07-3, “Accounting
for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
Research and Development Activities” (“EITF Issue No. 07-3”) that would
require nonrefundable advance payments made by the Company for future research
and development activities to be capitalized and recognized as an expense as the
goods or services are received by the Company. EITF Issue No. 07-3 is effective
for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the impacts and disclosures of this standard, but does not
expect EITF Issue No. 07-3 to have a material impact on the Company’s
consolidated financial statements.
In
December 2007, FASB ratified the EITF consensus on EITF Issue No. 07-1, “Accounting for Collaborative
Arrangements” (“EITF Issue 07-01”) that discusses how parties
to a collaborative arrangement (which does not establish a legal entity within
such arrangement) should account for various activities. The consensus indicates
that costs incurred and revenues generated from transactions with third parties
(i.e., parties outside of the collaborative arrangement) should be reported by
the collaborators on the respective line items in their income statements
pursuant to EITF Issue No. 99-19, “Reporting Revenue Gross as a
Principal Versus Net as an Agent.” Additionally, the consensus
provides that income statement characterization of payments between the
participants in a collaborative arrangement should be based upon existing
authoritative pronouncements, analogy to such pronouncements if not within their
scope, or a reasonable, rational, and consistently applied accounting policy
election. EITF Issue No. 07-1 is effective for fiscal years beginning after
December 15, 2008 and is to be applied retrospectively to all periods presented
for collaborative arrangements existing as of the date of adoption. The Company
is currently evaluating the impacts and disclosures of this standard, but does
not expect EITF Issue No. 07-1 to have a material impact on the Company’s
consolidated financial statements in the current fiscal year.
In April
2008, the FASB issued FASB Staff Position Statement of Financial Accounting
Standards 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP
SFAS 142-3”). FSP SFAS 142-3 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 is effective for
fiscal years and interim periods beginning after December 15, 2008. The Company
adopted FSP SFAS 142-3 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”) 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, “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 is
effective for fiscal years beginning after December 15, 2008 and early
application is not allowed. The Company is currently evaluating the
impacts and disclosures of this standard, but does not expect EITF Issue No.
07-05 to have a material impact on the Company’s consolidated financial
statements.
Note
2. Balance Sheet
and Statement of Operations Detail
Inventories,
net consisted of:
|
|
|
March
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Raw
materials
|
|
$ |
5,634 |
|
|
$ |
4,674 |
|
|
Work
in progress
|
|
|
4,348 |
|
|
|
4,663 |
|
|
Finished
goods and spares
|
|
|
4,498 |
|
|
|
1,719 |
|
|
|
|
$ |
14,480 |
|
|
$ |
11,056 |
|
The
inventory provision at March 31, 2009 and 2008 was $626 and $3,695,
respectively.
Property
and equipment, net, consisted of:
|
|
|
March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Machinery
and equipment
|
|
$ |
2,785 |
|
|
$ |
2,763 |
|
|
Demo
lab equipment
|
|
|
1,273 |
|
|
|
1,188 |
|
|
Computer
and software
|
|
|
1,355 |
|
|
|
1,295 |
|
|
Leasehold
improvements
|
|
|
3,389 |
|
|
|
3,295 |
|
|
|
|
|
8,802 |
|
|
|
8,541 |
|
|
Less
accumulated depreciation and amortization
|
|
|
(7,648 |
) |
|
|
(7,328 |
) |
|
|
|
$ |
1,154 |
|
|
$ |
1,213 |
|
Machinery
and equipment at March 31, 2009 and 2008, includes approximately $0 and $16,
respectively, of assets under leases that have been
capitalized. Accumulated amortization for such equipment approximated
$0 and $1, respectively. Depreciation expense for years ended March
31, 2009, 2008, and 2007 were $518, $583, and $683, respectively.
A summary
of accrued expenses and other current liabilities follows:
|
|
|
March31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Accrued
compensation costs
|
|
$ |
861 |
|
|
$ |
1,565 |
|
|
Income
taxes payable
|
|
|
18 |
|
|
|
538 |
|
|
Customer
deposits
|
|
|
553 |
|
|
|
925 |
|
|
Sales
tax payable
|
|
|
61 |
|
|
|
172 |
|
|
Accruals
|
|
|
511 |
|
|
|
409 |
|
|
Other
|
|
|
- |
|
|
|
35 |
|
|
|
|
$ |
2,004 |
|
|
$ |
3,644 |
|
Product
warranty and guarantees:
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 years ended March 31, 2009 and 2008 is as follows:
|
|
|
Warranty
Activity for the
|
|
|
|
|
Year
Ending March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Balance
at the beginning of the period
|
|
$ |
1,770 |
|
|
$ |
1,101 |
|
|
Additional
warranty accruals for
|
|
|
591 |
|
|
|
1,811 |
|
|
warranties
issued during the period
|
|
|
|
|
|
|
|
|
|
Warranty
expense during the period
|
|
|
(1,659 |
) |
|
|
(1,142 |
) |
|
Balance
at the end of the period
|
|
$ |
702 |
|
|
$ |
1,770 |
|
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.
Note
3. Intangible
Assets
As of
March 31, 2009, intangible assets, net consisted of the following:
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Technology
|
|
$ |
108 |
|
|
$ |
(89 |
) |
|
$ |
19 |
|
|
Trademarks
|
|
|
428 |
|
|
|
(71 |
) |
|
|
357 |
|
|
Trade
name
|
|
|
253 |
|
|
|
(209 |
) |
|
|
44 |
|
|
Patents
|
|
|
3,322 |
|
|
|
(744 |
) |
|
|
2,578 |
|
|
Total
|
|
$ |
4,111 |
|
|
$ |
(1,113 |
) |
|
$ |
2,998 |
|
As of
March 31, 2008, intangible assets, net consisted of the following:
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Technology
|
|
$ |
782 |
|
|
$ |
(546 |
) |
|
$ |
236 |
|
|
Trade
name
|
|
|
253 |
|
|
|
(177 |
) |
|
|
76 |
|
|
Patents
|
|
|
1,072 |
|
|
|
(481 |
) |
|
|
591 |
|
|
Total
|
|
$ |
2,107 |
|
|
$ |
(1,204 |
) |
|
$ |
903 |
|
Amortization
expense was $981 in fiscal 2009, $258 in fiscal 2008, and $314 in fiscal
2007. The amortization expense for fiscal 2009 included $497 of
impairment related to patents with no future value. The estimated
future amortization expense of intangible assets as of March 31, 2009 is as
follows:
|
2010
|
|
$ |
650 |
|
|
2011
|
|
|
575 |
|
|
2012
|
|
|
450 |
|
|
2013
|
|
|
378 |
|
|
2014
|
|
|
378 |
|
|
Thereafter
|
|
|
567 |
|
|
|
|
$ |
2,998 |
|
Note
4. Earnings Per
Share (EPS)
Basic EPS
is computed by dividing income (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. All amounts in the following table
are in thousands except per share data.
Basic net
income (loss) per common share is computed using the weighted-average number of
shares of common stock outstanding.
The
following table represents the calculation of basic and diluted net income
(loss) per common share (in thousands, except per share data):
|
|
|
Year Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income applicable to common stockholders
|
|
$ |
(7,902 |
) |
|
$ |
18,104 |
|
|
$ |
(13,213 |
) |
|
Basic
and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
7,858 |
|
|
|
7,159 |
|
|
|
7,065 |
|
|
Plus
diluted - common stock equivalents
|
|
|
-- |
|
|
|
129 |
|
|
|
-- |
|
|
Weighted-average
common shares used in diluted net (loss) income per
common
share
|
|
|
7,858 |
|
|
|
7,288 |
|
|
|
7,065 |
|
|
Basic
net (loss) income per common share
|
|
$ |
(1.01 |
) |
|
$ |
2.53 |
|
|
$ |
(1.87 |
) |
|
Diluted
net (loss) income per common share
|
|
$ |
(1.01 |
) |
|
$ |
2.48 |
|
|
$ |
(1.87 |
) |
Outstanding
options, warrants and RSUs of 2,697,966; 1,697,608; and 2,537,429 shares of
common stock at a weighted-average exercise price of $8.66, $10.72,
and $11.36 on March 31, 2009, 2008, and 2007 respectively, were not
included in the computation of diluted net (loss) income 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.
Note
5. Notes
Payable
There
were no notes payable at March 31, 2009. Notes payable at March 31,
2008, consisted of capital lease obligations of $14, excluding the interest
portion, due within the next year.
Note
6. Income
Taxes
As of
March 31, 2009, the Company had net operating loss carryforwards of
approximately $70.0 million and $26.8 million for federal and state tax
purposes, respectively. The federal net operating loss carryforward
will begin to expire in the year ending March 31, 2019. The state of
California operating loss carryforwards will start to expire in the ending March
31, 2009.
The
deferred tax asset valuation allowance as of March 31, 2009 is attributed to
U.S. federal, and state deferred tax assets, which result primarily from future
deductible accruals, reserves, net operating loss carryforwards, and tax credit
carryforwards. We believe that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding our ability to
realize the deferred tax assets such that a full valuation allowance has been
recorded. These factors include our history of losses, and the lack of carryback
capacity to realize deferred tax assets.
In
accordance with Section 382 of the Internal Revenue Code, the amounts of and
benefits from net operating loss and tax credit carryforwards may be impaired or
limited in certain circumstances. Events which cause limitations in the amount
of net operating losses or credits that we may utilize in any one year include,
but are not limited to, a cumulative ownership change of more than 50% as
defined, over a three year period.
We
recognize interest and penalties related to uncertain tax positions in income
tax expense. Income tax expense for the year ended March 31, 2009 includes no
interest and penalties. As of March 31, 2008, we have no accrued interest and
penalties related to uncertain tax positions.
Components
of income (loss) before income tax expense (benefit) are as
follows:
|
Year
ended March 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
(6,793 |
) |
|
$ |
18,197 |
|
|
$ |
(15,261 |
) |
|
Foreign
|
|
|
(1,109 |
) |
|
|
411 |
|
|
|
2,048 |
|
|
Income
(Loss) before income tax expense (benefit)
|
|
$ |
(7,902 |
) |
|
$ |
18,608 |
|
|
$ |
(13,213 |
) |
Components
of income tax expense (benefit) are as follows:
|
Year
ended March 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
U.S.
Federal
|
|
$ |
- |
|
|
$ |
385 |
|
|
$ |
- |
|
|
State
and Local
|
|
|
- |
|
|
|
119 |
|
|
|
- |
|
|
Foreign
(credit)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
current tax expense (benefit)
|
|
|
- |
|
|
|
504 |
|
|
|
- |
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Federal
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
State
and Local
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Foreign
(credit)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total
deferred tax expense
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income tax expense (benefit)
|
|
$ |
0 |
|
|
$ |
504 |
|
|
$ |
0 |
|
The
income tax expense (benefit) differs from the amount computed by applying the
statutory U.S. federal income tax rate as follows:
|
Year
ended March 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit) at U.S. Statutory Rate
|
|
$ |
(2,687 |
) |
|
$ |
6,326 |
|
|
$ |
(4,493 |
) |
|
State
taxes expense (benefit) net of federal effect
|
|
|
- |
|
|
|
79 |
|
|
|
(534 |
) |
|
Foreign
differential
|
|
|
45 |
|
|
|
- |
|
|
|
(696 |
) |
|
Current
year tax credits
|
|
|
(94 |
) |
|
|
(5 |
) |
|
|
(48 |
) |
|
Reversal
of PY Transfer price reserve
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Change
in valuation allowance
|
|
|
2,715 |
|
|
|
(6,423 |
) |
|
|
5,681 |
|
|
Statutory
rate change
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Foreign
SubF Germany
|
|
|
- |
|
|
|
227 |
|
|
|
- |
|
|
Japan
liquidation subject to 367(b)
|
|
|
- |
|
|
|
273 |
|
|
|
- |
|
|
Other
items
|
|
|
21 |
|
|
|
27 |
|
|
|
90 |
|
|
Total
Income tax expense/(income)
|
|
$ |
- |
|
|
$ |
504 |
|
|
$ |
- |
|
Components of deferred taxes are as follows:
|
Year
ended March 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$ |
45 |
|
|
$ |
96 |
|
|
$ |
- |
|
|
Accruals,
reserves and other
|
|
|
2,968 |
|
|
|
2,861 |
|
|
|
3,194 |
|
|
Net
operating loss carryforwards
|
|
|
29,393 |
|
|
|
26,838 |
|
|
|
32,656 |
|
|
Credit
carryforward
|
|
|
2,921 |
|
|
|
2,795 |
|
|
|
3,597 |
|
|
Uniform
cap adjustment
|
|
|
120 |
|
|
|
348 |
|
|
|
721 |
|
|
Other
|
|
|
1,372 |
|
|
|
1,059 |
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
|
36,819 |
|
|
|
33,997 |
|
|
|
40,308 |
|
|
Valuation
allowance
|
|
|
(36,819 |
) |
|
|
(33,997 |
) |
|
|
(40,308 |
) |
|
Net
deferred tax asset
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
The
Company adopted FIN 48, on January 1, 2007. As a result of the
implementation of FIN 48, the Company did not recognize any adjustment to the
liability for uncertain tax positions and therefore did not record any
adjustment to the beginning balance of accumulated deficit on the consolidated
balance sheet. As of the date of adoption, the Company recorded a
$1.4 million reduction to deferred tax assets for unrecognized tax
benefits, all of which is currently offset by a full valuation allowance and
therefore did not record any adjustment to the beginning balance of accumulated
deficit on the balance sheet at that time.
|
Tabular
Reconciliation of Unrecognized Tax Benefits
|
|
|
|
|
|
|
|
|
|
Beginning
Balance at April 1, 2007 (in thousands)
|
|
|
1,425 |
|
|
|
|
|
|
|
|
Increase/(Decrease)
of unrecognized tax benefits taken in prior years
|
|
|
- |
|
|
Increase/(Decrease)
of unrecognized tax benefits related to current year
|
|
|
4 |
|
|
Increase/(Decrease)
of unrecognized tax benefits related to settlements
|
|
|
- |
|
|
Reductions
to unrecognized tax benefits related to lapsing statute of
limitations
|
|
|
(130 |
) |
|
Ending
Balance of March 31, 2008
|
|
|
1,299 |
|
|
|
|
|
|
|
|
Increase/(Decrease)
of unrecognized tax benefits taken in prior years
|
|
|
- |
|
|
Increase/(Decrease)
of unrecognized tax benefits related to current year
|
|
|
64 |
|
|
Increase/(Decrease)
of unrecognized tax benefits related to settlements
|
|
|
- |
|
|
Reductions
to unrecognized tax benefits related to lapsing statute of
limitations
|
|
|
(182 |
) |
|
Ending
Balance at March 31, 2009
|
|
|
1,181 |
|
There are no positions for which it is reasonably possible that the total
amounts of unrecognized tax benefits will significantly increase or decrease
within 12 months of the reporting date.
Because the statute of limitations does not expire until after the net operating
loss and credit carryforwards are actually used, the statues are still open on
fiscal years ending March 31, 1994 forward for federal purposes, and for fiscal
years ended March 31, 2001 forward for state purposes. For the years
prior to March 31, 2006 for federal purposes and prior to March 31, 2005 for
state purposes any adjustments would be limited to reduction in the net
operating loss and credit carryforwards.
Total interest and penalties included in the statement of operations for the
year ended March 31, 2009 is zero. It is the company’s policy to
include interest and penalties related to uncertain tax positions in tax
expense.
We have recorded no net deferred tax assets for the years ended March 31, 2009
and 2008, respectively. The Company has provided a valuation
allowance of $36.8 million and $34.0 million at March 31, 2009
and 2008, respectively. The valuation allowance fully reserves all
net operating loss carryforwards, credits and non-deductible accruals and
reserves, for which realization of future benefit is uncertain. The
realization of net operating losses may be limited due to change of ownership
rules. The valuation allowance increased by $2.8 million in
fiscal 2009 and decreased by $6.3 million during fiscal 2008.
At March 31, 2009, the
Company has net operating loss carryforwards of approximately $77.5 million
and $34.3 million for federal and state tax purposes,
respectively. The federal net operating loss carryforward will begin
to expire in the year ended March 31, 2020 and the state of California will
start to expire in the year ended March 31, 2013.
At March 31, 2009, the
Company also has research and experimentation credit carryforwards of
$1.7 million and $0.8 million for federal and state
income tax purposes, respectively. The federal credit will begin to
expire in the year ended March 31, 2009 and the state of California will never
expire under current law.
The Tax Reform Act of 1986 limits the use of net operating loss and tax credit
carry-forwards in certain situations where changes occur in the stock ownership
of a corporation during a certain time period. In the event the
company had incurred a change in ownership, utilization of the carry-forwards
could be significantly restricted
Note
7. Reduction in
Force
During
the fiscal year ended March 31, 2009, we recorded a severance charge of
approximately $109 related to staff reductions of 13 employees, of which
approximately $7 was classified as research and development, $70 as sales and
marketing, and $32 as cost of sales. We had an outstanding severance
liability of approximately $15 as of March 31, 2009.
During
the fiscal years ended March 31, 2008 and 2007, there were no severance charges
and no outstanding liability.
Note
8. Commitments and
Contingencies
The
Company has several non-cancelable operating leases, primarily for general
office, production and warehouse facilities, that expire over the next nine
years. We have no capital leases at this time. Future minimum lease
payments under these leases are as follows:
|
|
|
Operating
|
|
|
Year Ending March 31, 2009
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$ |
828 |
|
|
2011
|
|
|
491 |
|
|
2012
|
|
|
337 |
|
|
2013
|
|
|
24 |
|
|
2014
|
|
|
- |
|
|
Thereafter
|
|
|
- |
|
|
Total
minimum lease payments
|
|
$ |
1,680 |
|
Most
leases provide for the Company to pay real estate taxes and other maintenance
expenses. Rent expense for operating leases, net of sublease income, was $755,
$862, and $1,636, during the years ended March 31, 2009, 2008, and 2007,
respectively.
The
Company maintains its headquarters, encompassing our executive office,
manufacturing, engineering and research and development operations, in one
leased 39,717 square foot facility in Petaluma, California. The
Company has office space in a leased 13,300 square foot facility in San Jose,
California.
Note
9. Sale of Common
Stock and Warrants
During
fiscal year 2006, the Company entered into a contract with certain consultants
of the Company pursuant to which the Company will issue warrants on a monthly
basis in lieu of cash payments for two years, dependant upon the continuation of
the contract and the achievement of certain performance goals. These
warrants are valued and expensed on a monthly basis upon issuance.
|
·
|
During
fiscal year 2007, the Company issued 9,996 warrants valued at $69 using
the Black-Scholes model with an exercise price at the market value on the
day of the grant and an average interest rate of 4.51% and a 5 year
life.
|
|
·
|
During
fiscal year 2008, the Company issued 5,000 warrants valued at $29 using
the Black-Scholes model with an exercise price at the market value on the
day of the grant and an average interest rate of 3.75% and a 5 year
life.
|
|
·
|
During
the fiscal year 2009, the Company issued no warrants. The
Company booked $15 of expense for warrants previously
issued.
|
In
connection with a financing agreement in 2004, the Company issued fully vested
warrants to Kingsbridge Capital to purchase 25,000 shares of the Company's
common stock at an exercise price of $49.32 per share. All warrants in
connection to this transaction expired February 2009, and there were no warrants
outstanding as of March 31, 2009.
During
the fiscal year end March 31, 2005, the Company issued to Kingsbridge Capital,
Ltd. a total of 708,861 shares of its common stock. Gross proceeds
from the sale of stock were $10,380. The discount to the volume-weighted
average market price was $1,153 that was charged against equity as stock
issuance cost. In addition to $623 in cash payments, the Company
issued warrants to purchase 1,977, 1,807, 2,007 and 1,295 shares of common stock
at $17.40, $18.72, $23.04 and $16.20 respectively, to advisors, in connection
with the sale of stock to Kingsbridge which were charged against equity as stock
issuance costs. Additionally, warrants issued at the time of the
agreement were held in current assets and have been fully amortized as of March
31, 2005 and charged against equity as stock issuance costs. The Company does
not anticipate any further sales of shares to Kingsbridge.
The
selling price of the stock was negotiated as a function of market price based on
a specific formula. The discount was accounted for as a cost of capital and
netted against additional paid-in capital. Since the transaction was related to
the sale of our own common stock, it was excluded from the determination of net
income. At March 31, 2009 there were 1,486,440 warrants
outstanding.
Note
10. Employee
Benefit Plans
Equity
Incentive Plan
Pursuant
to the Amended and Restated Equity Incentive Plan (“Equity Incentive Plan”),
options and stock purchase rights to purchase 291,666 shares of common stock
could be granted to management and consultants. The exercise price of options
and the purchase price of stock purchase rights generally has been the fair
value of the Company’s common stock on the date of grant. At the date of
issuance of the stock options, all options are exercisable; however the Company
has the right to repurchase any stock acquired pursuant to the exercise of stock
options upon termination of employment or consulting agreement at the original
exercise price for up to four years from the date the options were granted, with
the repurchase rights ratably expiring over that period of time. Incentive stock
options are exercisable for up to ten years from the grant date of the option.
Nonqualified stock options are exercisable for up to 15 years from the grant
date of the option. The Equity Incentive Plan expired in December
1999.
Eighth
Amended and Restated 1998 Equity Participation Plan (Eighth Amended and
Restated)
Pursuant
to the terms of the Company’s Eighth Amended and Restated 1998 Equity
Participation Plan (“1998 Equity Plan”), aggregate of 1,666,666 shares of common
stock were reserved for issuance pursuant to granted stock options and stock
appreciation rights or upon the vesting of granted restricted stock awards. The
exercise price of options generally was the fair value of the Company’s common
stock on the date of grant. Options are generally subject to vesting at the
discretion of the Compensation Committee of the Board of Directors (the
“Committee”). At the discretion of the Committee, vesting may be accelerated
when the fair market value of the Company’s stock equals a certain price
established by the Committee on the date of grant. Incentive stock options will
be exercisable for up to ten years from the grant date of the option.
Non-qualified stock options will be exercisable for a maximum term to be set by
the Committee upon grant. Upon the adoption of the 2007 Equity Plan,
no further awards will be issued under the 1998 Equity Plan.
2007
Incentive Award Plan
Pursuant
to the terms of the Company’s 2007 Equity Participation Plan (“2007 Equity
Plan”), which was authorized as a successor plan to the Company’s 1998 Equity
Incentive Plan and Director Option Plan, an aggregate of 1,000,000 shares of
common stock is available for grant pursuant to the 2007 Equity Plan, plus the
number of shares of common stock which are or become available for issuance
under the 1998 Equity Plan and the Director Option Plan and which are not
thereafter issued under such plans. The 2007 Equity Plan provides for the grant
of incentive stock options, nonqualified stock options, restricted stock, stock
appreciation rights, performance shares, performance stock units, dividend
equivalents, stock payments, deferred stock, restricted stock units, other
stock-based awards, and performance-based awards. The option exercise price
of all stock options granted pursuant to the 2007 Equity Plan will not be less
than 100% of the fair market value of the common stock on the date of grant.
Stock options may be exercised as determined by the Board, but in no event after
the tenth anniversary date of grant, provided that a vested nonqualified stock
option may be exercised up to 12 months after the optionee's
death. Awards granted under the 2007 Equity Plan are generally
subject to vesting at the discretion of the Compensation Committee of the Board
of Directors (the “Committee”). As of March 31, 2009; 105,735
shares were available for issuance under the 2007 Equity Plan.
Directors
Stock Option Plan
Pursuant
to the terms of the Fifth Amended and Restated Stock Option Plan for Outside
Directors, as amended, (“Director Option Plan”), an aggregate of 333,333 shares
of common stock were reserved for issuance pursuant to stock options granted to
outside directors. Each outside director who was elected or appointed
to the Board on or after September 15, 1998 was eligible to be granted an option
to purchase 8,333 shares of common stock and on each second anniversary after
the applicable election or appointment shall receive an additional option to
purchase 4,166 shares, provided that such outside director continued to serve as
an outside director on that date. For each outside director, 1/12th of the
total number of shares will vest on the first day of each calendar month
following the date of Option grant, contingent upon continued service as a
director. Following the adoption of the 2007 Equity Plan, no further
awards will be issued under the Director Option Plan.
Employee
Qualified Stock Purchase Plan
The
Company has offered an employee qualified stock purchase plan (“Employee Plan”)
under which rights are granted to purchase shares of common stock at 85% of the
lower of the market value of such shares at the beginning of a six month
offering period or at the end of that six month period. Under the Employee Plan,
the Company is authorized to issue up to 83,333 shares of common stock. 7,563
common stock shares were purchased in fiscal 2009 and 5,734 common stock shares
were purchased in fiscal 2008. Shares available for future purchase
under the Employee Plan were 26,774 at March 31, 2009.
Savings
and Investment Plan
The
Company has established a defined contribution plan that covers substantially
all U.S. employees. Employee contributions of up to 4% of each U.S. employee’s
compensation will be matched by the Company based upon a percentage to be
determined annually by the Board. Employees may contribute up to 15% of their
compensation, not to exceed a prescribed maximum amount. The Company made
contributions to the plan of $13, $15, and $13 in the years ended March 31,
2009, 2008, and 2007, respectively.
Note
11. Stock Based Compensation
A summary
of stock option and warrant activity during the year ended March 31, 2009 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
Weighted
Average Remaining
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise
Price
|
|
Contractual
Term (in Years)
|
Intrinsic
Value
|
|
Beginning
outstanding
|
|
|
2,207,307 |
|
|
$ |
10.72 |
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
Price=market
value
|
|
|
471,563 |
|
|
|
2.62 |
|
|
|
|
Total
|
|
|
471,563 |
|
|
|
2.62 |
|
|
|
|
Exercised
|
|
|
-- |
|
|
|
0.00 |
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(57,165 |
) |
|
|
4.33 |
|
|
|
|
Expired
|
|
|
(47,203 |
) |
|
|
34.94 |
|
|
|
|
Total
|
|
|
(104,368 |
) |
|
|
18.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
outstanding
|
|
|
2,574,502 |
|
|
$ |
8.94 |
|
4.34
|
$-
|
|
Ending
vested and expected to vest
|
|
|
2,505,752 |
|
|
$ |
9.10 |
|
4.21
|
$-
|
|
Ending
exercisable
|
|
|
1,889,614 |
|
|
$ |
11.01 |
|
2.62
|
$-
|
The
aggregate intrinsic value of options and warrants outstanding at March 31, 2009
is calculated as the difference between the exercise price of the underlying
options and the market price of our common stock as of March 31,
2009.
The
weighted average estimated grant date fair value, as defined by SFAS No.123R for
stock options granted during fiscal 2009, 2008, and 2007 was $1.91, $2.93, and
$3.03 per option, respectively.
The
following table summarizes information with respect to stock options and
warrants outstanding as of March 31, 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Exercise Prices
|
|
|
Number
Outstanding As of
|
|
|
Weighted
Average Remaining
|
|
|
Weighted
Average
|
|
|
Number
Exercisable As of
|
|
|
|
|
| |
|
|
|
|
|
December
31, 2008
|
|
|
Contractual
Term (in years)
|
|
|
Exercise Price |
|
|
December
31, 2008
|
|
|
December
31, 2008
|
|
| $ |
2.20 |
|
|
$ |
2.20 |
|
|
|
20,000 |
|
|
|
9.62 |
|
|
$ |
2.30 |
|
|
|
-- |
|
|
$ |
-- |
|
| |
2.34 |
|
|
|
2.34 |
|
|
|
358,847 |
|
|
|
9.60 |
|
|
|
2.34 |
|
|
|
-- |
|
|
|
-- |
|
| |
3.44 |
|
|
|
4.20 |
|
|
|
278,561 |
|
|
|
8.83 |
|
|
|
4.08 |
|
|
|
62,769 |
|
|
|
4.08 |
|
| |
4.60 |
|
|
|
4.68 |
|
|
|
261,965 |
|
|
|
6.93 |
|
|
|
4.60 |
|
|
|
183,488 |
|
|
|
4.61 |
|
| |
5.26 |
|
|
|
8.28 |
|
|
|
277,064 |
|
|
|
4.23 |
|
|
|
6.65 |
|
|
|
266,542 |
|
|
|
6.66 |
|
| |
12.00 |
|
|
|
12.00 |
|
|
|
1,284,990 |
|
|
|
1.43 |
|
|
|
12.00 |
|
|
|
1,284,990 |
|
|
|
12.00 |
|
| |
12.36 |
|
|
|
92.26 |
|
|
|
85,996 |
|
|
|
2.83 |
|
|
|
21.45 |
|
|
|
84,746 |
|
|
|
21.53 |
|
| |
92.52 |
|
|
|
92.52 |
|
|
|
4,165 |
|
|
|
0.88 |
|
|
|
92.52 |
|
|
|
4,165 |
|
|
|
92.52 |
|
| |
99.00 |
|
|
|
99.00 |
|
|
|
2,498 |
|
|
|
0.99 |
|
|
|
99.00 |
|
|
|
2,498 |
|
|
|
99.00 |
|
| |
105.00 |
|
|
|
105.00 |
|
|
|
416 |
|
|
|
3.48 |
|
|
|
105.00 |
|
|
|
416 |
|
|
|
105.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ |
2.20 |
|
|
$ |
105.00 |
|
|
|
2,574,502 |
|
|
|
4.34 |
|
|
$ |
8.94 |
|
|
|
1,889,614 |
|
|
$ |
11.01 |
|
The
weighted average estimated grant date fair values per share, for rights granted
under the employee stock purchase plan during fiscal 2009, 2008, and 2007 were
$1.88, $3.88, and $3.82, respectively.
Restricted
Stock Units
The
following table summarizes the Company’s restricted stock award activity for the
period ended March 31, 2009:
|
|
|
|
|
|
Weighted
Avg.
|
|
|
|
|
Number
of
|
|
|
Grant
Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Balance
March 31, 2008
|
|
|
349,718 |
|
|
$ |
4.97 |
|
|
Granted
|
|
|
- |
|
|
$ |
- |
|
|
Forfeited
|
|
|
(38,996 |
) |
|
$ |
- |
|
|
Vested
|
|
|
(214,032 |
) |
|
$ |
2.13 |
|
|
Balance,
March 31, 2009
|
|
|
96,690 |
|
|
$ |
1.10 |
|
The
weighted average estimated grant date fair value, as defined by SFAS No.123R and
SFAS 123 (for fiscal 2006), for restricted stock awards granted during fiscal
2009, 2008, and 2007 was $3.56, $4.63, and $5.32 per award,
respectively.
As of
March 31, 2009 there was $1,740 of total unrecognized compensation cost related
to restricted stock which is expected to be recognized over a weighted average
period of 2 years.
Total
stock-based compensation expense related to stock options and RSUs for the year
ended March 31, 2009, 2008 and 2007 was $892, $1,022 and $1,803,
respectively. The total compensation expense related to non-vested
stock options and RSUs not yet recognized for March 31, 2009 is $1,740 which is
expected to be recognized over a weighted average period of two
years.
Note
12. 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”) 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:
|
|
|
Years Ended March 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
United
States
|
|
$ |
9,359 |
|
|
$ |
9,262 |
|
|
$ |
7,398 |
|
|
Asia
|
|
|
1,046 |
|
|
|
10,775 |
|
|
|
9,050 |
|
|
Germany
|
|
|
791 |
|
|
|
2,879 |
|
|
|
3,115 |
|
|
Europe,
excluding Germany
|
|
|
1,874 |
|
|
|
10,009 |
|
|
|
2,700 |
|
|
Total
sales
|
|
$ |
13,070 |
|
|
$ |
32,925 |
|
|
$ |
22,263 |
|
|
|
|
March 31,
|
|
Long-Lived
assets at year-end:
|
2009
|
2008
|
|
United
States
|
$ 1,142
|
$ 1,195
|
|
Europe
|
11
|
18
|
|
Total
Long-lived assets
|
$ 1,154
|
$ 1,213
|
The
Company’s sales are primarily to manufacturers. The composition of our top five
customers changes from year to year, but net system sales to our top five
customers in fiscal 2009, 2008, and 2007 accounted for 89.2%, 87.2%, and 77.8%,
respectively, of total net system sales. A leading supplier in the integrated
circuit and MEMS sensor market, SVTC Tech, LLC, and Diodes Fab Tech Inc.
accounted for 15.7%, 15.3% and 13.9%, respectively, of our total revenue in
fiscal 2009. ST Microelectronics accounted for 57.8% of our total
revenue in fiscal 2008. ST Microelectronics and International
Rectifier accounted for 43.1% and 13.4% respectively, of our total revenue in
fiscal 2007. Other than the previously listed customers, no single
customer represented more than 10% of the Company’s total revenue in fiscal
2009, 2008, and 2007.
Item
9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
None.
Item
9A. Controls and
Procedures
Evaluation of
disclosure controls and procedures. As of March 31, 2009,
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 March 31, 2009, such disclosure
controls and procedures were effective.
Management’s
Annual Report on Internal Control Over Financial
Reporting. Management is responsible for establishing
and maintaining an adequate system of internal control over financial reporting,
as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act. Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with
GAAP.
Our
internal control over financial reporting includes those policies and procedures
that:
• pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of our assets;
• provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with GAAP, and that receipts
and expenditures are being made only in accordance with authorizations of our
management and directors; and
• provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect
on the financial statements.
Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements. Also, projection of any evaluation of effectiveness to
future periods is subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management
has conducted, with the participation of our Chief Executive Officer and our
Chief Financial Officer, an assessment, including testing of the effectiveness
of our internal control over financial reporting as of March 31,
2009. Management’s assessment of internal control over financial
reporting was based on the framework in Internal Control over Financial
Reporting – Guidance for Smaller Public Companies issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, Management concluded that our system of internal control over
financial reporting was effective as of March 31, 2009.
Changes in
Internal Control Over Financial Reporting. There
were no changes in our internal control over financial reporting during the
fourth quarter ended March 31, 2009 that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
The
effectiveness of our internal control over financial reporting as of March 31,
2009 has not been audited by Burr, Pilger & Mayer LLP, an independent
registered public accounting firm, as stated in their report appearing
above. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Item
9B. Other
Information
None.
PART
III
Certain
information required by Part III is allowed to be incorporated by reference from
our definitive proxy statement pursuant to Regulation 14A (the “Proxy
Statement”) no later than 120 days after the end of the fiscal year covered by
this Report, and certain information included therein is incorporated herein by
reference. Only those sections of the Proxy Statement that specifically address
the items set forth herein are incorporated by reference. Such incorporation
does not include the Compensation Committee Report or the Audit Committee Report
included in the Proxy Statement.
Item
10. Directors and
Executive Officers of the Registrant
The
information concerning our directors and executive officers required by this
Item is incorporated by reference to our Proxy Statement under the caption
“Election of Directors” and “Executive Officers of the Registrant”.
The
information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934, as amended, is incorporated by reference to the Company’s Proxy
Statement under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance.”
The
additional information required by this Item is incorporated by reference to our
Proxy Statement.
Item
11. Executive
Compensation
The
information required by this Item is incorporated by reference to our Proxy
Statement under the caption “Executive Compensation.”
Item
12. Security
Ownership of Certain Beneficial Owners and Management
The
information required by this Item is incorporated by reference to our Proxy
Statement under the captions “Principal Stockholders” and “Ownership of Stock by
Management.”
Item
13. Certain
Relationships and Related Transactions
The
information required by this Item is incorporated by reference to our Proxy
Statement under the caption “Certain Transactions.”
Item 14. Principal
Accountant Fees and Services
The
information required by this Item is incorporated by reference to our Proxy
Statement under the caption “Independent Registered Public Accounting
Firm”.
PART
IV
Item
15. Exhibits,
Financial Statement Schedule
|
(a)
|
The
following documents are filed as part of this Form
10-K:
|
The
Company’s Financial Statements and notes thereto appear in this Form 10-K
according to the following Index of Consolidated Financial
Statements:
|
|
Page
|
|
Reports
of Independent Registered Public Accounting
Firm
|
11
|
|
Consolidated
Balance Sheets as of March 31, 2009 and
2008
|
12
|
|
Consolidated
Statements of Operations for the years ended March 31, 2009, 2008, and
2007
|
14
|
|
Consolidated
Statements of Stockholders’ Equity for the years ended March 31, 2009,
2008, and 2007
|
15
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2009, 2008, and
2007
|
16
|
|
Notes
to Consolidated Financial
Statements
|
17
|
|
|
(2)
|
Financial
Statement Schedule
|
|
|
Page
|
|
Schedule
II — Valuation and Qualifying
Accounts
|
27
|
Schedules
other than those listed above have been omitted since they are either not
required, not applicable, or the required information is shown in the
consolidated financial statements or related notes.
The
following exhibits are referenced or included in this report:
|
Exhibit
Number
|
Description
|
|
3.1
|
Certificate
of Incorporation of the Registrant, as amended.
|
|
3.2
|
Restated
By-laws of Registrant (incorporated by reference to Exhibit 3.2 included
in Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 3, 2006).
|
|
10.1
|
Form
of Warrant (incorporated by reference to Exhibit (ii) to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on February 13, 2002).
|
|
10.2
|
Form
of Warrant dated June 30, 2003 (incorporated by reference to Exhibit 4.5
to the Registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 2, 2003).
|
|
10.3
|
Form
of Security Agreement between the Registrant and Orin Hirschmann dated
June 30, 2003 (incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 2, 2003).
|
|
**10.4
|
Fifth
Amended and Restated Stock Option Plan for Outside Directors (incorporated
by reference to the Registrant’s Quarterly Report on 10-Q, for the quarter
ended June 30, 2006, filed with the Securities and Exchange Commission on
August 14, 2006.
|
|
**10.5
|
Eighth
Amended and Restated 1998 Equity Participation Plan of Tegal Corporation
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006 filed with the
Securities and Exchange Commission on August 14, 2006.
|
|
**10.6
|
2007
Incentive Award Plan
|
|
**10.7
|
Second
Amended and Restated Employee Qualified Stock Purchase Plan (incorporated
by reference to Appendix C to the Registrant’s revised definitive proxy
statement on Schedule 14A filed with the Securities and Exchange
Commission on July 29, 2004).
|
|
**10.8
|
1990
Stock Option Plan (incorporated by reference to Exhibit 10.2 to the
Registrant’s Registration Statement on Form S-1 (File No. 33-84702)
declared effective by the Securities and Exchange Commission on October
18, 1995).
|
|
10.9
|
Form
of Stock Option Agreement for Employees from the 2007 Incentive Award Plan
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
December 21, 2007.
|
|
**10.10
|
Form
of Non-Qualified Stock Option Agreement for Employees from the Eighth
Amended and Restated 1998 Equity Participation Plan (incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on November 12,
2004).
|
|
**10.12
|
Form
of Restricted Stock Unit Award Agreement from the Eighth Amended and
Restated 1998 Equity Participation (incorporated by reference to Exhibit
10.5.4 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 11, 2005).
|
|
**10.14
|
Employment
Agreement between the Registrant and Thomas Mika dated as of July 27, 2007
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
August 2, 2007).
|
|
**10.15
|
Employment
Agreement between the Registrant and Christine Hergenrother dated as of
July 27, 2007 (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 2, 2007).
|
|
**10.16
|
Employment
Agreement between the Registrant and Steve Selbrede dated as of May 3,
2004 (incorporated by reference to Exhibit 10.18 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended March 31, 2005 filed
with the Securities and Exchange Commission on June 29,
2005).
|
|
10.15
|
Form
of Warrant Agreement between Tegal and the investor parties thereto
(incorporated by reference to Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
July 11, 2005).
|
|
10.16
|
Lease,
dated December 21, 2005, by and between BRE/PCCP Orchard LLC, as Landlord,
and Tegal Corporation, as Tenant (incorporated by reference to Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2005, filed with the Securities and Exchange Commission
on February 10, 2006).
|
|
10.17
|
Sublease
Agreement, dated December 30, 2005, by and between Silicon Genesis
Corporation, as Sublandlord, and Tegal Corporation, as Subtenant
(incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 2005, filed with
the Securities and Exchange Commission on February 10,
2006).
|
|
**10.18
|
Restricted
Stock Unit Award Agreement between Tegal Corporation and Brad Mattson,
dated July 5, 2005 (incorporated by reference to Exhibit 10.2 to
Registrant’s Current Report on Form 8-K filed on July 11,
2005).
|
|
**10.19
|
Letter
Agreement, dated July 5, 2005, between Tegal Corporation and Brad Mattson
(incorporated by reference to Exhibit 10.3 to Registrant’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on July 11,
2005).
|
|
**10.20
|
Restricted
Stock Unit Award Agreement between Tegal Corporation and Tom Mika, dated
July 5, 2005, (incorporate by reference to Exhibit 10.4 to Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 11, 2005).
|
|
10.23†
|
Exclusive
Distributor Agreement, dated as of October 1, 2006, between Tegal
Corporation and Noah Corporation.
|
|
10.24
|
Asset
Purchase Agreement between Tegal Corporation, Alcatel Micro Machining
Systems, a French corporation, and Alcatel Lucent, a French corporation,
dated September 2, 2008, (incorporated by reference to Exhibit 10.1 to
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on September 2, 2008).
|
|
**10.25
|
Tegal
Corporation Executive Severance Plan between Tegal Corporation and Steve
Selbrede, Paul Werbaneth, and Scott Brown, approved by the Compensation
Committee of the Board of Directors on December 15, 2008, (incorporated by
reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 18,
2008).
|
|
21.1
|
List
of Subsidiaries of the Registrant.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm – Burr, Pilger &
Mayer LLP.
|
|
24.1
|
Power
of Attorney (included on signature page hereto).
|
|
31.1
|
Section
302 Certification of the Chief Executive Officer.
|
|
31.2
|
Section
302 Certification of the Chief Financial Officer.
|
|
32.1
|
Section
906 Certification of the Chief Executive Officer and Chief Financial
Officer.
|
|
|
|
|
|
|
|
|
|
|
†
|
Registrant
has been granted confidential treatment pursuant to Exchange Act Rule
24b-2 for portions of this exhibit.
|
** Management
contract for compensatory plan or arrangement.
TEGAL
CORPORATION
SCHEDULE
II — VALUATION AND QUALIFYING ACCOUNTS
Years
Ended March 31, 2007, 2008, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Balance
At
|
|
|
Charged
to
|
|
|
Charged
|
|
|
|
|
|
Balance
at
|
|
|
|
|
Beginning
of Year
|
|
|
Costs
and Expenses
|
|
|
Other
Accounts
|
|
|
Deductions
|
|
|
End
of Year
|
|
|
Year
ended March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
for doubtful accounts
|
|
$ |
(179 |
) |
|
|
(134 |
) |
|
|
- |
|
|
|
33 |
|
|
$ |
(280 |
) |
|
Sales
returns and allowances
|
|
|
(25 |
) |
|
|
(102 |
) |
|
|
- |
|
|
|
- |
|
|
|
(127 |
) |
|
Cash
discounts
|
|
|
(2 |
) |
|
|
(5 |
) |
|
|
- |
|
|
|
1 |
|
|
|
(6 |
) |
|
Year
ended March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
for doubtful accounts
|
|
$ |
(280 |
) |
|
|
150 |
|
|
|
- |
|
|
|
8 |
|
|
$ |
(122 |
) |
|
Sales
returns and allowances
|
|
|
(127 |
) |
|
|
59 |
|
|
|
- |
|
|
|
(1 |
) |
|
|
(69 |
) |
|
Cash
discounts
|
|
|
(6 |
) |
|
|
6 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Year
ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowances
for doubtful accounts
|
|
$ |
(122 |
) |
|
|
(64 |
) |
|
|
- |
|
|
|
- |
|
|
$ |
(186 |
) |
|
Sales
returns and allowances
|
|
|
(69 |
) |
|
|
48 |
|
|
|
- |
|
|
|
- |
|
|
|
(21 |
) |
|
Cash
discounts
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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
By: /s/thomas
r.
mika
Thomas R.
Mika
President,
Chief Executive Officer and Chairman of the Board
Dated: June
26, 2009
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Thomas R. Mika and Christine T. Hergenrother, his or
her attorney-in-fact and agent, each with the power of substitution,
for him in any and all capacities, to sign any amendments to this Report on Form
10-K, and to file the same, with exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof. Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
|
|
|
|
/s/ THOMAS R.
MIKA
|
President,
CEO, and Chairman of the Board
|
June
26, 2009
|
|
Thomas
R. Mika
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
/s/ CHRISTINE T.
HERGENROTHER*
|
Chief Financial Officer
(Principal
|
June
26, 2009
|
|
Christine T.
Hergenrother
|
Financial and Accounting
Officer)
|
|
|
|
|
|
|
|
|
|
|
/s/EDWARD
A.
DOHRING*
|
Director
|
June
26, 2009
|
|
Edward
A. Dohring
|
|
|
|
|
|
|
|
|
|
|
|
/s/JEFFREY
M.
KRAUSS*
|
Director
|
June
26, 2009
|
|
Jeffrey
M. Krauss
|
|
|
|
|
|
|
|
|
|
|
|
/s/ CARL
MUSCARI*
|
Director
|
June
26, 2009
|
|
Carl
Muscari
|
|
|
|
|
|
|
|
|
|
|
|
/s/GILBERT BELLINI *
|
Director
|
June
26, 2009
|
|
Gilbert
Bellini
|
|
|
|
|
|
|
INDEX
TO EXHIBITS
|
Exhibit
Number
|
Description
|
|
3.1
|
Certificate
of Incorporation of the Registrant, as amended.
|
|
3.2
|
Restated
By-laws of Registrant (incorporated by reference to Exhibit 3.2 included
in Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on November 3, 2006).
|
|
10.1
|
Form
of Unit Purchase Agreement dated December 31, 2001 (incorporated by
reference to Exhibit (i) to the Registrant’s Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on February 13,
2002).
|
|
10.2
|
Form
of Warrant (incorporated by reference to Exhibit (ii) to the Registrant’s
Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on February 13, 2002).
|
|
10.3
|
Form
of Unit Subscription Agreement dated June 30, 2003 (incorporated by
reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on July 2,
2003).
|
|
10.4
|
Form
of Warrant dated June 30, 2003 (incorporated by reference to Exhibit 4.5
to the Registrant’s Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 2, 2003).
|
|
10.5
|
Form
of Security Agreement between the Registrant and Orin Hirschmann dated
June 30, 2003 (incorporated by reference to Exhibit 4.2 to the
Registrant’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on July 2, 2003).
|
|
**10.6
|
Fifth
Amended and Restated Stock Option Plan for Outside Directors (incorporated
by reference to the Registrant’s Quarterly Report on 10-Q, for the quarter
ended June 30, 2006, filed with the Securities and Exchange Commission on
August 14, 2006.
|
|
**10.7
|
Eighth
Amended and Restated 1998 Equity Participation Plan of Tegal Corporation
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2006 filed with the
Securities and Exchange Commission on August 14, 2006.
|
|
**10.8
|
Second
Amended and Restated Employee Qualified Stock Purchase Plan (incorporated
by reference to Appendix C to the Registrant’s revised definitive proxy
statement on Schedule 14A filed with the Securities and Exchange
Commission on July 29, 2004).
|
|
**10.9
|
1990
Stock Option Plan (incorporated by reference to Exhibit 10.2 to the
Registrant’s Registration Statement on Form S-1 (File No. 33-84702)
declared effective by the Securities and Exchange Commission on October
18, 1995).
|
|
**10.10
|
Form
of Non-Qualified Stock Option Agreement for Employees from the Seventh
Amended and Restated 1998 Equity Participation Plan (incorporated by
reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on November 12,
2004).
|
|
**10.11
|
Form
of Restricted Stock Unit Aware Agreement from the Eighth Amended and
Restated 1998 Equity Participation (incorporated by reference to Exhibit
10.5.4 to the Registrant’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 11, 2005).
|
|
**10.12
|
Employment
Agreement between the Registrant and Thomas Mika dated as of August 12,
2002 (incorporated by reference to Exhibit 10.11 to the Registrant’s
Annual Report on Form 10-K for the fiscal year ended March 31, 2003 filed
with the Securities and Exchange Commission on June 27,
2003).
|
|
**10.13
|
Employment
Agreement between the Registrant and Steve Selbrede dated as
of May 3, 2004 (incorporated by reference to Exhibit 10.18 to
the Registrant’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2005 filed with the Securities and Exchange Commission on June
29, 2005).
|
|
10.14
|
Stock
Purchase agreement between Tegal and the investor parties there to
(incorporated by reference to Exhibit 4.1 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
July 11, 2005).
|
|
10.15
|
Form
of Warrant Agreement between Tegal and the investor parties there to
(incorporated by reference to Exhibit 4.2 to the Registrant’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
July 11, 2005).
|
|
10.16
|
Lease,
dated December 21, 2005, by and between BRE/PCCP Orchard LLC, as Landlord,
and Tegal Corporation, as Tenant (incorporated by reference to Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2005, filed with the Securities and Exchange Commission
on February 10, 2006).
|
|
10.17
|
Sublease
Agreement, dated December 30, 2005, by and between Silicon Genesis
Corporation, as Sublandlord, and Tegal Corporation, as Subtenant
(incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 2005, filed with
the Securities and Exchange Commission on February 10,
2006).
|
|
**10.18
|
Restricted
Stock Unit Award Agreement between Tegal Corporation and Brad Mattson,
dated July 5, 2005 (incorporated by reference to Exhibit 10.2 to
Registrant’s Current Report on Form 8-K filed on July 11,
2005).
|
|
**10.19
|
Letter
Agreement, dated July 5, 2005, between Tegal Corporation and Brad Mattson
(incorporated by reference to Exhibit 10.3 to Registrant’s Current Report
on Form 8-K filed with the Securities and Exchange Commission on July 11,
2005).
|
|
**10.20
|
Restricted
Stock Unit Award Agreement between Tegal Corporation and Tom Mika, dated
July 5, 2005, (incorporate by reference to Exhibit 10.4 to Registrant’s
Current Report on Form 8-K filed with the Securities and Exchange
Commission on July 11, 2005).
|
|
10.23†
|
Exclusive
Distributor Agreement, dated as of October 1, 2006, between Tegal
Corporation and Noah Corporation.
|
|
21.1
|
List
of Subsidiaries of the Registrant.
|
|
23.1
|
Consent
of Independent Registered Public Accounting Firm – Burr, Pilger &
Mayer LLP.
|
|
24.1
|
Power
of Attorney.
|
|
31.1
|
Section
302 Certification of the Chief Executive Officer.
|
|
31.2
|
Section
302 Certification of the Chief Financial Officer.
|
|
32.1
|
Section
906 Certification of the Chief Executive Officer and Chief Financial
Officer.
|
|
|
|
|
|
|
|
|
† Registrant
has been granted confidential treatment pursuant to Exchange Act Rule
24b-2 for portions of this exhibit.
|
**
Management contract for compensatory plan or arrangement.
EXHIBIT 23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby
consent to the incorporation by reference in the Registration Statements on Form
S-8 (Nos. 333-128953, 333-12473, 333-66781, 333-88373, 333-51294, 333-110650,
and 333-119272), Form S-2 (No. 333-83840), and Form S-3 (Nos. 333-127494,
333-128943, 333-38086, 333-94093, 333-52265, 333-107422, 333-108921, 333-113045,
333-116980, and 333-118641) of Tegal Corporation of our report (which contains
an explanatory paragraph relating to the Company’s ability to continue as a
going concern as described in Note 1 to the consolidated financial
statements) dated June 25, 2009 relating to the consolidated financial
statements and financial statement schedule as of and for the years ended March
31, 2009, 2008 and 2007 which appear in this Form 10-K.
Burr
Pilger & Mayer LLP
San
Francisco, California
June 25,
2009
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 annual report on Form 10-K 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(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(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(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
function):
|
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal
controls over financial reporting.
|
/s/ Thomas
R. Mika
Date: June
26, 2009
Chief
Executive Officer and President
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 annual report on Form 10-K 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(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(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(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
function):
|
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal
controls over financial reporting.
|
/s/ Christine
Hergenrother
Date: June
26, 2009
Chief
Financial Officer
EXHIBIT
32.1
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
(18
U.S.C. SECTION 1350)
In connection with the amended Annual
Report of Tegal Corporation, a Delaware corporation (the “Company”), on Form
10-K for the year ending March 31, 2009 as filed with the Securities and
Exchange Commission (the “Report”), I, Thomas R. Mika, President and Chief
Executive Officer of the Company, certify, pursuant to § 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to my
knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
/s/ Thomas
R.
Mika
Chief
Executive Officer and President
June 26,
2009
CERTIFICATION
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
(18
U.S.C. SECTION 1350)
In connection with the amended Annual
Report of Tegal Corporation, a Delaware corporation (the “Company”), on Form
10-K for the year ending March 31, 2009 as filed with the Securities and
Exchange Commission (the “Report”), I, Christine Hergenrother, Chief Financial
Officer of the Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. § 1350), that to my knowledge:
(1) The
Report fully complies with the requirements of section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and result of operations of the Company.
/s/ Christine
Hergenrother
Chief
Financial Officer
June 26,
2009