To OTC Journal Members:
 

Bad Toys (OTC BB: BTYH) Finally Delivers One Step Forward, 1/2 Step Back

Well, at long last I finally have some progress to report on the Bad Toys game plan to turn from the proverbial ugly caterpillar to a beautiful butterfly. So which do you want first? The good news, or the bad news.

Let's start with the bad news so we can get that out of the way. I have to go back to the first edition I published on the company- back in January- remember, when the stock was supposed to go X-dividend? I stated Bad Toys was trying to pull off a rather exotic move to unlock the value on behalf of shareholders, and that road could be fraught with pot holes and delays along the way.

Here's a pot hole, or the 1/2 step back. The company announced today the dividend distribution of Southland Health Care would not be 1.3 shares, but 1 share for every share of Bad Toys you own. The .3 shares the company had originally expected to dividend out to shareholders actually stays retained in the Bad Toys Holdings- you sort of get your .3 shares by retaining your original shares of Bad Toys.  This reduces your upside simply because the dividend is not the number of shares originally anticipated. However, the game plan to trade on the AMEX or NASDAQ Small Cap is still in place, which would start you out at a minimum $3 or $4. Therefore, the starting price would be $3 or $4 for your shares of Southland, and you would still own your shares in Bad Toys.

CEO Larry Lunan explained it directly to me by stating the problem was unraveled in the capitalization tables. 

Here's the smooth road- the good news if you will. Southland Health Services has at long last filed the S1 with the SEC to spin off as a separate public company. Hallelujah. The game is now on.

If you want to plow through this massive document, Click Here for direct access to it on the SEC's web site. If you are a shareholder, your shares are included in the 28.1 million shares being registered.

Notable in my view are the following facts: Southland revs went from $30 million in '04 to $44 million in '05. Q1 '06 sales came in at $10.5 million, down from $11 in '05, but gross profits were up. Shareholders equity has grown from $2.1 million to $5.6 million over the last three years.

With 28 million shares I&O, Southland would be valued at $84 million at $3. Is this possible to achieve? Less than 2 times sales seems pretty reasonable if they can grow over the course of 2006. Earnings came in at $.10 last year. If they can maintain that clip, the stock would have to open at a PE of 30 on the AMEX - we'll need to see a little more growth to make it a strong possibility.

Here's a look at Bad Toys throughout the course of 2006. The interminable delays in the spin off process of have caused the shares trade poorly since the end of February. That one blip under $1 proved to be the bargain basement steal. 

At about 11:00 Pacific today, shares of Bad Toys are trading up on fairly light volume. I guess everyone who wanted to give up on this idea has already sold. 

In my view, there are a couple of hurdles to an AMEX or NASDAQ listing for Southland Health Services, Inc. The two main hurdles are the debt default at GE Capital and the back taxes owed to the IRS- both problems were inherited from past management. A favorable debt financing to eliminate those two problems would not only allow the company to garner a higher value, but would also allow the company to expand quite rapidly.

If CEO Lunan can refinance his two headaches on favorable terms, that would set the table for stronger growth, greater profits, and an AMEX or NASDAQ listing for spin off Southland Health Services. At any rate, the process has finally begun in earnest.
 

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