On Tuesday I bought 1400 shares of Tegal Corp (TGAL) for $1.25/share plus a $4.95 commission for a total investment of $1754.95. Subsequent to my purchase of their shares, the company has issued a press release which outlines their 2009 Q3 results, with a dramatically different asset valuation that Q2. I will review this situation as it currently exists and not as it existed when I bought it. I no longer recommend this stock. This is a good example of what can happen to a Net Net stock. They are volatile and valuations can change dramatically.

According to their website Tegal Corp, “designs, manufactures, markets and services plasma etch and deposition systems that enable the production of IC memory and related microelectronics devices used in personal computers, wireless voice and data telecommunications, radio frequency identification devices (RFID), smart cards, data storage and nano-scale actuators.”

Why buy TGAL? Don’t. Net Operating losses coupled with a decrease in cash, a  huge write down of account receivables is a game changer.

1) NCAV stock. This is the third time this week. And although it is technically still a Net Current Asset Value stock, the Margin of safety has slipped below what I am comfortable with. My estimated Net Net value is between $1.09 and $1.47. Given today’s write down, the lower end of the range is more appropriate. The only real question for an asset based investor, is does Tegal have any other qualities that make it worth investing in.

2) Guru Investors- As of October Bonanza Capital owned 3% the latest 13g Lloyd Miller III controlled more than 8% of the stock. And as of the 12/10/09 13g filing Special Situations technology Fund II owns 20%. It will be interesting to see if these investors hold on.

Risks? numerous.

1) Continuing losses. Enough said about that.

2) continuing asset deterioration. It is a bad sign when a company is losing money and writing off assets as losses. Run, don’t walk.

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

Don’t make the mistake I made. This is a classic example of why a value investor sells a stock. Either you achieve your target price or the underlying intrinsic value changes. That is what happened with TGAL. I will exit my position tomorrow.

Disclaimer: Yes I own this piece of shit (POS). But I will sell as quickly as I can.

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