Consolidated Eco Struggling With Load of Debt Stock Delisted

James Connors, Consolidated Eco-Systems Inc.’s president, chairman and chief executive officer, is sick. A spokesman for the company says Connors can’t grant interviews with the press right now.

“Mr. Connors isn’t feeling well,” the spokesman says.

If you ran a company with numbers like the Arkansas-based environmental products marketer and manufacturer, you might be sick, too.

In six months, from December 1996 to June 1997, the company’s total current assets dropped from about $12 million to about $5.9 million. Cash and cash equivalents for the company went from $2.7 million to about $406,000.

Earlier this month, the company’s stock was delisted from the Nasdaq Small-Cap Stock Exchange. Officials at Nasdaq cite “public concerns” for delisting the company’s stock, which had traded as low as 3 cents a share this summer and had climbed back to about 40 cents per share, with nearly 7 million shares trading the day Nasdaq showed the door to the stock symbol EXSO.

The company plans to appeal the delisting.

Good luck, says one analyst who took at a look at Consolidated Eco-Systems’ financial statements for Arkansas Business. See, that’s another problem for Connors. No analyst in the country follows the company. The only company that had been rating Con-Eco’s stock, H.J. Meyers, has stopped.

Chip Sexton, Con-Eco’s executive vice president, administrative officer and attorney, says that despite the recent woes, the company has seen the last of bad times.

“Operationally, we’re sound,” Sexton says. “We’re moving forward. We think we’re at the end of the tough times, and we’ll see a turnaround within the next six weeks or by the end of the year.”

He says officials at the company are not exactly sure how to go about appealing Nasdaq’s decision, but they’re still waiting for the how-to’s from the stock exchange. Once they get those, they will appeal.

“We were not found to be in any violation of any rule of Nasdaq,” Sexton says. “Nasdaq has adopted new rules for the small-cap stocks.”

Those new rules are not set to take affect until February. They require higher trading prices than have been posted for Con-Eco, Sexton says.

He does admit, however, that his company was not delisted for being below the bid price minimum, a category for which Nasdaq can delist a stock.

Until the appeals process is complete, Consolidated Eco-Systems is trading on a bulletin board known as Instanet. The stock can be followed online at World Wide Web site www.secapl.com/cgi-bin/qso. On Oct. 22, the stock traded as low as 15 cents a share and closed at 25 cents a share. On the Nasdaq exchange, Con-Eco traded in the 25-cent range for about two months.

Sexton sites problems with prior management at the company as a reason Nasdaq delisted the company for public concerns. Consolidated Eco-Systems’ former president, Lee Ogle, had been accused in a lawsuit of sexual harassment. He pleaded guilty to conspiracy to defraud the public, possession of stolen goods and obstruction of justice in British Columbia more than a decade ago. He was deported from Canada in 1987 after almost a year in jail. Last year, his activities in Canada were being investigated by Nasdaq, possibly because he didn’t disclose his legal problems to the stock exchange.

One Analyst’s View

According to one analyst who requested to remain unnamed, the Ogle problem could have had something to do with Nasdaq’s decision Oct. 13 to delist Consolidated Eco-System’s stock. But that would only be a factor after other problems were looked at, he guesses.

“Nasdaq can delist whatever stock they want to,” the analyst says. “The company doesn’t have much of a leg to stand on. Unfortunately, Nasdaq is not a democratic system.”

“When a stock, any stock, is trading in pennies, it is suspect. Let’s look at it, though; they have a 35-cent book value and at best a spotty record of earnings in an industry where a lot of fly-by-nighters have tried to get in and make a fast buck. And they have had a president who appears to have gone over the edge in the past. When you put all that together, any prudent person will have concerns.”

Nevertheless, Sexton says his company will fight the delisting and hopes to win, for the shareholders’ sakes.

“The average investor on the street is calling us to see what’s going on,” he says. “The number of calls that we’ve received concerning the company’s stock has gone up [since delisting]. They have expressed concerns and want to be assured that there is a market for the stock going forward. In most cases, the investors have been satisfied with the operational performance of the company and will stick with the company.

“The company’s stock is still a tremendous value and was a tremendous value when it was delisted.”

In July, when Con-Eco announced an employee stock purchase program, shares were trading between 3 and 9 cents daily. About 7 million of the company’s 44 million shares outstanding were being bought and sold. That trading volume was sometimes two or three times that of Wal-Mart Stores Inc. (which sells in the mid-$30s). Sexton says the employee stock purchase program is still in place but refuses to say what percentage of employees are participating in the program.

He does say that the company’s insiders have been buying the stock because they view it as an undervalued investment that will pay off in the future.

“The insiders of this company who have bought the stock, to my knowledge, are not selling the stock,” Sexton says. “They’ve been doing a lot of buying. We’re not keeping that a secret. We’re telling the world we were buying because we didn’t want anybody to think something underhanded was going on.”

A Closer Look

Despite poor performances indicated in financial statements released by the company, Sexton maintains that Consolidated Eco-Systems is not merely a company on paper.

“That is absolutely not true,” he says. “That is not the case. If it were, we wouldn’t be able to make payroll and keep up operations. We’ve continued to attract quality employees. We’re not just a company on paper.”

Comparing 1997 to 1996 has to bother Connors, who joined the company this year in an effort to turn around the poor past performance of Con-Eco.

From June 1996 to June 1997, the company went from a net income of slightly more than $2 million to a net loss of about $4.4 million.

Sexton claims the cash flow problems at Con-Eco relate to paying down long-term debt.

After dealing with lawsuits pending against the company earlier this year for everything from defaulting on debt payments to sexual harassment, Connors found his company coping with two new legal problems, both for failure to pay bills.

In July, Brown Hiller & Clark, an insurance company, said it was owed about $100,000 by Con-Eco. According to documents filed with the Securities and Exchange Commission, Con-Eco admitted that it owed the insurance company money but disputed the actual amount.

Sexton says a judgment was rendered in the case and Con-Eco is making arraignments to pay the vendor about $96,000.

Another suit brought against the company by a former employee claimed that Con-Eco was obligated to pay $3,000 a month for the settlement of claims for commissions, compensation and other matters. The payment agreement with the former employee required the company to pay by a certain date each month, and if the payment wasn’t received within five days, it would be in default.

Sexton says judgment in this case has been reached, forcing the company to pay about $54,000 to the former employee.

Another debt looms for Consolidated Eco-Systems: a $3.3 million loan from American Physicians Services Group Inc, an Austin, Texas-based health care company. The debt, plus interest of 15.75 percent, was due Oct. 1. It has not been paid.

Bill Hayes, APS’s chief financial officer, says a deal is in the process to settle the debt right now. He refused to elaborate, saying an announcement will be made in soon.

Despite these woes, Sexton says Consolidated Eco-Systems is not facing bankruptcy.

“I can say that at this point in time, bankruptcy is not in the works,” he says.

Sexton says no offers have been made to buy Consolidated Eco-Systems as a whole. But when asked about the possible sale of subsidiaries, he says: “I would not be at liberty to comment on that.”

Board members are happy with Connors and his running of the company, Sexton says.

“This company is indebted to Mr. Connors,” he says. “So far, through his hard work, he’s done a tremendous job turning this company around. He is a viable part of its future.”