Southland Health Officially Dead

If you are one of those few who have been waiting for your Southland Health Care stock certificate while the company and the brokerage firms fight it out, no need to worry any longer.

The two year saga of Larry Lunan’s efforts to refinance Southland and turn it into a healthy public company has officially come to an end with Friday’s disturbing news out of the company. As far as I am concerned, this one is now dead and buried. If you are holding a Southland certificate, it is little more than wallpaper, toilet paper, or kindling- your choice.

Apparently, the company was unable to make its insurance payments in January, and has subsequently shut down.

Hard to believe Lunan could not manage his way out of the mess with a company delivering over $40 million in revs, and profits, but that is indeed the way the cards have been turned over.

I doubt any sort of Phoenix can rise out of these ashes- To Lunan- a lot of people bet on you, and you failed miserably- myself included.

That’s the harsh reality. Forget about Bad Toys/Southland/Paladin- it’s over. If you haven’t taken some sort of tax loss on the investment, please talk to your accountant and find out if one is available.

Southland/Palladin/Bad Toys: Screaming To a Crawl

I know there are a lot of you waiting for an update on the Palladin (formerly Bad Toys)/Southland Health Services situation. I finally had a chance to chat with CEO Larry Lunan today, and very little progress is being made.

First of all- let me clear something up- I would not touch PLHI- the stock. There is no reason to own the stock right now, as Southland as a public company is still going no where. If you own it, sell it and take the tax loss. If you don’t own it, don’t buy it. My view could change in the future.

A lot of us own shares of Southland Health Services. We got it through a share dividend from the former Bad Toys. The shares have been registered and are free trading, but there is no trading in the stock yet.

I have suggested all along this stock would never find a reasonable level until Southland Health Services got out of hock with the IRS on some back tax issues that were inherited with the acquisition of the company.

Unfortunately, I have to report there has been zero progress on relieving the tax situation. The company believes it has a lender that will finance Southland with enough capital to pay off the back taxes, but CEO Larry Lunan says he cannot come to any reasonable settlement with the IRS. Very little progress is being made.

The company has chosen to engage in one manuever- it has put one of its subsidiaries on Chapter 11 bankruptcy. This allows the subsidiary to continue to do business, but provides protection from creditors.

This subsidiary only represents 11% of Southland’s sales, but according to the CEO, 100% of the back tax problem. Perhaps this tactic will give Southland some leverage.

The company itself is doing very well. Q3 revenues should be up along with profits, and the company appears to be in little danger of becoming extinct in any way for the time being.

However, management is making no progress on getting the stock trading, which is really all we care about. It’s not what we want to hear, but it’s the truth.

It’s not over, but it’s certainly disappointing. Anything can happen from here. There is really nothing to do but wait. We’ll see if our certs become money or wall paper.

Much Ado About Nothing

There have been a few comments of late concerning the behavior of PLHI- the stock formerly known as BTYH- Bad Toys.

I just want to clarify my position on PLHI- I don’t care what PLHI does. When the dividend of Southland shares was paid last January, I suggested everyone decide for themselves what they want to do with their shares of BTYH/ now PLHI.

The only thing I care about is Southland, and the progress they make towards getting out of the defaulted debt with the IRS and GE Capital, and getting the stock up and trading.

If you have any comments and questions, please post them. I will be using this forum simply to update everyone if and when news develops on Southland. If Southland makes some serious progress on their glacially slow endeavors, PLHI could become and interesting play before Southland is able to trade.

Bad Toys Continues on Glacially Slow Path

This update is really about Southland Health, but we’ll cover it under the guise of Bad Toys until it opens for trading on its own.

Southland is moving forward with the planned opening of its stock for trading like a herd of turtles. Believe me, glaciers move faster than these guys, but since the government is involved, you can’t blame it all on them.

At long last the company is sending out the Southland stock certificates to all who were entitled to the dividend. If you don’t receive your shares in the next couple of weeks, call the company directly at (423) 247-9560 and have them look into it.

Getting the stock certs has taken for ever, but it really doesn’t matter as Southland is not open for trading, and doesn’t appear to be ready to open for trading in the immediate future.

In order for Southland to trade at a reasonable market cap they have to solve two problems. They need to pay off GE Capital and the IRS. They are in default with both of them, but these are inherited problems from previous management.

The IRS is the problem. Southland claims it has a new lender who will pay off the back taxes and provide the company with operating capital. However, they won’t do it until they have a final number from the IRS so the company can be released from its liens.

The IRS has received several proposals to bring the matter to a head, but as a government agency they take their own sweet time about things.

If and when they can get a resolution to the IRS issue, they can then move forward to pay off their defaulted debt. I am told there is even money in escrow awaiting the resolution.

Until that time, there isn’t anything to think about or worry about. There is nothing to do but wait. If they never get this problem solved, your Southland stock cert might not be worth much more than wallpaper. If they do, it could be a huge score.

We’ll have to wait and see how it goes over the summer. In the meantime, I would not be a buyer of BTYH- perhaps if they close in on Southland opening for trading BTYH will become interesting again.

From day one I stated this was a move I had never seen done in all my years in the microcap world. Perhaps they will pull it off. I can’t say for sure, but on paper it seems feasible.

However, they are moving at a glacial pace- like LA’s 405 during rush hour- hurry up and wait.

Bad Toys: I Like Our Chances

For those of you who hung in there on the Southland dividend play from Bad Toys- time for an update- the situation looks more promising than ever.

This past week Bad Toys announced Southland received a letter of commitment for a $10 million debt financing – this capital would be used to cure the company’s defaults with the IRS and GE Capital. If completed, there would be a few million left over for working capital.

This is the news I have been waiting for to put me in a very optimistic mood about our odds of seeing Southland open at $4 plus on the NASDAQ.

I had a conversation with CEO Larry Lunan yesterday. He believes it will take about 2 months to complete the transaction. It’s a function of making a settlement with the IRS- they have to agree upon a final number, and the government does not move quickly.

GE Capital is less complicated- it can be handled in a day or so. The lender will pay both entities directly, and both defaults will be cured. The IRS and GE Capital defaulted debts will be gone, and the company will have substantial additional working capital and no black marks.

This will pave the way for institutional sponsorship of a NASDAQ listing for Southland- which it would fully qualify for in every way.

CEO Lunan believes Southland will trade before the end of Q2- by the end of June. No guarantees, but it’s becoming more believable all the time.

On another note: It will probably be about another 2 weeks before your Southland shares are sent to you. The company finally received a list from DTC last week.

I had previously stated all shares would be sent directly to shareholders- this may not be the case- your stock certificate may end up being sent to your brokerage firm. I will know in advance and will tell everyone when to start looking for the cert. If you owned shares of Bad Toys on the record date, you will get your stock certificate.

If you like the news and want to participate- at this time the only way to do so is by accumulating shares of Bad Toys. BTYH no longer counts Southland as a subsidiary of the parent company. However, BTYH still owns 25% of Southland.

If Southland opens for trading at $4, BTYH’s stake will be worth about $30 million- the company has about 7 million shares. BTYH has 21 million I&O- so if their stake in Southland is worth $30 million- that would give BTYH about $1.50 per share in value.

Here’s the recent chart:

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As you can see, the stock dropped from about $1 to about $.25 with a day or two after trading x-dividend, and rightly so.

Since making its bottom, it has recovered slightly into the $.35 range- if you bought the stock in the $.70 range before it traded x-dividend you could get half your money back by selling and still have your Southland.

However, if you want to take a further shot at participating in Southland the only way you could do so now is to buy BTYH- it could be a triple. It will probably appreciate as evidence builds concerning Southland opening for trading.

I’ll keep everyone up to date as further progress is made. In the interim, comments and questions are welcome.

Bad Toys X-Dividend Date Finally In the Books

Well, after one whole year the day has finally arrived. Bad Toys is really finally going to trade x-Southland dividend on February 2nd.

Here’s what this means to shareholders: If you own BTYH at the close of market on Thursday, February 1st, you will receive a dividend of just under one share of Southland for every share of BTYH you own when the market opens on February 2nd. Therefore, let’s say you own 5,000 shares of BTYH on February 1st. You will receive, in the mail, a certificate for about 5,000 shares of Southland Health Services, Inc.

The stock certificate you receive in Southland will be in free trading shares. Here’s what I don’t know- when Southland will open for trading, at what price, and on what exchange.

Then, if you so choose, you have the option of selling your shares of BTYH in the open market anytime after February 2nd. If you choose to do so, you will still receive your dividend in Southland shares.

MarketByte LLC, the publisher of the OTC Journal, currently owns 150,000 shares of BTYH which are restricted, but eligible to be free trading under Rule 144. I will not be selling any of those shares prior to February 2nd because I want the Southland dividend for all of them. However, I might sell some starting February 2nd if BTYH trades at a reasonable level.

I would expect BTYH to open considerably lower on February 2nd. After all, the company is dividending out 75% of its value to shareholders, so in theory when it trades x-dividend it should open 75% lower.

I will publish a comprehensive update early next week so everyone has a couple of days to make up their mind on how they want to proceed.

In short, if you are going to hold your BTYH for the dividend, you are taking the leap of faith that Southland can open and trade at a much higher level on a stand alone basis. On paper, it should be able to happen.

If you are concerned about the loss of value in the BTYH shares, and aren’t willing to be on the future value of Southland on a stand alone basis, sell your shares of BTYH on or before February 1st. It will be worth a lot less on February 2nd.

I don’t know how long it will take for Southland to open and trade on its own. However, I personally believe it will take 2 months at the minimum, and probably longer.

Here’s the current chart:

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BTYH has been in much better shape since this never ending regulatory process finally moved in a positive direction with effective registration of Southland and now the NASDAQ finally allowing for the x-dividend date.

However, the stock has not headed to its previously lofty level of $2.50. Over the past year the stock drifted down to $.50 as the company slowly ground through the SEC.

One year later we have some progress, but the stock is now only around $1 despite the $50 million plus in annual revs and consistent quarterly profits.

The market is simply telling the company their spin out story is less believable after the year’s wait. Nevertheless, the story is the same as it was a year ago.

I believe this is one of the most interesting special situations I have ever seen, and it is going to be very exciting to watch it play out. On paper, it all makes sense. If CEO Lunan pulls this off, you will wish you owned a lot more in the $1 range.

Bad Toys X-Dividend Date Announced

Bad Toys is behaving like a well trained hunting dog- making the moves on my commands as events develop. As I pointed out throughout the month, I believed this stock would trade well up until the day it made its short term high- now likely to be January 31st.

If you own BTYH on January 31st after the market closes you will be entitled to a dividend of one share of Southland Health Services for every share of BTYH you own.

If and when Southland opens for trading on its own, your newly acquired shares will be free trading.

CEO Larry Lunan has publicly stated many times he hopes to see the company attain a NASDAQ SC listing, in which case it would have to trade at a minimum of $4. On paper, one could easily make the argument the value is there. The AMEX would be choice 2- with the $3 minimum.

If you own the stock at the close on January 31, expect the stock to open for trading considerably lower on February 1. After all, on paper, the company will be worth 75% less on February 1 as they are giving out 75% of their value to the shareholders.

If you own this stock, and you were just in it for a trade, you must sell your shares of BTYH before January 31- perhaps on that day. You will forfeit the dividend, but probably make a nice trade.

If you hold for the dividend, you are betting you are going to make your making on Southland Health Services once it opens. The SEC has given the company permission to trade on its own, but they don’t have an exchange or an opening price yet.

To be clear- there are no guarantees it will ever happen, and there are no price guarantees when and if it does. Plan on the process taking at least a couple of months if not more.

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Here’s the chart of the behavior of BTYH since investors started to realize they would get through the SEC process. I have been suggesting accumulating the stock up to $1. That level is now eclipsed, so where from here?

If the company can refinance its debt in the next week or two, I believe that would be the catalytic event to catpult them to a senior listing as described above.

You can still buy it at this level, but if you do so, don’t do it just for the pre x-dividend trade. Do it so you can own your shares of Southland, and take your chances there.

Comments and questions are welcome.

Bad Toys Finding a Bid- Storm Clouds Brewing

In case you haven’t noticed, BTYH is finding a bid as we make the corner into 2007. This one was one of the stocks victimized by tax selling as the stock had a bad year, but all the reasons we looked at it in 2006 are finally coming to fruition in 2007.

Just to remind you, BTYH is what I would describe as a “Special Situation” trade. Larry Lunan, CEO of BTYH, is attempting something I have never seen done before. He is attempting to unlock the value the company has in its subsidiary – Southland Health Care- by spinning it out into a separate public company and dividending out shares to shareholders of BTYH.

I have seen subsidiaries spin out in the past, but never when the subsidiary was over 90% of the parent company.

Southland Health Care, on a stand alone basis, generates about $44 million in annual revenues, and delivers about 10% in profits. It has over $6 million in shareholders equity. Southland provides both emergency and non emergency ambulance services in 8 southern states. The company employees about 876 employs, provides 130,000 transports annually, and serves 200 communities.

There are approximately 28 million shares I&O, and if you own BTYH you will be awarded an equal number of shares of Southland.

In theory, if Southland were to trade at 10 times earnings, the stock would be around $1.78. Two times revenues would be more like $3 per share. At any rate, on paper it is certainly worth far more than where BTYH is trading right now- at about $.60 per share.

Last year at this time BTYH ran to about $2.50 when they announced they were going to dividend out the shares of Southland and do the spin off. They even announced a record date in mid January 2006.

To make a very long story short, there were conflicting regs between the NASD and the SEC on the dividend, and BYTH was stopped from doing the dividend until the registration statement for Southland was declared effective by the SEC.

Now, it is nearly exactly one year later. Guess what- the company is literally a few days away from an effective registration for Southland, and BTYH is finding a bid and trading up.

Last year’s theme is coming to fruition this year. There are two potential catalytic pending events for this stock: 1. An effective registration statement on Southland, and/or 2. A refinancing of their debt under more favorable terms.

Here’s the chart:

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I wanted you to see the big picture on this one. This chart shows the stocks rise in the Fall of last year as it peaked around $2.50. It also shows the demise of the stock all throughout 2006 as the company disappointed investors on the timetable for effecting the spin off.

The effective registration is only Step 1. They also have to get the stock open for trading on a senior exchange (i.e. Amex of NASDAQ SC). If they do, the dividend shares will pay off handsomely for those who understand this special situation.

Once Southland is effective, the company should be able to announce a real x-dividend date, and the stock should trade up as demand surfaces from investors who want the shares of Southland. It will probably trade down considerably the first day it trades x-dividend.

I know it’s a little complicated, and certainly interesting. I would describe this as a trick to unlock the value in the stock, but the value is there.

You need to own it now before an x-dividend date is announced if you want to own it at the right price.

Comments and questions are welcome.

Bad Toy’s Southland Gearing Up For Expansion

Shortly after last week’s year end update on Bad Toys was published, the company issued another press release, which gives us a look at where they see themselves headed in 2007.

Bad Toys announced that the Industrial Board of Vernon, Alabama is going to build a 20,000 square foot facility to house Southland Health Care. Here’s a quote from the press release:

“This new facility will be 20,000 square feet and will accommodate the Company’s growth expectations to approximately $90 million in revenue.”

Here’s the big picture: Bad Toys spent 2006 treading water as they moved forward with their plans to spin out Southland Health Care into its own public company and attempted to refinance their defaulted debt.

Net result to shareholders: Bad Toys stock performance in ’06 was abysmal, as investors simply lost interest in the entire process.

Now that Bad Toys is very close to having an effective registration statement and possibly finding a non-equity demanding lender, we could be on the verge of having the interest rekindled.

I won’t put up another chart, as there is little change from the one that appeared in last week’s edition.

However, I will say that I believe Bad Toys is very close to having an effective registration on Southland Health Care, and being able to really go x-dividend- probably exactly one year after the original announcement. Once they announce an x-dividend date again, I believe the stock will trade up as investors acquire Bad Toys in order to be entitled to the dividend.

Comments and questions are welcome.

Bad Toys Quarterly Numbers Non-Event

Bad Toys released is Q2 numbers post close yesterday, and they would pretty much fall into the category of a “non-event”.

The company delivered $11.1 million in revs and $581k in net profits, which translates to $.03 per share.

Profits were a little soft because the company shut down one unprofitable division, and added two new ones during the period. They lost the revenues on the one side. The two new services are taking some time to gear up to full capacity. I would expect earnings to improve to about $.05 in Q3.

I continue to believe there is one key to a resurgence in this stock. You might believe it is the successful spin out of Southland into a separate public company. I don’t believe that’s the case. Bad Toys has two nagging problems it needs to solve which are both inherited from previous management- The company still owes $7.8 million in taxes and $2 to GE Capital. I’m estimating the amounts from the financial statements.

Both of these headaches were inherited from the past administration. The company has turned consistently profitable, but still has to eliminate these legacy issues.

Bad Toys has made no secret of the fact it is working on a more favorable debt financing to eliminate its defaults and restore its fiscal health. If we read about a financing to take out the past debt defaults, this will set us up for a successful spin out of Southland.

In the meantime, not much to say about the stock:

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Here’s the big picture, going back one year. The stock traded great in the Fall as investors warmed up to the high levels of revs and reasonable profits.

It peaked early in the year when the company announced the spin out of Southland. Those who follow the situation know this has not gone according to schedule- the company has not gone x dividend, and the process of going effective on the S1 appears to be stalled. They are in the process, but it is, of course, taking forever.

It’s been all down hill since the company failed to go x-dividend. I believe management has simply lost a lot of credibility. They have not delivered what they promised.
Watch for the company to deliver a new debt financing to clean up the past problems and be current in all respects. If they pull it off, I believe that will be a turning point for the stock.

In the meantime, don’t lose sight of the fact that the company is delivering north of $44 million in annual revenues and about $3.5 million in net profits.

Comments and questions are welcome.

Bad Toys Trades As Value Proposition Now

Bad Toys has been a bitof 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 towelwho 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.

Bad Toys Correction

In Monday’s edition on the Bad Toys year end financial results, there was a mistake which needs to be corrected. When listing the year end financial results, I inadvertently published that the company had $22.8 million in shareholders equity. The number, in fact, is substantially less.

I simply read across to the wrong line in the balance sheet. The shareholders equity, which is determined by subtracting the assets from the liabilities, was actually $7.3 million as of the end of 2005.

In light of the company delivering $44 million in sales and $3.8 million in profits, this number is a little lower than I would like to see in an ideal world, despite doubling from the end of 2004. The company needs to refinance its debt on more favorable terms and improve the shareholders equity. They are working towards that goal, and in light of their profitability it seems highly likely the right funding source could come along.

Bad Toys Still Trading With Dividend Attached

If you’re wondering about the Bad Toys announcement this morning, it’s just as it appears. The stock will not trade x dividend today despite the fact that the company had previously announced that January 11th would be the cut off date.

I am hearing anecdotally that the NASDAQ is involved in the dividend distribution process, and that they will have some say in the date the stock actually trades without the dividend attached. Because this is such an unusual event, there is discussion is going on about how the dividend will be handled. Issues under consideration include how the dividend will be distributed- will the company simply send you your shares?, or will they send you a letter stating you are entitled to the shares, and send them to you when Southland opens for trading on their own.

BYTH has given a little ground after being a great trade for the early going in ’06. In theory, today’s announcement really changes nothing, so the stock price really should not be affected. However, if it were to drop in price, I would view it as an opportunity to accumulate. You might have a few more weeks to get on board.

Comments and questions are welcome.

Bad Toys Dividend Spin Off

If you are at this BLOG posting, you have read about Bad Toys spin off of Southland Services. This BLOG posting is provided as a forum for questions and comments on this special situation. If I cannot answer the question myself, I will contact CEO Larry Lunan and get accurate answers. Please allow at least 24 hours for answers to be posted.