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:

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 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.

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.

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:

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.