Bad Toys has been a bit of a thorn in the bear’s paw. Out of the gates from $1.70, we made a high of $2.50 in pretty short order.
However, since the initial move, what appeared to be a pretty simple situation as turned into an unclear, muddy mess.
A recap- Bad Toys owns a subsidiary called Southland Healthcare- which is basically an ambulance and transportation company. Southland should achieve about $48 million in sales this year with net income in the $6 million range. Based on Q1 numbers, these targets seem realistic.
Bad Toys planned a share distribution of Southland to all shareholders- 1.3 shares of Southland for every 1 share of Bad Toys you owned. The share dividend was supposed to be distributed in January.
There were some conflicting regulatory issues surrounding the method for giving out the dividend, and it has been delayed. In the interim, the company decided go ahead and file an S1 registration statement with the SEC to take Southland public on its own.
Investors are losing patience with the process, and Bad Toys has done nothing to make believers out of shareholders. Fast forwarding to now (nearly 4 months later), Bad Toys has given no shareholders any reason to believe they can get Southland spun out into a separate public company. From time to time I call CEO Larry Lunan and ask him if they are closing in on filiing the S1- for the last two months there is always a promise the filing is imminent- however, talk is cheap and it has not happened as of yet.
Therefore, I cannot blame shareholders for becoming impatient with the process.
On the plus side, the company is delivering corporate results that suggest the stock is worth considerably more than where it is trading today if it were fully valued. They earned $.05 per share in Q1 on $10.5 million in revs. This suggests the stock is worth as much as double where it is trading now.
The recent market swoon had the stock in a light volume free fall.
The market makers used the recent market swoon as an opportunity to spook investors out of this issue at the bottom. This was one of the quickest rebounds off an oversold condition I have seen.
A few smart investors held their collective noses and pounced on the stock in the $.75 range. They were rewarded for their courage with an instant turn around in the stock price.
As far as the dividend and the spin off goes- I’m pretty sure the company is going to file the S1 reasonably soon and get the regulatory wheels turning. Once the registration process begins, we could have some information on when the stock dividend will actually be paid. Right now, it is safe to assume the stock is trading with the dividend attached. You can sell or buy with no consequence on the dividend until you hear otherwise.
I continue to believe there is not a lot of risk in hanging on to this one. I am not surprised to see investors slowly throwing in the towel who bought it for the special situation. The company has not earned your allegiance by their actions.
My guess is they will move forward with the originally laid out program pretty soon, and it should get interesting again at that point. Bottom line- hang in there for either the value or the special situation. But, if you are losing patience, I wouldn’t blame you for selling.
I am trying to understand your comment that “the stock is worth as much as a double” ($2.5/share) based on 1st quarter EPS of $.05. Isn’t BTYH worth significantly more based on annual EPS of $.23 and the industry norm P/E of about 22.5 (Rural Metro)? My calculations value BTYH between $4.50 and $5.20. Am I off base with my thinking? This is the same thought process that we agreed on back in January 06′.
Editor: I believe the company could draw that kind of multiple if they did the following: settle the law suit with Cornell Capital, get out of default with GE Capital, pay the back taxes. With the exception of the Cornell Capital mess, the other two problems were inherited. These are minor red flags, any one of which could be overcome with a financing the company can live with. Profits eventually make all problems go away. Also, I would like to see a little more top line growth if the company is going to garner a higher multiple. If they simply remain the public company they are today, I’d like to see them shut down the Motorcycle company, which historically has been a waste of resources. You and I both agree it is undervalued. We just differ a little on the valuation when the negatives are included in your thinking.
JUST A FAST PERSONAL RECAP. I BOUGHT 1,500 SHARES OF BTYH IN JANUARYAT $2.40 A SHARE. IT PLUMMETED THE OTHER DAY TO ABOUT $0.75. AT THAT TIME I FIGURED THE ONLY WAY TO GET OUT OF THIS MESS WAS TO BUY MORE IN HOPES OF AT LEAST BREAKING EVEN WHEN THE STOCK GOES BACK UP. SO I BOUGHT 3,000 SHARES AT $1.01 AND ANOTHER 2,500 SHARES AT $0.75. THE STOCK THEN REBOUNDED BACK TO $1.23. THAT IS WHEN I SOLD THE WHOLE LOT AND IN THIS CASE I DID BREAK EVEN. NOW I CAN RELAX A BIT AT AN EVEN KEEL AND JUST WATCH IT TO BUY IT BACK AGAIN LATER. WHAT A RELIEF. WALT F.
Editor: Well done on the trading side Walt. It seems to me the only reason it makes sense to pursue that kind of trading strategy is the company’s corporate performance- as long as they are generating $10 million in revs and $1 million in profits per quarter, you know they aren’t going go out of business anytime soon. I believe you did a great job on the trading side. However, if it were me, I would have kept the original 1500 shares you wanted to own. The process of the Southland spin off is going to get started. I just don’t know how it’s going to come out, but I suspect it will put another charge into the stock.
They state in the 10-QSB that hey need 10,000,000$ as soon as yesterday. “The Company is currently in negotiations to secure a $10,000,000 asset-based line of credit. If successful, the Company will use the proceeds from the line of credit to retire the full amount of the indebtedness asserted to be owing to the Internal Revenue Service and GE Capital. The Bad Toys Division is currently operating on a negative cash flow basis” Who will give them money? one way or another they pay all they earn to lenders. so the 0.20$ X 10 does not work. there is no 0.20$. They can’t isue stock as we all saw what happen when some one tries to sell 100k of shares. and if they will, no more 1.3 per share, dillution. Their law firm is busy with at least 3 big law suits. That is a good reason for them to not find the time for the S-1. HUBBARD CLINTON L just sold another 3000 shares at 05/24/2006 in two transactions. 1 – 550 $1.25 05/23/2006 2 – 2,450 $1.238 05/24/2006 ( do the buyers read this blog?) So what do you think is a proper evaluation? Why would the SEC alow them to go public? JMHO, yair
Editor: That’s a lot of questions- I have covered the IRS and GE Capital situations ad nauseum. Firstly, they don’t need $10 million- they could have gotten it ten times under unfavorable terms. They will take it as a loan against assets, which is non dilutive (no shares issued), if they get terms they can live with. If not, they won’t because they don’t have to do anything. Furthermore, if they spin out Southland to its own public company, there is no more Bad Toys motorcycle division. It is part of the old company, and you are a shareholder in both. Southland will be a much healthier company on its own. Of course the SEC will “allow” them to go public. The SEC allows any company to go public that completes the process. The bigger issue you should be asking yourself- can they get a valuation of $3 on the AMEX or $4 on the NASDAQ? If they do get a favorable loan and clean up those two problems, I believe it can be done based on a reasonable valuation relative to corporate performance. When you generate about $5 million in earnings on $40 million plus in revs you have a lot of wiggle room. As far as 3,000 shares goes, it won’t even waste my time commenting on that non event.
The company should put the dividend filing on the back burner. It is a difficult job for a lender to lend $ to a company that in a short period of time will not exsit. The management should understand that banks are not beating on their door to offer the best rates because of the potential risk to their loan. Get the best loan you are able today and move on. You have liability here with the IRS and a DEFAULT on a GE loan (that gives you a lot of bad will- if you can default on GE what are you going to do to moi?) this isn’t merely a refi.
Editor: While I agree with you that these issues need to be resolved, keep in mind these problems were both created by previous management. They left the company about $4 million in arrearages, and there was a $4 million loan to one of the owners which has never been paid. However, I don’t know how you can say the company won’t be around. That’s complete absurd. How does a company generating $10 million in sales and $1 million in profits go out of business? That is an absurd statement. Watch them earn $6 million this year on $45 million in sales and get rid of their baggage somehow.
The S1 is filed for Southland Healthcare at of 6/7/06. Not under BTYH news. Wanted to make sure you are aware of this event that we have all been patiently waiting for has arrived. Thanks
Editor: News will come out today. The game is finally on.
In the S-1 it says they intend to apply on the NASDAQ. Does that mean $4.00 minimum, American exchange is $2.00minimum.
Editor: I thought the AMEX was a $3 minimum- if it is $2, it would be a more likely place for them to trade. We will see as it develops. At least we have one step out of the way.
WHAT?! Is it just me or is the dividend only going to those on record of January 12th?? I thought we’d all get it.
Editor: Don’t worry- all shareholders are getting it, no matter when you bought it. I believe it will be awarded right up until the time Southland trades on its own.
I got this straight from the registration statement….” In connection with the spin-off, Bad Toys will issue .9825 shares of our common stock for each share of Bad Toys common stock issued and outstanding as of the record date, January 12, 2006.” WHY!!!
Editor: It’s trading with the dividend attached. Your share dividend is intact.
6/7. The Southland spin is done. About time. Just a little follow up to my above message 5/25. After selling my entire lot of BTYH at $1.23 and breaking exactly even after waiting 4 months, I took your advice and brought back 2,000 shares at $1.03. So I got 25% additional more shares at more than 50% less than the price I paid for my original purchase of 1,500 shares at $2.40 per share back in January. Right now the stock is at $1.38. Things are finally looking up. WALT F.
Editor: Still in there at the right price. Well done Walt. Now, let’s look for some positive fundamental developments while the process rolls on.
I tried to send e-mails to the contact us email address for bad toys, and I apparently am unable to use their contact number. I wanted to ask them directly will those of us who purchased stock after jan 12 will receive the dividend. could you provide us with a current and correct email address? thank you.
Editor: The one I have is badtoys@badtoys.net. Lunan is very bad at emails. You will have a better chance of reaching him by calling 423 247 9560. The stock is still trading with the dividend attached.
Today had a decent volume for Bad toys compared to the last few days. Is this market related or signs of a closing time line for the spin-off. Also I noticed when turning a friend on to BTYH that etrade restrics new customers from buying OTC stocks for 7 days. this has effectively cost my friend $300.00 and more if the stock continues upwards. Any idea on why they have this policy
Editor: I don’t have any idea why eTrade would have a policy like that. While it may be trading a touch better, it’s no big deal as of yet. There could be some positive developments coming next week- they are working on the GE Capital situation. Keep your fingers crossed. This one continues to be an intriguing value.
I bought BTYH in November and sold on June 14th of this year. Am I still entitled to the dividend? Thank you for your help.
Editor: Not if you don’t own it when they give out the dividend. As it stands now, if you bought it back, you would be entitled to the dividend again.
Just wondering if you heard anything on BTYH. The stock has been trading aweful with no endpoint in sight. It doesn’t make sense. Fundamentally this stock should be trading 2-3 times current price. Just looking for an update.
Editor: I have heard they are close to filing responses to the first round of comments on the S1 to the SEC. Also, I have heard they are close to a financing which would take out GE Capital. I have also heard business is very good. On the stock side, everything non-energy is getting pounded. Either hold or nose and wait out this violent market correction, or sell the stock. There’s nothing Bad Toys can do about bombings in the Middle East or any of the other international events that are driving every non-energy stock through the floor.
have you heard anything lately? its been two weeks since the last chat.
Editor: No, I haven’t spoken with management in a couple of weeks. I have been on the road. I believe I will give Lunan a call for an update. We have to get some information soon- June q numbers will be out, and an ammendend S1, and perhaps some debt refinancing.
Cendant (CD) just had a successful spin off with Wyndham (WYN) and Reaology (H) with a sale of the travel sector and Avis transition to come soon. I can see it settleing soon with the market and hope that BTYH takes the hint. It\’s no longer about SEC rules and red tape. It\’s been done. I guess they have more folks doing it for them than BTYH. Tell Lunan to get off his ass and make money… how long does it take the horse to drink?
Editor: Many companies have done this in the past. There is nothing unique about spinning out a division into a separate public company. Here’s what is unique- they are spinning the majority of the company and looking to move to a higher listing. It takes time. You are really focused on the wrong issue. What Lunan needs to do is refinance the GE Capital loan and pay off the IRS. That would be huge.Â