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Software Firm Target of Investigation by SEC

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Times Staff Writer

Arrays Inc., a Los Angeles-based computer software developer that underwent a change of control and top management this month, is being investigated by the Securities and Exchange Commission for statements made about its financial condition and prospects.

The SEC investigation, of which Arrays was notified May 30, was disclosed in Array’s 10-K annual report to the SEC filed July 12--about four months late.

The report, which showed a $2.2-million loss on $6.2 million sales for the fiscal year ended Nov.30, also disclosed that Arrays’ common stock was deleted as of June 25 from the NASDAQ system for over-the-counter trading because of the delay in filing the 10-K and its 10-Q report for the quarter ended Feb.28.

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Once the 10-Q is filed, the recent filing with the SEC said, the company intends to reapply for inclusion on the NASDAQ system.

Results Qualified

The report also disclosed that Arrays’ current outside accountants have qualified the company’s fiscal 1984 results. In its opinion letter dated May 1, KMG Main Hurdman & Co. said that since the outcome of the SEC investigation and class action lawsuits “cannot presently be determined,” no provision for any liability that may result has been made in the financial statements.

In addition to Arrays, some of its past and present officers and directors and its lead underwriter, A. G. Becker Paribas Inc., New York, and former auditors, Ernst & Whinney, are named as defendants in two consolidated class action lawsuits filed last fall.

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The suits allege, among other things, that investors were misled with rosy projections in Arrays’ initial registration statement and prospectus in January, 1984.

The company’s 10-K also said that the plaintiffs “allege, in substance, that from Jan. 12, 1984, through June 25, 1984, the defendants disseminated a series of false and misleading statements concerning the company’s business, management, financial condition and future business prospects.”

Although the company has not been provided a copy of the SEC’s formal order of investigation, the 10-K said, “an informal review of the order indicates that the investigation is aimed at essentially the same allegations covered” in the class action litigation.

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Arrays’ report also said that the SEC has issued subpoenas for accounting and business documents from the company and from its past and present independent accounting firms.

Controlling Interest

As reported by the company earlier this month, Chaz Haba, chairman of Haba Systems Inc., Van Nuys, became chairman and chief executive of Arrays after acquiring a controlling stock interest of 47% from former Chairman James Sadlier and former Vice Chairman Henry Scheinberg.

The new 10-K said that Sadlier and Scheinberg “ceased to hold these positions in June, 1985,” and that Haba was elected to the board and the top executive positions July 3. It said Sadlier resigned from the board July 9.

Haba, 50, chairman of Haba Systems Inc., Van Nuys, a computer software developer, previously was president and chief executive of Micro-Z Corp., a Monrovia-based telecommunications firm, from February, 1978, until August, 1982, according to the 10-K. Micro-Z filed for protection under Chapter 11 of the bankruptcy code in March, 1983, and has been renamed Brajdas since its reorganization.

Haba agreed this month not to vote for Sadlier or Scheinberg as directors at the company’s annual meeting this year, an exhibit to the 10-K shows.

Procedures Modified

The 10-K also disclosed that the company has “modified certain of its internal control procedures and accounting policies and anticipates implementing additional changes in its internal control procedures in the near future,” as the result of a special board committee investigation and the reported changes in management and accountants.

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The report also noted that the committee was appointed Sept. 26 to investigate unspecified allegations made by Arrays’ former chief financial officer, Henry H. Waldman, about the company’s financial statements and “certain members” of management, who were not named. The report said the allegations by Waldman have been denied by management members against whom they were made.

Left in October

Waldman, who left as chief financial officer last October “due to health reasons,” continues as a director, the report said. Five directors are to be elected at this year’s annual meeting, according to Haba’s agreement with the board. Besides Waldman and Edwin J. Kaftal, the board will consist of two persons designated by Haba and a fifth approved by Haba, Kaftal and Waldman.

James W. Buddle, who became president and chief executive officer last Jan. 16, remained Arrays president in the recent shake-up. The company in May hired the law firm of Nossaman, Guthner, Knox & Elliott as its new corporate counsel.

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