Dear Investor,

With declining sales and razor thin margins quickly becoming a stark reality for even the most proven semiconductor manufacturers, the search is on for solutions that help reduce costs and improve efficiencies.

In today’s edition, I’ll bring you up to speed on one of our favorite portfolio companies that is uniquely positioned to capitalize on a monumental market downturn by delivering technology that makes the semiconductor fabrication process more profitable and environmentally friendly. But first, what in the world is going on in the semiconductor space?

Troubled Global Economy Finally Sends Semi Space into the Red
After six years of steady growth, the SIA forecasts a substantial decline in 2009 global semiconductor sales. Citing a tumultuous global economic environment that is driving decreased PC and cell phone sales, the association expects a 5.9% plunge in the current quarter to be followed by a 5.6% dip next year.

Despite the SIA issuing optimistic 2010 forecasts, it’s quite evident that a market turnaround is by no means imminent given the current state of the global economy and the fact that not even the most highly esteemed economists have a clue when the hemorrhaging will subside.

Only the Strong Survive and LGYH is Showing Signs of Strength

As the old saying goes “only the strong survive”. This certainly holds true in cutthroat industries such as the semiconductor space. In order to stay strong and improve operating efficiencies, many leading players including Tyco, Micrel Systemsand Silicon Genesis have aligned themselves with portfolio company Legacy Holdings Inc. (OTCBB: LGYH).

The company was founded and is directed by Robert R. Matthews, a chemist with nearly 30 years of experience in the semiconductor industry with time spent as a process engineer at both Texas Instruments (NYSE: TXN) and Intel Corp. (NASDAQ: INTC).

“SIA Forecast: Semiconductor Sales Slowing”

Legacy Helps Semicon Leaders Do More with Less
By nature, Moore’s law keeps capital expenditures uniquely high throughout the semiconductor industry. Frequent upgrades to fabrication equipment are imperative in order for manufacturers to stay competitive. Moreover, with the credit market now bone dry, semiconductor-related organizations are increasingly being forced to get creative and do more with less.

Oddly enough, this dynamic creates an interesting opportunity for Legacy’s EPA Green Chemistry award-winning silicon wafer cleaning technology. For a point of reference here are a few data points regarding the industry’s struggle to remain profitable:

1. The capital cost to build and equip a semiconductor fabrication facility has risen from $6 million in 1970, to anywhere between $1B to $3B today;

2. A typical fab is equipped with several hundred equipment items that range in price from roughly $700,000 to $5,000,000;

3. Minor interruptions to the fab process can cost upwards of $1M;

4. Losses related to massive semiconductor fab contamination can range from $100M to $1.5B;

5. Daily costs associated with operating a fab are in the $3M+ range for leading players; and

6. Besides a few extremely large market players, the vast majority of manufacturers in the industry have been unable to remain profitable and have chosen to either collaborate or consolidate to produce on an economic scale.

LGYH Presents a Massive Value-Proposition to a $7B+ Marektplace

In addition to improving wafer processing time by 200% and enhancing oxide removal control by 92%, the company’s technology also decreases costs by 22% by reducing the amount of consumable materials used in wafer cleaning and reduces particles left on the wafer after cleaning by 76%. Given today’s troubled economic environment, these benefits qualify the technology as a no-brainer solution to many of the problems facing the industry today.

Legacy 10Q

Quarterly Results Positive amidst Backdrop of Negative Economic Trends
LGYH recently announced operating results for the 30-day period ending 9/30/08, which are fairly promising given the current troublesome global economic environment. Despite total costs and operating expenses being up nearly 80% on a quarterly year-over-year basis, Legacy’s performance over the first 9 months of 2008 has improved in a number of key areas.

Highlights of the filing include:

3-months ending 9/30/08 versus corresponding quarter of 2007

1. Revenue increased 1% from $87,543 to $88,474;

2. A 35% increase in General and Administrative costs ($42,332 to $57,283) largely driven by costs associated with transitioning from Pink Sheets to OTC Bulletin Board Exchange; and

3. Net loss of $70,985 vs. net loss of $14,600.

9 months ending 9/30/08 vs. corresponding 9 months of 2007

1. Revenues increased roughly 5% from $313,138 to $328,746;

2. Total costs and expenses decreased 10% from $207,037 to $185,475; and

3. Positive net income of $2,051 vs. net loss of $79,182.

“LGYH Delivers Repeat Order to Tyco”

Conclusion

Although quite resilient to economic slowdowns, the semiconductor industry, like all of the rest, is by no means impervious to global recession. However, with a little help from value-added solution providers such as LGYH, leading semiconductor players should be able to optimize their operations now and squeeze out smaller competitors during tough times thus setting the stage for easy growth once the economy rebounds in the future.

Thank you for being a loyal Outcast subscriber. We will continue to provide you valuable services.

Sincerely,
–The Team at Outcast

We normally DO NOT profile one of our portfolio companies as our “Pick of the Week”, but this week is going to be an exception.

Legacy Systems Holding, Inc. (OTCBB: LGYH) is starting to show signs that it is ready to move. Both Technically (which is by far our prefered form of trading and fundamentally. As can be seen in recent press, the company continues to expand its grip on the global playing field not only with its proprietary wet bench technology, but now is starting to shine in the ‘hot’ and ‘trendy’ green/solar market. (more…)

While diminishing memory chip price points continue to hinder growth of the overall semiconductor industry and research firms including iSuppli cut ‘08 chip forecasts as the sector finally starts feeling the pinch of a weakening global economy and decreased consumer spending, connectivity is emerging as its saving grace. (more…)

Company Firmly Believes That the Technology Has Enormous Market Potential, Worldwide

FREMONT, Calif., Oct. 21, 2008 (GLOBE NEWSWIRE) — Legacy Holding, Inc. (OTC BB: LGYH) announced today that the wet process sequence designed by Legacy Systems and operated by Jing Solar of Taiwan has successfully met all manufacturing requirements and is now in high volume production.

(more…)

While diminishing memory chip price points continue to hinder growth of the overall semiconductor industry and research firms including iSuppli cut ‘08 chip forecasts as the sector finally starts feeling the pinch of a weakening global economy and decreased consumer spending, connectivity is emerging as its saving grace.

IDC reported today that the worldwide WLAN semiconductor market is pegged to surpass $4 billion in annual sales by 2012 with a CAGR of 22.8%.

Moreover, while PCs are expected to remain the numero uno WLAN application, mobile phone apps are anticipated to grow at a CAGR of 49.3%. With regard to major growth drivers, the latest edition of 802.11 alphabet soup technology – 802.11n technology – is expected to lead the way.

In other recent semiconductor industry news:

The SIA recently stated that the ongoing credit crisis is absolutely hurting demand for semiconductors. The association also insinuated that when it releases its annual industry outlook on 11/9, the report won’t be pretty;

Fairchild and Alpha & Omega settled their legal patent dispute and entered into a cross license agreement;

Piper Jaffray upgraded its rating on Volterra Semiconductor (NASDAQ: VLTR) to “Buy” from “Neutral” largely due to a surge in 3rd quarter profits and high expectations for the company’s new server platform product offering; and

Legacy Holding, Inc. (OTC BB:LGYH.OB – News) announced that it has successfully applied its green semiconductor wafer drying technology to high volume solar cell production and proven its ability to drastically cut manufacturing times for suppliers.

Despite the economy worsening by the day, one sector that has managed to maintain modest growth is the semiconductor industry.

According to a recent press release issued by the Semiconductor Industry Association (SIA), worldwide sales of semiconductors grew by 5.5% in August on an annualized year-over-year basis to $22.7 billion.

The release goes on to state that the aforementioned growth was largely driven by solid demand for personal computers and cellular handsets.

As has been the case for some time now, downward price pressure on DRAMs and NAND flash memories remains the primary factor hindering overall industry revenue growth. Excluding the memory market, the semiconductor industry experienced a 11.4% year-over-year sales increase during August.

Moreover, in a sign that the industry is hanging tough regardless of turbulent economic conditions, year-to-date sales were up 4.5% at the end of the month. For the record, Semi sales grew by just 3.4% in ‘07.

Strength in the semiconductor space provides a compelling opportunity for Legacy Holdings Inc. (LGYH.OB), an emerging providing of wafer cleaning technologies.

LGYH.ob delivered 1211% sequential quarterly revenue growth during Q2 ($17K to $223K) and has investors anxiously awaiting the upcoming third quarter filing. The company announced repeat product installations with Tyco (NYSE: TYC) over the the summer and has forged deep relationships with other industry leaders including Micrel (Nasdaq: MCRL). In light of these achievements, LGYH.ob appears to be progressing towards its goal of becoming the leading U.S. wet process supplier by 2011.

We’ll be on the lookout for the upcoming quarterly filing over the next few weeks. Hopefully for LGYH.ob, a combination of positive industry trends and inroads with leaders in the semiconductor space will continue to push the company in the right direction. From our perspective, LGYH.ob’s technology presents a very attractive value proposition to its core markets and this is becoming increasingly evident with each new contract win and financial report. In closing, we expect more great things from the company in the future and look forward to updating you on corporate developments as they transpire.

With the sluggish summer months just about behind us, things are beginning to heat up with our portfolio companies. Electric Moto Corporation (OTCPK: EMOT) has fulfilled its search for a qualified new CEO. Union Dental Holdings Inc. (OTCBB: UDHI) recently notched its second consecutive quarter of profitability, and Legacy Holding (OTCPK: LGYH) has made its fully audited 2007 financial results available to the public and announced a year-over-year revenue increase of 537% over 2006.

In the world of larger stocks, one of my recent favorites, Sequenom (NASDAQ: SQNM) continues to garner attention after running from $5 back in April to nearly $21 recently on news that its non-invasive Down Syndrome test could soon become standard protocol in a $6-$8 billion global market.

New CEO Hits the Ground Running at Electric Moto

EMOT announced last week that early-stage investor Abbie Zands has taken the helm as Chief Executive Officer. The move was designed to allow former CEO, Ely Schless to accept the newly created position of Chief Technology Consultant (CTC) and focus on his strengths in the area of electric vehicle development. Don’t forget; Mr. Schless is the principal designer of the world record holder for the most number of miles completed by an electric car (the GM battery-swap proof of concept car). He has also developed prototype electric vehicles for the likes of Honda and Volkswagen.

With Ely now free to concentrate solely on technology development and Mr. Zands focussed on day-to-day operations, the company should be better positioned for growth going forward than it was previously with tech-minded Schless running the show. As Blade XT demo units begin shipping to both North American and European distributors employing a more business-minded CEO should be positive for the company as it transitions from R&D to production mode. For those of you not overly familiar with the company and its landmark product the Blade XT, here’s what Forbes Magazine writer Patrick Cooke had to say about EMOT’s Blade XTZ model in a 9/17/07 article:

“. . .an astonishingly quick, battery-powered motorbike called the Blade XTZ that equals or outperforms every gas-powered bike in its weight class (200cc–250cc). Best of all, it does so without making a sound”. . . “No high-pitched engine whine, no choking blue smoke, no teeth-grinding vibration. And at 178 pounds, it’s 25 to 50 pounds lighter and creates more torque (250 pounds) than most of its competition.”

The company also plans to soon add electric scooters to its product mix. A move that I believe could help out the financial situation immensely. In my opinion the next 6 months are “make or break” time for Electric Moto Corp.

Initial Blade XT units are hitting the market and the company is now run by both a highly esteemed technological mind and a long-time investor with optimizing shareholder value first on his list of priorities. Now it’s a matter of how well the offering is received by consumers. I’ll be watching closely over the coming weeks for sales related news. If it surfaces, I suggest contemplating taking an ownership position in the stock. If it doesn’t, there are plenty of other electric vehicle plays out there for you. One that I have come across recently and will speak about more in the future is Zero Air Pollution (OTCBB: ZAAP).

UDHI Reports Second Quarter Profit

Union Dental Holdings turned its second consecutive quarterly profit on revenues of $652,709 during Q2. The Company plans to grow significantly over the next 12-24 months by transitioning from itself from middle man to full service dental provider. I’ve been watching UDHI rather closely for the past few years and am quite intrigued by their business model and the fact that its CEO has consistently purchased shares on the open market since I first began researching the company

If you’re unfamiliar with the Company, here’s their business plan in a nutshell: UDHI aspires to become the premier dental service provider to America’s 15,000,000 plus labor union workers and their families. Recently surpassing the milestone of 1,9000 dental providers in its network, Union Dental has already made inroads with some of the nation’s larger labor unions including: (1) The Communications Workers of America (CWA) – (700,000 members); (2) The International Brotherhood of Electrical Workers (IBEW) – (750,000 members); (3) The United Association of Plumbers and Pipe Fitters (UA) – (300,000 members); and (4) The Association of Flight Attendants – Communications Workers of America (AFA-CWA) – (55,000 members).

With more than 20 years worth of experience and a member base now possessing $192,000,000 in annual purchasing power, UDHI is taking a major step in the right direction with its decision to open a full service dental facility in Coral Springs, FL. The new building is slated to open by the beginning of October and will perform all aspects of dentistry. Deeply rooted in the dental community and founded by a well-respected dentist, UDHI has publicly stated its ability to save patients between 20% – 30% on Porcelain-fused-to-metal dental crowns which typically range in price from roughly $600 to $900, as well as other prosthetics. Since union workers typically receive only $1,500 in annual allowable dental expenditures – that type of discount should be a major selling point for the company going forward.

All in all, I’m pleased to see Doc Green’s master growth plan coming to fruition. Now priced under a penny with about 100 million shares out, the stock is surely worth a second look as the company prepares to embark on a new stage of growth.

Legacy Reports Annual Results

Legacy Holding Inc. (OTCPK: LGYH) made its operating results for the 12 months ended 12/31/07 available to the public last week and they were pretty promising in my opinion. The emerging provider of green cleaning solutions for the semiconductor, solar cell, flat panel display and LED markets logged net income of $101,846 on revenues of nearly $1.1 million.

In addition, Legacy unveiled plans to acquire a synergistic manufacturing company and begin introducing its process technology to tier-one customers including Intel, Texas Instruments, and Samsung. With their cleaning equipment already gaining traction in the semiconductor space through repeat installs with Tyco, licensing of Legacy’s process technology should provide a nice additional revenue stream going forward.

Zevotek is Still on Our Radar Screen

Although we haven’t heard much out of the company in over a month, Zevotek Inc. (OTCBB: ZVTK) is still on our radar screen. The company’s landmark Ionic Bulb product generated nearly $350,000 in revenues during its first ever quarter of sales ended 3/31/08 and holds a great deal of potential for the future if properly marketed. The bulb has been stocked by the likes of Walgreen’s and Amazon.com over the past 6 – 10 months and has sold quite well given the fact that is has been marketed pretty lightly to date. In effort to increase consumer awareness for the product, Zevotek recently completed filming of a promotional infomercial that should be hitting the airwaves soon, one would think.

More on the product: In addition to being 4X more energy efficient, lasting up to 10X longer, and using 50% to 80% less energy than regular incandescent light bulbs, the Ionic Bulb comes equipped with a patented air purifying microchip ion emitter that is powered by the bulb’s own energy. The bulb silently emits negative ions that help clear the air of smoke, dust, pet dander, and odors. In all honesty, I’ve seen it work in person and it is impressive.

Now all management needs to do is ramp up sales and advertising efforts to get some legs behind its product. The infomercial is complete, which is a big part of the battle. Next comes disseminating the spot. In my opinion, we are in for a very interesting fall and holiday season here if Zevotek begins airing the piece and driving consumers into their local Walgreen’s and online to see what all of the buzz is about. Only time will tell, but I’ll be watching closely here over the next few weeks.

In Closing:

Unfortunately for all of our stress levels but hopefully fortunately for our trading accounts, the slow summer months appear to be just about behind us. As news from our portfolio companies picks up, so will our coverage on the small-cap world. Until next time, I suggest delving a bit deeper into the business models of the companies mentioned above.

According to a June report issued by The Semiconductor Industry Association (SIA), the price war has begun in the Semiconductor space. Currently, solid (EIA expects a 6.3% CAGR between 2008-2011) global demand is being driven by stellar sales in a number of categories including:

Flat panel television (29% growth expected in 2008)

Cellular Phones – (12% expected growth in ‘08 to 1.3 billion units)

Personal computers –(10% expected growth to 300 million units in ‘08)

Digital Cameras – (11% growth expected in ’08)

Another key growth driver is the Solar Cell market.In 2007, global production of solar photovoltaic (PV) cells increased by a 51 per cent to 3,733 MW.

As competent suppliers including Tyco strive for profitability in the semicon businesses solutions such as those offered by LGYH which help reduce costs should be in greater demand. Due to this fact, we feel that Legacy Holdings represents a very timely play on the massive, yet increasingly price point competitive semiconductor industry.

Legacy Holdings Inc. (OTCPK: LGYH) is out with major news this morning regarding a second product installation with global powerhouse Tyco International, Ltd.

With publicly stated plans to take a piece of a $7 billion addressable market and soon become the leading U.S. wet process supplier by 2011, a re-order from such a prestigious partner is a very positive sign that things are progressing nicely for LGYH.

Powerful Dynamic Building at LGYH

Currently, a powerful dynamic is building at Legacy between the performance of the stock and the operational success of management.

As evidenced by the graphic to the right, LGYH has performed amazingly in the market over the past three months. Shares closed up just over 18% today at $.58. This marks a 480% run-up since the stock hit its 52-week low of $.10 on 5/30. Shorter term, in addition to share price trending upwards more than 100% over the past month, total volume is up nearly 20% since 6/23.

If the company can follow up today’s Tyco announcement with more positive news on additional sales and orders, we could surely see a subsequent increase back up into the stock’s 52-week high range well over $1.00. To be quite honest, judging by the recent trading activity in the stock, news that the company has strengthened its partnership with Tyco by shipping a second unit may do the trick itself.

For those of you largely unfamiliar with the company, Legacy was founded way back in 1989 by four Texas Instruments engineers.

Currently the only semiconductor equipment company to ever receive the prestigious U.S. EPA Green Chemistry Award (1997), Legacy is an emerging provider of cleaning equipment and process technology to the semiconductor and related industries such as Solar Cells, Flat Panel Displays, and Light Emitting Diodes. In a nutshell, the company’s solutions help adopters across a multitude of industries save time and money while becoming more environmentally efficient. Legacy’s patented technology helps adopters slash production costs by eliminating the use of toxic (sometimes referred to as piranha) solutions and reducing the overall usage of water in the cleaning process.

Legacy’s technology demonstrates a significant value proposition for the $7 billion per year silicon wafer cleaning industry in 4 key ways: (1) Improving wafer processing time by 200%; (2) enhancing oxide removal control by 92%; (3) decreasing costs by 22% by reducing the amount of consumable materials used in wafer cleaning; and (4) reducing particles left on the wafer after cleaning by 76%.

Tyco a Perfect Match for Legacy

By aligning itself with leading global electronics manufacturers such as Tyco, Legacy gains access to a substantially larger pool of resources than otherwise possible.

With more than $19B in annual sales, Tyco employs more than 120,000 workers and invests billions in R&D each year. On a side note, the company has a pretty well-documented reputation of “paying for innovation” and purchasing smaller partners, sometimes for a premium.

Simply put, Tyco’s decision to align itself with Legacy speaks volumes for the company’s credibility and also the depth and breadth of its core technology. This fact alone should have investors optimistic regarding what the future holds. With billions of R&D dollars and executives in every corner of the globe, I’d guess if there was a better green silicon wafer cleaning solution out there, Tyco probably would have discovered it by now.

In my opinion, the only thing separating Legacy Holdings from greatness is capital. Partnerships with industry behemoths such as Tyco should help the cause immensely.

Legacy Holding Inc. (OTCPK: LGYH) shares gained $.09 or 69% Friday on no news.

The company has patented a green process for silicon wafer cleaning and has already established relationships with industry leaders including Intel and Micrel.

We saw the stock make push towards $1 a few months back and this could in fact be the start of another run. I’ll be curious to see if there will be some news flowing out of the company over the next few weeks as Legacy has been fairly quiet other than noting that they are building out product for Tyco.