Legacy Software sets $13 million initial offering.

'Edutainment' firm to debut stock at $7 a share

In a bid for survival, Legacy Software Inc., a Northridge-based manufacturer of "edutainment" computer software, plans to issue $13.2 million in stock at $7 a share, and become traded on the Nasdaq, according to papers filed with the Securities and Exchange Commission.

Six-year-old Legacy is past the start-up phase but still something of a new company, and is pegging its future on its upcoming line of "Career Sim" software titles, which will be available on compact discs, also known as "CD-ROM."

The software, in a game format, attempts to teach younger people about careers of emergency room doctors, district attorneys and newscasters.

The emergency room game is licensed to the IBM Computer Software Division, which Armonk, N.Y.-based International Business Machines has created to market software. IBM underwrote one-half of the development costs of the emergency room game.

In the game, a player progresses from medical student to the ranks of attending physician by successfully diagnosing and treating 400 different medical cases at five levels of difficulty. The games features well-known television actors and comedy scenes.

Legacy has also entered into a contract with a South Korean company to develop a series of game simulating the creation of civilization in harsh or challenging environments. The first in this series is entitled "Sea Colony."

Speed and low cost

Legacy claims to have superior technology for producing games on CD-ROM. According to the prospectus filing with the SEC, "Legacy seeks to produce leading-edge multimedia products more quickly and at lower cost than competitors through the use of proprietary techniques, processes and tools developed over the past six years." A "high-level computer programming language" allows programming to be completed at lower cost than others, according to the prospectus.

Legacy titles are compatible with Microsoft DOS 6.0 software, and IBM-compatible personal computers which have CD-ROM players with double-speed drives, 50MHz CPU, 4MB of free hard disk space, and 100 percent compatible sound card and a SVGA monitor. Future Legacy products will work with IBM-compatible PCs using Microsoft "Windows 95" operating systems.

For Legacy, the stock offering is of supreme importance. According to the filing, Legacy suffers from a lack of working capital, and previous losses and incurred debts. "The company's independent certified public accountants have included a finding ... in their report stating that these factors raise substantial doubt as to the company's ability to continue as a going concern," said the prospectus.

With the money raised in the offering, much of the debt problem will be cured.

The depth of Legacy's money needs can perhaps be somewhat gauged by a $1 million convertible note the company issued in November 1995 to EBC Trust Corp., listed at 10 rue Princesse Florestine MC, 98000 in Monaco.

EBC gets a chunk

Not only did Legacy effectively give away 29.6 percent of the company to EBC (EBC's convertible is exchangeable for stock equal to nearly one-third of Legacy's shares outstanding at $1.31 a pop, at the close of the public offering), but it paid whopping legal fees of $50,000, a finder's fee of $50,000 and a placement agent fee of $50,000 for the $1 million - in short, the equivalent of 15 percent interest, up front. In addition, EBC gets warrants for 200,000 shares, also at $1.31 each.

After the offering, the public will own 1 million shares of Legacy, or about 43 percent of the stock outstanding, should all go according to plan.

Beverly Hills-based brokerage JB Oxford & Co. is handling the underwriting. Joseph Stubbs, with the downtown law firm of Brobeck, Phleger & Harrison, acted as counsel to Legacy, and John Hartigan of Morgan, Lewis & Bockius acted as counsel for JB Oxford on the underwriting.

Legacy is a new company in operating terms, having earned its first revenues in 1993. For 1995, the company posted an estimated loss of $438,690 on revenues of $373,988.

Legacy has produced successful edutainment programs in the past. Its "Children's Writing and Publishing Center" (made for The Learning Co.) was awarded "The Best Educational Software of the Decade" in 1990 by Technology and Learning magazine, and the company also produced "Mickey's Crossword Puzzle Maker" for Walt Disney Co. Those tides have sold more than 100,000 copies each.

The market Legacy is entering is competitive and getting more so. In 1995 alone, the number of CD-ROM titles available in the United States doubled, and growth rates of 50 percent annually are predicted by industry gurus. Access to retail shelf space, brand-name recognition, marketing support and distribution - and simply not getting lost in the welter of titles - are challenges facing the 14-employee Legacy.

The founder and chairman, president and chief executive of Legacy is Ariella Lehrer, Ph.D., 43, who drew a salary of $62,250 in 1995.