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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended March 31, 2007



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number: 0001364796



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SOUTHLAND HEALTH SERVICES,
INC.

(Exact name of registrant, as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|FLORIDA                                                        |  | 20-0340136                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|2344 WOODRIDGE AVENUE, KINGSPORT, TN                           |  | 37664                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number: (423) 247-9560



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Indicate by check mark whether the issuer
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2) of the Exchange Act. Check one:

Large accelerated
filer ̈Accelerated Filer ̈Non-accelerated filer  x

Indicate by check
mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x

The number of shares outstanding of the
Registrants common stock as of May 3, 2007 was 28,148,695.



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##### Table of Contents

TABLE OF CONTENTS



|        |  |                                                                                                                                 |  |     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ----
|        |  |                                                                                                                                 |  | PAGE
|PART I  |  | FINANCIAL INFORMATION                                                                                                           |  |     
|        |  |                                                                                                                                
|Item 1  |  | Financial Statements                                                                                                            |  | 3   
|        |  |                                                                                                                                
|        |  | Consolidated Balance SheetsAs of March 31, 2007 (unaudited)As of December 31, 2006                                              |  | 3   
|        |  |                                                                                                                                
|        |  | Consolidated Statement of IncomeThree Months ended March 31, 2007 (unaudited) andThree Months ended March 31, 2006 (unaudited)  |  | 4   
|        |  |                                                                                                                                
|        |  | Consolidated Statements of Cash FlowsThree Months ended March 31, 2007 (unaudited)Three Months ended March 31, 2006 (unaudited) |  | 6   
|        |  |                                                                                                                                
|        |  | Notes to Consolidated Financial Statements                                                                                      |  | 7   
|        |  |                                                                                                                                
|Item 2  |  | Managements Discussion and Analysis or Plan of Operation                                                                       |  | 15  
|        |  |                                                                                                                                
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                                                                      |  | 22  
|        |  |                                                                                                                                
|Item 4  |  | Controls and Procedures                                                                                                         |  | 22  
|        |  |                                                                                                                                
|PART II |  | OTHER INFORMATION                                                                                                               |  |     
|        |  |                                                                                                                                
|Item 1  |  | Legal Proceedings                                                                                                               |  | 23  
|        |  |                                                                                                                                
|Item 1A |  | Risk Factors                                                                                                                    |  | 24  
|        |  |                                                                                                                                
|Item 2  |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                     |  | 24  
|        |  |                                                                                                                                
|Item 3  |  | Defaults Upon Senior Securities                                                                                                 |  | 25  
|        |  |                                                                                                                                
|Item 4  |  | Submission of Matters to a Vote of Security Holders                                                                             |  | 25  
|        |  |                                                                                                                                
|Item 5  |  | Other Information                                                                                                               |  | 25  
|        |  |                                                                                                                                
|Item 6  |  | Exhibits                                                                                                                        |  | 25  



2



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##### Table of Contents

|PART I | FINANCIAL INFORMATION
|------ | ---------------------



|Item 1. | Financial Statements
|------- | --------------------

SOUTHLAND HEALTH SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2007 and DECEMBER 31, 2006



|                                                                                     |  |              |            |   |                  |   |            |  
|------------------------------------------------------------------------------------ |  | ------------ | ---------- | - | ---------------- | - | ---------- | -
|                                                                                     |  | (Unaudited)  |            |   |                  |  
|                                                                                     |  | March 312007 |            |   | December 31,2006 |  
|ASSETS                                                                               |  |              |            |   |                  |   |            |  
|CURRENT ASSETS                                                                       |  |              |            |   |                  |   |            |  
|Cash                                                                                 |  | $            | 30,881     |   |                  | $ | 11,869     |  
|Accounts receivable - Trade                                                          |  |              | 11,537,550 |   |                  |   | 10,497,764 |  
|Prepaid expenses                                                                     |  |              | 350,357    |   |                  |   | 328,666    |  
|                                                                                     |  |              |            |   |                  |   |            |  
|TOTAL CURRENT ASSETS                                                                 |  |              | 11,918,788 |   |                  |   | 10,838,299 |  
|                                                                                     |  |             
|FIXED ASSETS                                                                         |  |              |            |   |                  |   |            |  
|Buildings                                                                            |  |              | 480,743    |   |                  |   | 469,781    |  
|Furniture & fixtures                                                                 |  |              | 104,835    |   |                  |   | 104,835    |  
|Equipment                                                                            |  |              | 1,882,589  |   |                  |   | 1,803,646  |  
|Vehicles                                                                             |  |              | 4,655,246  |   |                  |   | 4,436,800  |  
|Leasehold improvements                                                               |  |              | 2,212      |   |                  |   | 2,212      |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  |              | 7,125,625  |   |                  |   | 6,817,274  |  
|                                                                                     |  |             
|Less: Accumulated depreciation                                                       |  |              | (4,581,723 | ) |                  |   | (4,401,135 | )
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  |              | 2,543,902  |   |                  |   | 2,416,139  |  
|                                                                                     |  |             
|OTHER ASSETS                                                                         |  |              |            |   |                  |   |            |  
|Due from affiliated company                                                          |  |              | 903,531    |   |                  |   | 478,150    |  
|Prepaid insurance and deposits                                                       |  |              | 619,025    |   |                  |   | 725,386    |  
|Notes receivable                                                                     |  |              | 5,823,056  |   |                  |   | 5,736,940  |  
|Other assets                                                                         |  |              | 693,225    |   |                  |   | 465,473    |  
|Investments                                                                          |  |              | 1,002,000  |   |                  |   | 1,002,000  |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  |              | 9,040,837  |   |                  |   | 8,407,949  |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  | $            | 23,503,527 |   |                  | $ | 21,662,387 |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  |             
|LIABILITIES AND STOCKHOLDERS EQUITY                                                 |  |              |            |   |                  |   |            |  
|CURRENT LIABILITIES                                                                  |  |              |            |   |                  |   |            |  
|Accounts payable                                                                     |  | $            | 1,151,978  |   |                  | $ | 540,739    |  
|Accounts receivable line of credit                                                   |  |              | 1,166,393  |   |                  |   | 1,245,908  |  
|Bank overdrafts                                                                      |  |              | 1,354,002  |   |                  |   | 1,365,964  |  
|Accrued wages                                                                        |  |              | 269,039    |   |                  |   | 245,289    |  
|Accrued and withheld taxes                                                           |  |              | 9,246,926  |   |                  |   | 8,460,179  |  
|Other liability                                                                      |  |              | 527,522    |   |                  |   | 479,976    |  
|Current portion of Notes payable                                                     |  |              | 655,584    |   |                  |   | 741,521    |  
|                                                                                     |  |              |            |   |                  |   |            |  
|TOTAL CURRENT LIABILITIES                                                            |  |              | 14,371,444 |   |                  |   | 13,079,576 |  
|                                                                                     |  |             
|LONG-TERM DEBT                                                                       |  |              |            |   |                  |   |            |  
|Notes payable - Officer                                                              |  |              | 739,106    |   |                  |   | 551,045    |  
|Notes payable                                                                        |  |              | 960,086    |   |                  |   | 1,024,773  |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  |              | 1,699,192  |   |                  |   | 1,575,818  |  
|                                                                                     |  |              |            |   |                  |   |            |  
|TOTAL LIABILITIES                                                                    |  |              | 16,070,636 |   |                  |   | 14,655,394 |  
|                                                                                     |  |             
|STOCKHOLDERS EQUITY                                                                 |  |              |            |   |                  |   |            |  
|Common stock                                                                         |  |              | 28,149     |   |                  |   | 28,149     |  
|(28,148,695 shares issued and outstanding as of June 30, 2006 and December 31, 2006) |  |              |            |   |                  |   |            |  
|                                                                                     |  |             
|Additional contributed capital                                                       |  |              | 279,471    |   |                  |   | 279,471    |  
|Retained earnings                                                                    |  |              | 7,125,271  |   |                  |   | 6,699,373  |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  |              | 7,432,891  |   |                  |   | 7,006,993  |  
|                                                                                     |  |              |            |   |                  |   |            |  
|                                                                                     |  | $            | 23,503,527 |   |                  | $ | 21,662,387 |  
|                                                                                     |  |              |            |   |                  |   |            |  

See accompanying notes and accountants report.



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SOUTHLAND HEALTH SERVICES, INC.

CONSOLIDATED STATEMENT OF INCOME

Three Months Ended March 31, 2007 (unaudited) and 2006 (unaudited)



|                                   |  |                    |            |   |             |   |            |  
|---------------------------------- |  | ------------------ | ---------- | - | ----------- | - | ---------- | -
|                                   |  | Three Months Ended |           
|                                   |  | (Unaudited)        |            |   | (Unaudited) |  
|                                   |  | March 2007         |            |   | March 2006  |  
|REVENUES                           |  | $                  | 8,130,178  |   |             | $ | 8,683,257  |  
|                                   |  |                   
|EXPENSES                           |  |                    |            |   |             |   |            |  
|Payroll and employee benefits      |  |                    | 5,394,500  |   |             |   | 4,928,650  |  
|Depreciation                       |  |                    | 180,588    |   |             |   | 122,695    |  
|Other operating expenses           |  |                    | 1,865,166  |   |             |   | 2,219,009  |  
|                                   |  |                    |            |   |             |   |            |  
|                                   |  |                    | 7,440,254  |   |             |   | 7,270,354  |  
|                                   |  |                    |            |   |             |   |            |  
|                                   |  |                   
|OPERATING INCOME/(LOSS)            |  |                    | 689,925    |   |             |   | 1,412,903  |  
|                                   |  |                   
|OTHER INCOME (EXPENSE)             |  |                    |            |   |             |   |            |  
|Interest income                    |  |                    | 116,267    |   |             |   | 75,530     |  
|Interest expense                   |  |                    | (172,268   | ) |             |   | (199,724   | )
|                                   |  |                    |            |   |             |   |            |  
|Total other income/(expense)       |  |                    | (56,001    | ) |             |   | (124,194   | )
|                                   |  |                   
|INCOME/(LOSS) BEFORE TAX PROVISION |  |                    | 633,924    |   |             |   | 1,288,709  |  
|                                   |  |                    |            |   |             |   |            |  
|TAX PROVISION                      |  |                    | (208,025   | ) |             |   | (440,881   | )
|                                   |  |                    |            |   |             |   |            |  
|                                   |  |                   
|NET INCOME(LOSS)                   |  | $                  | 425,898    |   |             | $ | 847,828    |  
|                                   |  |                    |            |   |             |   |            |  
|                                   |  |                   
|NET INCOME/(LOSS) PER SHARE        |  | $                  | 0.02       |   |             | $ | 0.03       |  
|                                   |  |                   
|AVERAGE SHARES OUTSTANDING         |  |                    | 28,148,695 |   |             |   | 28,148,695 |  

See accompanying notes and accountants report.



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SOUTHLAND HEALTH SERVICES, INC.

CONSOLIDATED STATEMENT CHANGES OF STOCKHOLDERS EQUITY

THREE MONTHS ENDED MARCH 31, 2007 (unaudited)



|                                                   |  |                    |  |        |        |                          |   |                  |  |       |           |  |   |          
|-------------------------------------------------- |  | ------------------ |  | ------ | ------ | ------------------------ | - | ---------------- |  | ----- | --------- |  | - | ---------
|                                                   |  | COMMON STOCKSHARES |  | AMOUNT |        | ADDITIONALPAID INCAPITAL |   | RETAINEDEARNINGS |  | TOTAL
|Balance at beginning of period - December 31, 2006 |  | 28,148,695         |  | $      | 28,149 |                          | $ | 279,471          |  | $     | 6,699,373 |  | $ | 7,006,993
|                                                   |  |                    |  |        |       
|Net Income                                         |  |                   |  |        |       |                          |   |                 |  | $     | 425,898   |  | $ | 425,898  
|                                                   |  |                    |  |        |        |                          |   |                  |  |       |           |  |   |          
|Balance March 31, 2007                             |  | 28,148,695         |  | $      | 28,149 |                          | $ | 279,471          |  | $     | 7,125,271 |  | $ | 7,432,891

See accompanying notes and accountants report.



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SOUTHLAND HEALTH SERVICES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Three Months Ended March 31, 2007 (unaudited) and 2006 (unaudited)



|                                                                                    |  |                    |           |   |               |   |            |  
|----------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ------------- | - | ---------- | -
|                                                                                    |  | Three Months Ended |          
|                                                                                    |  | (Unaudited)        |           |   | (Unaudited)   |  
|                                                                                    |  | March 31,2007      |           |   | March 31,2006 |  
|CASH FLOWS FROM OPERATION ACTIVITIES                                                |  |                    |           |   |               |   |            |  
|Net Income/(Loss)                                                                   |  | $                  | 425,898   |   |               | $ | 847,828    |  
|Adjustments to reconcile Net (Loss) to Net Cash provided from operating activities: |  |                    |           |   |               |   |            |  
|Depreciation and amortization                                                       |  |                    | 180,588   |   |               |   | 122,695    |  
|Stock/Note issued for assets                                                        |  |                    |           |   |               |   |            |  
|                                                                                    |  |                   
|Changes in Assets and Liabilities                                                   |  |                    |           |   |               |   |            |  
|Accounts receivable                                                                 |  |                    | (156,632  | ) |               |   | (86,054    | )
|Prepaid expenses                                                                    |  |                    | (115,330  | ) |               |   | (105,087   | )
|Other Assets                                                                        |  |                    | (2,752    | ) |               |   | 951        |  
|Accounts payable                                                                    |  |                    | 163,864   |   |               |   | 6,364      |  
|Accrued wages                                                                       |  |                    | 23,750    |   |               |   | (279,868   | )
|Other liabilities and withheld taxes                                                |  |                    | 834,293   |   |               |   | 677,303    |  
|                                                                                    |  |                    |           |   |               |   |            |  
|                                                                                    |  |                   
|CASH FLOWS FROM OPERATING ACTIVITIES                                                |  | $                  | 1,353,680 |   |               |   | 1,184,132  |  
|                                                                                    |  |                   
|CASH FLOWS FROM INVESTING ACTIVITIES                                                |  |                    |           |   |               |   |            |  
|Purchase of Fixed assets                                                            |  |                    | (29,893   | ) |               |   | (108,770   | )
|Acquisition of Tri-County Ambulance Assets, net of payables assumed                 |  |                    | (751,199  | ) |               |   | 0          |  
|Notes receivable-net                                                                |  |                    | (86,116   | ) |               |   | (37,495    | )
|Purchase of Investments                                                             |  |                    |          |   |               |   |            |  
|                                                                                    |  |                    |           |   |               |   |            |  
|                                                                                    |  |                   
|CASH FLOWS USED IN INVESTING ACTIVITIES                                             |  |                    | (867,208  | ) |               |   | (146,265   | )
|                                                                                    |  |                   
|CASH FLOWS FROM FINANCING ACTIVITIES                                                |  |                    |           |   |               |   |            |  
|Due from affiliates - net                                                           |  |                    | (425,381  | ) |               |   | (155,141   | )
|Notes Payable - Officers - net                                                      |  |                    | 188,061   |   |               |   | 0          |  
|Notes Payable - net                                                                 |  |                    | (230,139  | ) |               |   | (882,841   | )
|                                                                                    |  |                    |           |   |               |   |            |  
|                                                                                    |  |                   
|CASH FLOWS PROVIDED FROM/ (USED IN) FINANCING ACTIVITIES                            |  |                    | (467,459  | ) |               |   | (1,037,982 | )
|                                                                                    |  |                    |           |   |               |   |            |  
|NET CASH INCREASE/(DECREASE)                                                        |  | $                  | 19,012    |   |               |   | (115       | )
|                                                                                    |  |                   
|CASH AT BEGINNING OF PERIOD                                                         |  |                    | 11,869    |   |               |   | 46,889     |  
|                                                                                    |  |                    |           |   |               |   |            |  
|CASH AT END OF PERIOD                                                               |  | $                  | 30,881    |   |               | $ | 46,774     |  
|                                                                                    |  |                    |           |   |               |   |            |  

See accompanying notes and accountants report.



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SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Reporting

The consolidated financial statements reflect the
activities of Southland Health Services, Inc. and its wholly owned subsidiaries Emergystat, Inc, MedExpress of Mississippi, LLC (a wholly-owned subsidiary of Emergystat, Inc.), Emergystat of Sulligent, Inc, Extended Emergency Medical Services, Inc.
(a wholly-owned subsidiary of Emergystat of Sulligent, Inc.), Southland Health Services, LLC and Southland Health Services of Georgia, Inc. The financial statements presented are the consolidated financial statements of all entities as of and for
the three months ended March 31 2007 and 2006, with selected data for the twelve months ended December 31, 2006.

Description of Business
Operations

The Company operates its business and markets its services as Southland Health Services d/b/a Emergystat. Southland Health Services, Inc.
and its subsidiaries provide emergency and non-emergency medical transportation (ambulance) services in seven states. The subsidiaries are Southland Health Services, LLC, Emergystat, Inc., Emergystat of Sulligent, Inc., Med Express of Mississippi,
LLC, Extended EMS, Inc, and Southland Health Services of Georgia, Inc. Southland Health Services, Inc. (Southland) operates a medical transportation business with over 980 full and part-time employees and provides over 130,000 medical transports
annually. Southland currently serves approximately 200 communities in seven states. Southland operates primarily within the southeast region of the United States. The Company intends to develop and expand contractual relationships in current and new
markets. The ambulance group operates under the brand name Emergystat.

The Company operates in Alabama, Florida, Louisiana, Tennessee,
Virginia, Kansas, Georgia and Mississippi.

Southlands revenues for these services are primarily derived from fees charged for medical transportation
services pursuant to contracts with governmental entities, hospitals, health care facilities, and other health care organizations. Southlands revenue under these contracts originates from reimbursements under private insurance programs,
government programs such as Medicare and Medicaid, reimbursement from a variety of governmental entities, and from fees paid directly by patients utilizing our services.

Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments,
with an original maturity of three months or less, to be cash equivalents.

Property and Equipment

Property and Equipment are originally recorded at cost of acquisition. Depreciation is provided using the straight-line method over the estimated useful lives of the
assets, which range from three to thirty-nine years. See also Note 14.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from these
estimates.

Trade Accounts Receivable

Trade accounts
receivable are recorded net of an allowance for expected losses. The allowance is estimated based on historical experience. The Companys accounts receivable can be classified into five categories of payors  Medicare, Medicaid,
governmental entities, private insurance and private pay. Once all collection protocols are met, private pay accounts are sent to collection and written off to the allowance for bad debts. The remainder of the receivables is transferred to private
pay once the last appeal-last denial has occurred. Once the collection protocols are met on these accounts as private pay, they are sent to collection and written off.



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SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Revenue Recognition

Revenue is recognized at the time of service and is recorded net of provisions for contractual discounts and estimated uncompensated care. Provisions for contractual discounts and estimated uncompensated care as a
percentage of gross revenue and gross revenue less contractual discount provisions are as follows for the three months ended March 31:



|                                           |  |       |   |  |       |  
|------------------------------------------ |  | ----- | - |  | ----- | -
|                                           |  | 2007  |   |  | 2006  |  
|Gross revenue                              |  | 100.0 | % |  | 100.0 | %
|Provision for contractual discounts        |  | 25.1  | % |  | 26.2  | %
|Provision for estimated uncompensated care |  | 17.1  | % |  | 18.2  | %
|After contractual provisions               |  | 57.5  | % |  | 55.6  | %

Healthcare reimbursement is complex and may involve lengthy delays. Third-party payors are
continuing their efforts to control expenditures for healthcare, including proposals to revise reimbursement policies. The Company has from time to time experienced delays in reimbursement from third-party payors. In addition, third-party payors may
disallow, in whole or in part, claims for reimbursement based on determinations that certain amounts are not reimbursable under plan coverage, determinations of medical necessity, or the need for additional information. Laws and regulations
governing the Medicare and Medicaid programs are very complex and subject to interpretation. As a result, there is a reasonable possibility that recorded estimates will change materially in the short-term. Retroactive adjustments may change the
amounts realized from third-party payors and are considered in the recognition of revenue on an estimated basis in the period the related services are rendered. Such amounts are adjusted in future periods, as adjustments become known.

The Company also provides services to patients who have no insurance or other third-party payor coverage. In certain circumstances, federal law requires
providers to render services to any patient who requires emergency care regardless of their ability to pay.

NOTE 2: CONCENTRATION OF CREDIT RISK

The Company operates in Alabama, Florida, Louisiana, Tennessee, Virginia, Kansas, Georgia and Mississippi. Over 60% of the Companys revenues
consist of billings to Medicare and Medicaid and approximately 23% of the Companys billing is to private insurance accounts. As such, the Company feels its overall credit risk is limited to those customers who are private pay and make up less
than 17% of the Companys overall revenue and therefore is very limited.

The Company maintains several bank accounts to conduct its operations. One
or more of these accounts may have exceeded federally insured deposit limits during 2007 and 2006. At December 31, 2006 and March 31, 2007, none of the Companys bank accounts exceeded such limits.

NOTE 3: PAYROLL TAXES PAYABLE

At December 31, 2006 and
March 31, 2007 the Company was in arrears for several quarters of income tax withholding, social security withholding, and the employers share of social security. A portion of the arrearage was acquired as part of the acquisition of
Emergystat of Sulligent, Inc. by Southland Health Services, Inc in 2004. In 2007, the overall outstanding payable to the IRS increased by approximately $800,000.00 from the 12/31/06 balance. The Company is currently in negotiations to obtain certain
debt instruments which would allow the Company to satisfy it past due payroll tax obligations. The Company believes that under normal operational conditions cash provided from operations will allow the Company to remain current on any future payroll
tax obligations.



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##### Table of Contents

SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4: NOTES PAYABLE

Long-term debt consists of various notes with interest rates ranging from 6% to 10% secured by ambulances, and emergency medical equipment.

Notes
Payable Consist of the following at March 31, 2007 and December 31, 2006:



|                       |  |               |            |   |                  |   |            |  
|---------------------- |  | ------------- | ---------- | - | ---------------- | - | ---------- | -
|                       |  | March 31,2007 |            |   | December 31,2006 |  
|Ambulance financing    |  | $             | 999,082    |   |                  | $ | 1,271,681  |  
|Acquisition debt       |  |               | 576,587    |   |                  |   | 494,612    |  
|A/R Financing          |  |               | 1,166,393  |   |                  |   | 1,245,908  |  
|All other debt         |  |               | 779,106    |   |                  |   | 551,045    |  
|Total                  |  |               | 3,521,168  |   |                  |   | 3,563,247  |  
|Note payable - Officer |  |               | (739,106   | ) |                  |   | (551,045   | )
|Less A/R Financing     |  |               | (1,166,393 | ) |                  |   | (1,245,908 | )
|Less Current Portion   |  |               | (655,584   | ) |                  |   | (741,521   | )
|                       |  |               |            |   |                  |   |            |  
|Total Long Term Debt   |  | $             | 960,086    |   |                  | $ | 1,024,773  |  

Debt maturities are as follows:



|      |  |   |           |  |   |          
|----- |  | - | --------- |  | - | ---------
|2007  |  | $ | 2,947,129 |  | $ | 2,989,208
|2008  |  |   | 325,210   |  |   | 325,210  
|2009  |  |   | 157,734   |  |   | 157,734  
|2010  |  |   | 81,166    |  |   | 81,166   
|2011  |  |   | 9,929     |  |   | 9,929    
|      |  |   |           |  |   |          
|Total |  | $ | 3,521,168 |  | $ | 3,563,247
|      |  |   |           |  |   |          

Ambulance Financing

The Company has entered into various installment notes for the financing of ambulances used in its operations. All of the ambulance financing has a maturity of three years or less. The proceeds of some of the bank notes were used for
working capital but are secured by ambulances. These notes carry various rates of interest from 5% to 10% and various monthly payments. At March 31, 2007, the Company was current on all payments on these notes.

Acquisition Debt

On March 23, 2007 Southland Health Services of
Georgia, Inc., a wholly owned subsidiary of Southland Health Services, Inc. purchased the assets of Tri-County Ambulance, LLC. $564,587 of the debt reported in this category as acquisition debt is related to this purchase and $12,000 is the
remaining obligation towards the purchase of a small operation in Southwest Virginia. The acquisition note is a 5-year convertible note carrying an interest rate of 6.5% and is payable in 5 annual installments of $135,859.

A/R Financing

The A/R Financing Line of Credit with General
Electric Capital Corporation (GE Capital) is a $5,000,000 revolving line of credit with a term of two years with a minimum interest rate of 6.5%. The line of credit is secured by the Companys accounts receivable and other Company
assets. See also Note 8-Legal.



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##### Table of Contents

SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5: INCOME TAXES

The Company was formally a wholly owned subsidiary of Bad Toys Holding Company, a Nevada corporation. The Company will file tax returns for 2006 as part of the consolidated group of Bad Toys Holding Company. Bad Toys Holding Company
currently has operating loss carry forwards that will offset the net earnings of the Company. In quarter ending March 31, 2007, the Company recognized tax obligations of $208,025. These obligations are offset on the Companys balance sheet
by amounts due from the parent company and are eliminated in consolidation.

Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes for operating losses that are available to offset future taxable income.



|                            |  |               |         |               |   |        
|--------------------------- |  | ------------- | ------- | ------------- | - | -------
|                            |  | (unaudited)   |         | (unaudited)  
|                            |  | March 31 2007 |         | March 31 2006
|Tax provision               |  | $             | 208,025 |               | $ | 440,881
|Tax Allowance               |  |               | 0       |               |   | 440,881
|Tax Benefit                 |  |               | 0       |               |   | 0      
|                            |  |               |         |               |   |        
|Tax Benefit/(Provision) Net |  | $             | 208,025 |               | $ | 440,881
|                            |  |               |         |               |   |        

The Company has a current year tax provision of $284,952, $274,025, $1,481,817, $0 and $0 at June 30, 2006
(unaudited) and 2005 (unaudited), December 31, 2005, 2004 and 2003, respectively. The amount is reduced by recognition of tax benefits from years prior to January 1, 2005. At December 31, 2004, the Company had a net operating loss
(NOL) carryforward of $966,397. The NOL created a deferred tax asset for the Company which was reduced by a valuation allowance as it could not be determined at December 31, 2004 that the Company would have sufficient profits to utilize the
benefit of the NOL.



|                         |  |               |   |               |   |  
|------------------------ |  | ------------- | - | ------------- | - | -
|                         |  | (unaudited)   |   | (unaudited)  
|                         |  | March 31 2007 |   | March 31 2006
|Deferred Tax Asset       |  | $             | 0 |               | $ | 0
|Valuation Allowance      |  |               | 0 |               |   | 0
|                         |  |               |   |               |   |  
|Deferred Tax Asset - Net |  | $             | 0 |               | $ | 0
|                         |  |               |   |               |   |  

NOTE 6: LEASES

Southland Health Services, Inc. leases local stations, communication tower space and equipment for its ambulance services. Most of the Company lease expense is for station locations and these leases are primarily for a period of one year or
less. The Company also leased ambulances and other equipment for use in its operations.

Future minimum lease payments are as follows:



|     |  |        |        
|---- |  | ------ | -------
|Year |  | Amount
|2007 |  | $      | 659,208
|2008 |  | $      | 43,977 
|2009 |  | $      | 43,977 
|2010 |  | $      | 0      
|2011 |  | $      | 0      



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##### Table of Contents

SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7: NOTES RECEIVABLE

Glenn Crawford, the previous Chief Executive Officer and majority shareholder of the Company issued the following promissory notes to Emergystat, Inc., a subsidiary of the Company: (1) a promissory note dated December 31, 2002
having an original principal balance of $702,568, (2) a promissory note dated December 31, 2003 having an original principal balance of $1,000,000, and (3) a promissory note dated December 31, 2003 issued by Crawford having an
original principal balance of $500,000 (each individually, a Crawford Note, and collectively, the Crawford Notes). In total, Glenn Crawford borrowed, in the aggregate, an original principal amount
of $2,202,568 from Emergystat, Inc. (the Original Borrowings). Prior to the acquisition of Southland Health Services, Inc. by Bad Toys Holdings, Inc., Glenn Crawford was the majority shareholder of Southland. He was also
the majority shareholder of Emergystat, Inc. and Emergystat of Sulligent, Inc. prior to their roll up into Southland. Mr. Crawford controlled all operations and activities as majority shareholder. Mr. Crawford received direct cash loans
and directed other payments for his personal benefit. These transactions were recorded as loans to Mr. Crawford in the records of the Company or its subsidiaries. Company auditors provided notes for Mr. Crawford to execute for the benefit
of the Company to document his transactions.

The Crawford Notes accrue interest at the prime rate of interest as reported in the Wall Street Journal and
are due and payable over the next ten years. Each Crawford Note anticipates that future advances will be made from time to time. Specifically, each Crawford Note provides that [this note] includes any future funds borrowed by Glenn Crawford.
The new debt will be added to the then existing balance. During the year ended December 31, 2005, the Company increased the outstanding balance of the Crawford Notes upon its discovery that certain amounts classified as other
assets and inter-company accounts on the Companys balance sheet were actually funds used by Mr. Crawford for his personal use or by non-affiliated entities controlled by Mr. Crawford. This reclassification resulted
in an increase of approximately $2,298,935 to the outstanding balance of the Crawford Notes. In addition, under Mr. Crawfords tenure, the Company had not accrued interest on the Crawford Notes. The Company now has properly accrued
interest on each Crawford Note, commencing on the date of issuance of each Crawford Note. Finally, as supplemental information, the Company currently maintains its operations center in Vernon, Alabama. The building is owned by Mr. Crawford. The
monthly rent for use of the facility is applied to the Crawford Notes. The monthly rent charged is $10,000. As of December 31, 2006 and March 31, 2007, the aggregate outstanding balances of the Crawford Notes were $5,736,940 and
$5,823,056, respectively.

NOTE 8: LEGAL MATTERS

The
Company operates in the health care industry, which by its nature is a litigious industry. Consequently, the Company is subject to frequent litigation and, at December 31, 2005, is a defendant in several lawsuits. The Company plans to
vigorously defend itself in all matters.

Pacific Capital, L.P. v. Emergystat, Inc., et al.On August 24, 2005, Pacific Capital,
LP (Pacific Capital) filed a complaint in the Law Court for Sullivan County at Kingsport, Tennessee, Civil Action No. C36478(M) naming eleven defendants, including the Company, our subsidiaries, Emergystat, Inc. and Southland Health
Services, LLC, and our parent company, Bad Toys Holdings, Inc. The complaint seeks to recover $874,437.44 (plus interest, costs, and attorneys fees) that Pacific Capital alleges it is owed under a Secured Promissory Note issued by Quality Care
Ambulance Service, Inc. (QCA) and Quality Transportation Services, Inc. (QTS) to Pacific Capital in the original principal amount of $1,100,000 (the Note). The complaint also seeks an award of punitive damages in
the amount of $3 million, or alternatively, an award of treble damages. The primary crux of Pacific Capitals complaint is centered around its allegations that Southland Health Services, LLC, assumed a debt owed to Pacific Capital by QCA in the
amount of $602,389.43 and that the Company and Bad Toys are liable to Pacific Capital under a successor-in-interest and/or merger/consolidation theory. Pacific Capital has asserted a total of twenty-two claims against the various defendants in the
case. Southland Health Services, LLC, Bad Toys Holdings, Inc., and the Company vigorously oppose the allegations and claims of Pacific Capital, and believe that no monies are owed to Pacific Capital by them. Pacific Capital voluntarily dismissed
Defendant Joseph Cerone from this case in March 2007. It is suspected that Defendant Cerone was dismissed so that Pacific Capital could obtain relief from the automatic stay imposed in the case by Defendant Cerones bankruptcy. Because he has
been dismissed from the case, Defendant Cerones previously-filed motion to consolidate this case with Bad Toys Holdings, Inc. v. Glenn Crawford, et al. is now moot. The Court recently held a scheduling conference with the parties,
during which a number of deadlines were set, including a jury trial date of September 15, 2008. An estimate cannot be made as to the likelihood of an adverse outcome and we cannot give nor estimate a range of possible loss.



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##### Table of Contents

SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Mississippi Division of Medicaid Investigation.On October 1, 2004, the Attorney General of
Mississippi, through its Medicaid Fraud Control Unit, initiated an investigation of the Companys subsidiary, Med Express of Mississippi, LLC (Med Express), regarding various billing issues including Leake County, Mississippi. The
period under review is from January 2000 through December 2004, which occurred prior to the acquisition of the Company by Bad Toys Holdings, Inc. The Company is contractually obligated by the county governments to provide Advance Life Support
(ALS) service in response to all calls it receives in the Mississippi counties in which it operates. Due to this, prior management billed the State of Mississippi at an ALS rate for each transport provided, even if a Basic Life Support
(BLS) service would have been sufficient under the circumstances. The State of Mississippi has taken the position that it should have been billed at a BLS rate if a BLS transport was provided, regardless of what type of service mandated
by the county. Due to these actions, the State of Mississippi has issued an assessment to the Company based on a statistical sample, which the Company believes contains multiple errors. The Company has hired an expert statistician to review the
findings of the State of Mississippi. The consultant and the State are working together to resolve the matters related to the statistical sample. An estimate cannot be made as to the likelihood of an adverse outcome and we cannot give and estimate a
range of loss. The Company continues to treat this matter very seriously and is working with the Attorney General to resolve this matter as expeditiously as possible. In addition, it now bills the State of Mississippi based on the type of service
provided and no longer bases its billing on the type of ambulance used to perform the service.

Emergystat of Sulligent, Inc. v. United States
Internal Revenue Service.The Internal Revenue Service has assessed Emergystat of Sulligent, Inc. (Sulligent), a subsidiary of the Company with a deficiency of approximately $2,800,000, inclusive of penalties and interest, for
the entitys failure to collect and remit employment taxes for the tax periods ended December 2000, December 2001, September 2002, December 2002, March 2003, December 2003, June 2004 and September 2004. On
May 18, 2005, the Internal Revenue Service issued its Notice of Determination Concerning Collection Action(s) under § 6320 and/or 6330. Pursuant to the notice, the Internal Revenue Service advised Sulligent that it would not be eligible
for collection alternatives and that the Internal Revenue Service could proceed to levy against Sulligents assets. On June 16, 2005, Sulligent filed a complaint against the United States in the United States District Court for the
Northern District of Alabama, case number 05-cv-01319, pursuant to 26 U.S.C. § 6330, requesting a review of the Internal Revenue Services collection actions. By the filing of this action, the Internal Revenue Service is stayed from taking
further collection actions against Sulligent, pending the disposition of the lawsuit. The government has filed a Motion for Summary Judgment, which, if granted, would result in the dismissal of the lawsuit. The Motion for Summary Judgment was
scheduled to be heard on August 21, 2006. On August 17, 2006, the government filed a motion asserting that cause exists under 26 U.S.C. § 6330(e)(1) to permit the Internal Revenue Service to levy while the action is pending, on the
grounds that Sulligent incurred substantial new unpaid employment tax liabilities after filing the district court action. The court found for the Internal Revenue Service, which may now levy upon the assets of Sulligent.

General Electric Capital Corporation v. Bad Toys Holdings, Inc. On or about March 6, 2006, GE Capital filed a complaint against our parent company,
Bad Toys Holdings, Inc. in the United States District Court for the District of Maryland, Civil Action No. 06-cv-559. GE Capitals complaint arose from the Tri-Party Agreement that GE Capital contends obligates Bad Toys to guarantee the
performance of Emergystat, Inc., a Mississippi corporation, Emergystat of Sulligent, Inc., an Alabama corporation, Extended Emergency Medical Services, Inc., an Alabama corporation, and Med Express of Mississippi, LLC, a Mississippi limited
liability company (collectively, the Borrower) under that certain Loan and Security Agreement dated April 30, 2003 by and among the Borrower and GE Capital (the GE Line of Credit) and the Borrowers payment of its
obligation to GE Healthcare Financial Services (the GE Healthcare Obligation) (the Guaranty). The GE Line of Credit is a $5,000,000 revolving line of credit with a term of two years and a minimum interest rate of 6.5% and is
secured by the Borrowers accounts receivables. Bad Toys responded to the complaint and filed affirmative defenses that, if successful, would have denied any relief in favor of GE Capital. On October 12, 2006, GE Capital moved for summary
judgment against Bad Toys, seeking at least $2 million on its claims. Both parties exchanged written discovery in the case, and the company deposed GECC. On February 26, 2007, the court heard oral arguments on GE Capitals motion for summary
judgment. After the hearing, the Court granted GE Capitals motion in part in the amount of $1,745,452 and deferred ruling on the balance of GE Capitals claims in the approximate amount of $532,000. A final hearing on the matter is
scheduled for June 11, 2007.



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##### Table of Contents

SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Bad Toys Holdings, Inc. v. Glenn Crawford, et al.; Glen Crawford, et al. v. Emergystat of Sulligent, et al.;
Glenn Crawford, et al. v. Bad Toys Holdings, Inc., et al. On December 12, 2005, our parent company, Bad Toys Holdings, Inc. filed a complaint in the Law Court for Sullivan County at Kingsport, Tennessee against Glenn Crawford, Joseph
Donovan, and Joe Cerone, the former shareholders of the Company, seeking, among other things, a purchase price adjustment under the Capital Stock Purchase Agreement entered into by the parties on February 4, 2005, by which Bad Toys purchased
all of the outstanding stock of the Company. The defendants misrepresented to Bad Toys the financial condition of the Company, thereby causing a significant inflation in the agreed upon purchase price. Bad Toys has asserted various claims, and with
the litigation, it expects to obtain at least a reduction in the purchase price of the Company. Bad Toys has also demanded compensatory and punitive damages.

Defendant Joseph Cerone was voluntarily dismissed from the case of Pacific Capital, L.P. v. Emergystat, Inc., et al.; therefore, his motion to consolidate the Pacific Capital case with this case is now moot. Defendant
Cerones bankruptcy filing has put an automatic stay on further proceedings in this matter.

In addition to the foregoing proceedings, the Company is
involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results
of operations or liquidity.

Other than those proceedings described above, neither the Company nor its property is a party to any known proceeding that a
governmental authority is contemplating.

NOTE 9: SHAREHOLDRES EQUITY

The Company had 300,000,000 shares authorized and 28,148,695 shares outstanding as of December 31, 2006 and March 31, 2007.

Preferred Stock

Mr. Lunan currently holds shares of preferred stock in Bad Toys Holdings, Inc. (Bad
Toys). The Company has approved the issuance of preferred shares with identical rights, preferences and designations to those preferred shares Mr. Lunan currently holds in Bad Toys.

NOTE 10: EMPLOYEE BENFITS

The Company maintains a 401(k) Profit
Sharing Plan (the Plan) that covers all eligible employees who have had at least one year of employment with the company. In accordance with the Plan, the Company may match a percentage of employee contributions determined at the end of
each Plan year on a discretionary basis by management of the Company. The Company has not paid any matching or discretionary payments for the periods reported.

NOTE 11: LETTER OF CREDIT

In September 2005, the Company entered into an agreement with BB & T (the bank) of Kingsport, TN whereas
the bank issued a letter of credit in the amount of $600,000.00 for the benefit of U.S Fire Insurance Company of Morristown, NJ as underlying collateral for the Companys workers compensation policy. This letter of credit is fully supported by
a CD in the amount of $600,000.00 which is held by the bank. In the third quarter of 2006, the Company increased this amount by $400,000 at the request of the Insurance Carrier whereas the total amount of the letters of credit and the CD which
serves as collateral for the letters of credit is $1,000,000. See also Note 12: Worker Compensation Insurance.



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##### Table of Contents

SOUTHLAND HEALTH SERVICES, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12: WORKER COMPENSATION INSURANCE

On June 21, 2005, the Company was issued a policy from U. S Fire Insurance Company of Morristown, NJ for workers compensation coverage. This policy ran from June 21, 2005 to June 20, 2006 and contains
per claim deductible amounts of $350,000.00 with an aggregate stop loss of $1,600,000.00. On June 22, 2006 the Company renewed this policy. This policy is supported by a $1,000,000 Letter of Credit issued by BB & T of Kingsport, TN.
The Letter of Credit is fully secured by a CD in the amount of $1,000,000 which is held by BB & T. The Company elected to increase it per claim deductibles after analysis of its past years historical claims in anticipation of lowered annual
cost of it workers compensation insurance. Historically, the Company had paid approximately $1.2 million dollars per annum for full workers compensation coverage. The Company believes that under the new plan structure it will realize significant
savings. Through June 30, 2006 or 12 months the Company had paid approximately $300,000 in policy administrative cost and approximately $215,000 in actual claim losses. On March 31, 2007, US Fire Insurance Company had reserved an additional
$229,000 as possible losses on pending claims for the plan year ending June 2006 and approximately $53,000 reserves for the current year plan.

The Company
renewed the policy on June 21, 2006 with U. S. Fire Insurance Company. The Company was required to supply a new Letter of Credit for the new policy year. As requirements for the renewal the Company provided $400,000 additional Letter of Credit
in the form of two equal increases to existing Letters of Credit of $200,000 each. The Company placed collateral in the form of a certificate of deposit as support for the $400,000 Letter of Credit obtained to cover the new policy year. The Company
funded the additional collateral through its operational cash flow.

Under this insurance program, we establish reserves, using actuarial estimates, for
all losses covered under the policies As such; we believe our estimates have been accurate in the past. We are not aware of anything that would likely cause these estimates to change materially. To the extent our losses exceed our collateral and
assets or the limits of our insurance policies; they will have to be funded by us. If we are forced to satisfy losses that exceed our policy limits we may be forced to liquidate certain material assets to satisfy these obligations. This would have a
material adverse effect on the Companys results of operations and financial condition.

NOTE 13: COMMON STOCK

Bad Toys Holdings, Inc., the 100% owner of Southland Health Services, Inc. (the Company) declared a stock dividend of .9825 shares of Southland Health Services, Inc. for
each Bad Toys Holdings, Inc. share issued and outstanding as of January 12, 2006. The purpose of this stock dividend was to affect the spin-off of 75% of the Company. In connection with this declaration, Bad Toys Holdings, Inc. authorized
300,000,000 common shares of Southland Health Services, Inc. carrying a par value of $.001, of which 28,148,695 will be outstanding post spin-off. The change became effective January 12, 2006 as directed by the Board of Directors of the
Company. The change in the capital structure has been given retroactive effect in the Balance Sheets of the Company. Subsequently, the Company has restated its earnings per share for the un-audited quarterly periods ended March 31, 2006, to
calculate those earnings per share, and restated the equity section of the balance sheet for the audited period ended December 31, 2006 and the un-audited period ended September 30, 2006 as if these shares had been outstanding at the
beginning of the periods reported.

NOTE 14: MERGERS AND ACQUISITIONS OF CERTAIN ASSETS

Effective March 23, 2007, Southland Health Services of Georgia, a wholly owned subsidiary of Southland Health Services, Inc. acquired certain assets and assumed certain
liabilities of Tri County Ambulance Service of Ellijay, GA for $1.0 million dollars in cash and notes. Under the purchase agreement, the former owner of Tri County Ambulance would receive an initial down payment of $.14 million and a five-year
convertible note payable in annual installments and carrying the interest rate of 6.5%. The balance of the purchase price is made up of the assumption of certain operating liabilities. The purchase price allocation was finalized during the quarter
ended March 31, 2007, and based on estimated fair values, is as follows (in thousands):



|                                               |  |   |       |  
|---------------------------------------------- |  | - | ----- | -
|Purchase consideration                         |  | $ | 1,000 |  
|Allocated to:                                  |  |   |       |  
|Accounts receivable                            |  | $ | 883   |  
|Prepaid supplies                               |  |   | 25    |  
|Property and equipment                         |  |   | 278   |  
|Identifiable intangible assets                 |  |   | 0     |  
|Accounts payable and other accrued liabilities |  |   | (186  | )
|                                               |  |   |       |  
|Total allocation                               |  |   | 1,000 |  
|                                               |  |   |       |  
|Goodwill                                       |  | $ | 0     |  
|                                               |  |   |       |  

Property and Equipment is primarily made up of ambulances with a estimated remaining useful life of 3-5 years.



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis or Plan of Operation
|------- | ---------------------------------------------------------

General

Southland Health Services, Inc., (Southland, we, us, or the Company) a Florida
corporation with corporate offices located in Vernon, Alabama and Kingsport, Tennessee, was formed in 2003 to provide health care services including emergency and non-emergency ambulance services. Ambulance services are offered under the trade name
Emergystat. Effective as of May 2, 2004, the Company acquired 100% of Emergystat, Inc. and Emergystat of Sulligent, Inc., and 100% of Southland Health Services, LLC. Southlands subsidiaries include Southland Health Services,
LLC, Emergystat, Inc., Emergystat of Sulligent, Inc., Med Express of Mississippi, LLC, and Extended EMS, Inc.

Changes in Financial Condition

Results of Operations

Comparison of Quarters
Ended March 31, 2007 and March 31, 2006.

Revenues. Revenues for the quarter ended March 31, 2007 were $8.1 million, compared to
$8.7 million for the quarter ended March 31, 2006, which represents a decrease of .6 million This decrease was attributable to the Company moving out of less profitable geographic areas it serves as well as lower run transport volume in
our 911 operations.

Operating Costs. Operating cost increased $.17 million for the quarter ended March 31, 2007 to $7.44 million when compared
to $7.27 for the quarter ended March 31, 2006. This increase was due principally to increase in wages, fuel costs and other operational costs. We have also incurred increased legal fees in connection with our defense of certain acquired
lawsuits set forth in greater detail in the section entitled Legal Proceedings. We also have incurred additional professional accounting and legal fees in connection with the preparation and filing of our Registration Statement on Form
S-1.

Other Income/ (Expense). Other Expense decreased $.07 million for the quarter ended March 31, 2007 to $.06 million, when compared to $.12
million for the quarter ended March 31, 2006. The decrease in other expense is primarily attributable to reduced interest expense incurred by the Company for the quarter. The decrease in interest expense is associated with reduced interest
expense and forbearance fees associated with the alleged default under the GE line of credit.

Net Income/Loss. Net Income decreased $.4 million for
the quarter ended March 31, 2007 to $.4 million, when compared to $.8 million for the quarter ended March 31, 2006. The decrease in net income is primarily attributable to an increase in direct wage cost caused by increases in overtime;
higher fuel and other operating cost; increased legal fees associated with the defense of certain acquired lawsuits and the filing of the S-1; and decreases in net revenue due to lower 911 call volume and the transition from certain non-performing
contracts.

Liquidity and Capital Resources

Cash and
cash equivalents were $.03 million and $.05 million as of March 31, 2007 and March 31, 2006, respectively. The Company requires cash to pay its operating expenses, make capital expenditures and service its debt and other long-term
liabilities. The Companys principal source of funds is from its operations. The Companys management believes that the Companys cash on hand and funds generated from operations will be sufficient to fund its ongoing operations, but
will not be sufficient to retire the full amount of the obligations asserted to be owing to the Internal Revenue Service and General Electric Capital Corporation (GE Capital). The Company is actively seeking external sources to satisfy
and restructure its debt and other long-term liabilities. 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. Even though the Company can sustain its current operations internally, in addition to obtaining an asset-based line of credit, the Companys financing
plans for 2007 also include raising additional capital through a private placement of its equity securities. If the Company cannot secure a funding source to retire the indebtedness to the IRS and GE Capital, it may be forced to file bankruptcy or
liquidate certain material assets to satisfy these debts. Either of



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##### Table of Contents

these alternatives would have a material adverse effect on the Companys results of operations and financial condition. Furthermore, although we believe
that our currently available working capital will be sufficient to continue our business for at least the next twelve (12) months, should our costs and expenses prove to be greater than we currently anticipate due to the unsuccessful outcome of
any of the legal proceedings described in this filing, or should we change our current business plan in a manner that will increase or accelerate our anticipated costs and expenses, such as through the acquisition of new product lines, the depletion
of our working capital would be accelerated. As noted above, we are seeking to secure a $10,000,000 asset-based line of credit. However, we cannot give you any assurance that we will be able to secure the additional cash or working capital we may
require to continue our operations.

The Company expects to continue its improved cash collections and intense management of collections over the next
twelve months. The Companys plans also include expansion via acquisition of ambulance service companies as well as additional new provider contracts.

Accounts Receivable. Effective March 23, 2007, Southland Health Services of Georgia, Inc., a wholly-owned subsidiary of the Company, acquired certain assets and assumed certain liabilities of Tri Country Ambulance Service of Ellijay,
Georgia for $1.0 million in cash and promissory notes. As a result of this transaction, the Company acquired approximately $883,000 in accounts receivable, contributing substantially to the increase in accounts receivable seen in the financial
statements which are a part of this report. This transaction also increased accounts payable by approximately $186,000.

Quarter ended March 31,
2007 and 2006

Operating Activities. Net cash provided by operating activities was $1.35 million for the quarter ended March 31, 2007,
compared to $1.18 million for the quarter ended March 31, 2006. Contributing to the cash provided from operating activities during the quarter ended March 31, 2007 was net income from continuing operations of $.43 million, offset by
depreciation and amortization of $.18 million, and changes in working capital of $.75 million

Investing Activities. Investing activities related to
continuing operations used $.87 million for the quarter ended March 31, 2007, compared to $.15 million for the quarter ended March 31, 2006. In the quarter ended March 31, 2007, we made capital expenditures of $.03 million, mainly for
ambulances as well as productivity improvements and for system and facility costs.

Financing Activities. In the quarter ended March 31, 2007,
financing activities used $.47 million of cash comprised of $.23 million for reduction in notes payable, $.43 million advanced to affiliates and $.19 million received from the majority shareholder. In the quarter ended March 31, 2006, financing
activities used $1.0 million of cash comprised of $.9 million for reduction in notes payable, and $.15 million advanced to affiliates.

Borrowing
Arrangements

Senior Secured Credit Facility. As part of, and as a condition to Bad Toys acquisition of the Company, on February 3, 2005,
Bad Toys allegedly guaranteed the performance of the Companys subsidiaries, Emergystat, Inc., a Mississippi corporation, Emergystat of Sulligent, Inc., an Alabama corporation, Extended Emergency Medical Services, Inc., an Alabama corporation,
and Med Express of Mississippi, LLC, a Mississippi limited liability company (collectively, the Borrower) under that certain Loan and Security Agreement dated April 30, 2003 by and among the Borrower and GE Capital (the GE Line of
Credit) and the Borrowers payment of its obligation to GE Healthcare Financial Services (the GE Healthcare Obligation) (the Guaranty). The GE Line of Credit is a $5,000,000 revolving line of credit with a term of
two years and a minimum interest rate of 6.5% and is secured by the Borrowers accounts receivables. The Borrower allegedly defaulted under both the GE Line of Credit and the GE Healthcare Obligation. As a result of the alleged default, GE
Capital has filed suit against Bad Toys seeking enforcement of its alleged guaranty of these obligations (for a further discussion, please see the section entitled Part II, Item 1, Legal Proceedings). On or about February 26, 2007, the
Court granted GE Capitals Motion for Summary Judgment against Bad Toys in part in the amount of $1,745,452 and deferred ruling on the balance of GE Capitals claims in the approximate amount of $532,000. A final hearing on the matter is
scheduled for June 11, 2007.

Since the GE Line of Credit was in forbearance at the time Bad Toys acquired Southland Health Services, Inc. in 2004, Bad
Toys had no borrowing capability under the GE Line of Credit in 2006. While Bad Toys is disappointed in the outcome of the litigation, it continues to believe that the short term impact on its cash flow will be positive as it currently does not have
the obligation to pay the excessive forbearance fees, legal fees, penalties, and interest it paid during fiscal 2005.

As previously stated, the Company is
in negotiations and if successful will enter into a new asset-based line of credit, whose proceeds in part will be used to satisfy the judgment obtained by GE Capital.



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Liquidity

The
Internal Revenue Service has assessed Emergystat of Sulligent, Inc. (Sulligent), a former subsidiary of the Company, with a deficiency of approximately $2,800,000, inclusive of penalties and interest, for the entitys failure to
collect and remit employment taxes for the tax periods ended December 2000, December 2001, September 2002, December 2002, March 2003, December 2003, June 2004 and September 2004. On May 18, 2005, the Internal Revenue Service issued its Notice of
Determination Concerning Collection Action(s) under § 6320 and/or 6330. Pursuant to the notice, the Internal Revenue Service advised Sulligent that it would not be eligible for collection alternatives and that the Internal Revenue Service could
proceed to levy against Sulligents assets. On June 16, 2005, Sulligent filed a complaint against the United States in the United States District Court for the Northern District of Alabama, case number 05-cv-01319, pursuant to 26 U.S.C. §
6330, requesting a review of the Internal Revenue Services collection actions. On March 7, 2007, the Court granted the Internal Revenue Services Motion for Summary Judgment and Motion to Permit Levy. As such, the Internal Revenue Service
may now levy on Sulligents assets to satisfy the above-described tax deficiencies.

In addition to the foregoing proceeding, the Internal Revenue
Service also assessed Sulligent with a deficiency of approximately $2,800,000, inclusive of penalties and interest, for the entitys failure to collect and remit employment taxes for the tax periods ended December 31, 2005 and March 31, 2006.
On July 5, 2006, the IRS sent Sulligent a Notice of Intent to Levy in connection with the assessment. Shortly thereafter, Sulligent filed a Collection Due Process request in response to the proposed levy. On October 19, 2006, the IRS issued its
Notice of Determination Concerning Collection Action(s) under § 6320 and/or 6330 in response to Sulligents Collection Due Process Request. Pursuant to the notice, the IRS advised Sulligent that it would not be eligible for collection
alternatives and that the IRS could proceed to levy against Sulligents assets. On November 20 2006, the period under which Sulligent could request a review of the IRSs collection actions expired. As such, the IRS also may levy
Sulligents assets to satisfy the above-described tax deficiencies.

In total, the Internal Revenue Service has assessed Sulligent with a deficiency
of approximately $5,800,000 and may levy Sulligents assets to satisfy this deficiency. The Company is treating this matter very seriously and is working aggressively with the Internal Revenue Service to resolve this matter. 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 this line to retire the indebtedness to the Internal Revenue Service and GE Capital. However, if the Company cannot
secure a funding source to retire the indebtedness to the IRS and the IRS proceeds to levy, Sulligent may be forced to file bankruptcy or liquidate certain material assets to satisfy these debts. Either of these alternatives would have a material
adverse effect on the Companys results of operations and financial condition.

Liquidity And Proposed Plans For The Next Twelve Months

The Companys management believes that the Companys cash on hand and funds generated from operations will be sufficient to fund its ongoing
operations throughout the upcoming year, but will not be sufficient to retire its outstanding obligations to the Internal Revenue Service and GE Capital. 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 this line to retire the indebtedness to the Internal Revenue Service and GE Capital. However, no assurances can be given as to the outcome of these negotiations.

The Company expects to identify from time to time, as part of its growth strategy, potential acquisition candidates and, depending on the size of the acquisition require
additional capital to be provided either through increases in an asset-based line of credit, various structured financing, or equity raises.

Contractual Obligations and Commercial Commitments

The following table describes our commitments to settle contractual obligations as of
March 31, 2007:



|                              |  |                                                      |       |                 |   |          |  |           |     |                   |     |  |    
|----------------------------- |  | ---------------------------------------------------- | ----- | --------------- | - | -------- |  | --------- | --- | ----------------- | --- |  | ---
|                              |  | Payments due by period (Amounts stated in thousands)
|                              |  | Total                                                |       | Less than1 year |   | 1-3years |  | 3-5 years |     | More than 5 years
|Notes payable-current         |  | $                                                    | 655   |                 | $ | 655      |  |           |     |                   |     |  |    
|Long-term debt                |  |                                                      | 2,866 |                 |   | 2,947    |  |           | 483 |                   | 90  |  |    
|Operating lease Obligations   |  |                                                      | 1,532 |                 |   | 692      |  |           | 360 |                   | 240 |  | 240
|Capital lease Obligations     |  |                                                      |       |                 |   |          |  |           |     |                   |     |  |    
|Purchase obligations          |  |                                                      |       |                 |   |          |  |           |     |                   |     |  |    
|Other Long-Term Liabilities   |  |                                                      |       |                 |   |          |  |           |     |                   |     |  |    
|Total contractual obligations |  | $                                                    | 5,053 |                 | $ | 4,294    |  | $         | 843 |                   | 330 |  | 240
|                              |  |                                                      |       |                 |   |          |  |           |     |                   |     |  |    



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Critical Accounting Policies and Estimates

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make significant estimates and
judgments which affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates, including those related to contingencies, on an ongoing basis. We base
our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities which are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Stock Based
Compensation

In December 2004, the FASB issued SFAS No.123 (revised 2004), Share-Based Payment. SFAS 123(R) will provide investors and
other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on
the fair value of the equity or liability instruments issued. SFAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee
share purchase plans. SFAS 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123, as originally issued
in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the
footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply SFAS 123(R) as of the
first interim or annual reporting period that begins after June 15, 2005. The Company has evaluated the impact of the adoption of SFAS 123(R), and does not believe that it will impact the Companys overall results of operations and
financial position.

Impairment or Disposal of Long-Lived Assets. In August 2001, the FASB issued Statement No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business.
We adopted the new standard on January 1, 2002; the adoption did not have an effect on our consolidated financial statements.



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In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial
instrument which is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after December 15, 2003. The adoption of this Statement is not expected to have a material effect on our financial statements.

Claims Liability and Professional Liability Reserves

We are self-insured up to certain limits for costs associated with
workers compensation claims, automobile, professional liability claims and general business liabilities. Reserves are established for estimates of the loss that we will ultimately incur on claims that have been reported but not paid and claims
that have been incurred but not reported. The reserves for workers compensation claims are based upon actuarial valuations that are prepared by our outside actuaries. The actuarial valuations consider a number of factors, including historical
claim payment patterns, changes in case reserves and the assumed rate of increase in healthcare. Our reserves for automobile, professional liability claims and general business claims are based on managements review of historical experience
and recent trends. Historical experience and recent trends are the most significant factors in the determination of these reserves. We believe the use of our methods to account for these reserves provides a consistent and effective way to measure
these subjective accruals. Our estimates and assumptions have been accurate in the past and our method of determining our estimates and assumptions has been applied consistently, except for a change in June 2005 when we converted to a self-insured
style program for workers compensation insurance. However, given the magnitude of the claims involved and the length of time until the ultimate cost is known, the use of any estimation technique in this area is inherently sensitive.
Accordingly, our recorded reserves could differ from our ultimate costs related to these claims due to changes in our accident reporting, claims payment and settlement practices or claims reserve practices, as well as differences between assumed and
future cost increases.

Trade and Other Accounts Receivable

Our internal billing operations have primary responsibility for billing and collecting our accounts receivable. We utilize various processes and procedures in our collection efforts depending on the payor
classification; these efforts include monthly statements, written collection notices and telephonic follow-up procedures for certain accounts. We write off amounts not collected through our internal collection efforts to our uncompensated care
allowance, and send these receivables to third party collection agencies for further follow-up collection efforts. Accounts are written off when they are classified as sent or to be sent to collection agencies. We acquired
software and expanded our internal collection efforts during the fourth quarter of 2006 and plan to continue to do so in 2007.

As we discuss further in
our Revenue Recognition policy below, we determine our allowances for contractual discounts and uncompensated care based on our information systems and financial models, including payor reimbursement schedules, historical write-off
experience and other economic data. We record our patient-related accounts receivable net of estimated allowances for contractual discounts and uncompensated care in the period in which we perform our services. We record gross fee-for-service
revenue and related receivables based upon established fee schedule prices. We reduce our recorded revenue and receivables for estimated discounts to patients covered by contractual insurance arrangements, and reduce these further by our estimate of
uncollectible accounts. We estimate our allowances for contractual discounts monthly utilizing our billing system information, and we write off applicable allowances when we receive net payments from third parties.

Our provision and allowance for contractual discounts and uncompensated care is based primarily on our historical collection and write-off activity. We believe the use
of our methods to account for these allowances provides a consistent and effective way to measure these subjective accruals, and, to date, our estimates and assumptions have been accurate. However, given the complexity in collecting receivables from
governmental agencies and private insurance carriers, the use of any estimation technique in this area is inherently sensitive. Accordingly, our accounts receivable could differ from the amounts we ultimately collect.



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The Company operates in Alabama, Florida, Louisiana, Tennessee, Virginia, Kansas, Georgia and Mississippi. Over 60% of
the Companys revenue consists of billings to Medicare and Medicaid and approximately 23% of the Companys billings are to private insurance accounts. As such, management believes the Companys overall credit risk is low and is
limited to those customers who are uninsured. Our uninsured patients, or uncompensated care, make up less than 17% of the Companys overall revenue.

Southland Health Services, Inc

Days Sales



|                     |  |               |  |              
|-------------------- |  | ------------- |  | -------------
|                     |  | March 31,2007 |  | March 31,2006
|Accounts Receivable  |  | 11,537,550    |  | 9,301,266    
|Sales for the period |  | 40,344,587    |  | 39,279,824   
|Avg days sales       |  | 110,533       |  | 107,616      
|Days Sales           |  | 104           |  | 86           

The days sales of accounts receivable was 104 days and 86 days at March 31, 2007 and March 31, 2006,
respectively.

Revenue Recognition

A
significant portion of our revenue is derived from Medicare, Medicaid, and private insurance payors that receive discounts from our standard charges (referred to as contractual provisions). Additionally, we are also subject to collection risk for
services provided to uninsured patients or for the deductible or co-pay portion of services for insured patients (referred to as uncompensated care). Medical transportation and related service fees are recognized when services are provided and are
recorded net of contractual discounts applicable to Medicare, Medicaid and other third party payors. Due to the complex healthcare reimbursement system and the length of the collection cycle with respect to medical transportation and related
services fees, it is necessary to estimate the amount of these discounts at the time revenue is recognized. The collectibility of these fees is analyzed using historical collection experience. Using collection data resident in our billing system, we
estimate the percentage of gross medical transportation and related services fees that will not be collected and record provisions for both discounts and doubtful accounts. The portion of the provision allocated to discounts is based on historical
write-offs relating to such discounts as a percentage of the related gross revenue recognized. The ratio is then applied to current period gross medical transportation and related services fees to determine the portion of the provision that will be
recorded as a reduction of revenue. The remaining amount is recorded as a provision for doubtful accounts. If the historical data used to calculate these estimates does not properly reflect the ultimate collectibility of the current revenue stream,
revenue could be overstated or understated. For example, third party payors are continuing their efforts to control expenditures for healthcare and may disallow, in whole or in part, claims for reimbursement based on determinations that certain
amounts are not reimbursable under plan coverage, were for services provided that were not determined medically necessary, or insufficient supporting information was provided. In addition, multiple payors with different requirements can be involved
with each claim. Discounts applicable to Medicare, Medicaid, and other third-party payors related to continuing operations, which are reflected as a reduction of medical transportation and related services revenue, totaled $3.2 million and
3.0 million as of March 31, 2007 and March 31, 2006, respectively. As a percentage of gross medical transportation and related services revenue, contractual discounts were 25.1% and 26.2%, for the quarters ended March 31, 2007 and
March 31, 2006, respectively.

Our estimates and assumptions have been accurate in the past. However, due to the inherent complexity of these
calculations, including the interpretation of governmental regulations and private insurance contract provisions, our actual revenues and net income and our accounts receivable, could vary from the amounts reported.

Income Tax Valuation Allowance

The Company has net deferred
tax assets resulting from net operating losses that will reduce taxable income in future periods. Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes requires that a valuation allowance be established
when it is more likely than not that all or a portion of net deferred tax assets will not be realized. A review of all



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available positive and negative evidence needs to be considered, including a companys recent financial performance, the market environment in which a
company operates, tax planning strategies and the length of the NOL carry-forward periods. Furthermore, the weight given to the potential effect of negative and positive evidence should be commensurate with the extent to which it can be objectively
verified. We routinely monitor the reliability of our deferred tax assets and liabilities. Changes in managements assessment of recoverability could result in additions to the valuation allowance, and such additions could be significant.

Contingencies

The Company is involved in a
number of lawsuits as described in Legal Proceedings. Management may not be able to make a reasonable estimate of liabilities that result from the final resolution of certain contingencies disclosed. Further assessments of the potential
liability will be made as additional information becomes available. Management currently does not believe that these matters will have a material adverse effect on our consolidated financial position. It is possible, however, that results of
operations could be materially affected by changes in managements assumptions relating to these matters or the actual final resolution of these proceedings.

Intangible Assets

Definite life intangible assets are subject to impairment reviews when evidence or triggering events suggest that
impairment may have occurred. Should such triggering events occur that cause us to review our definite life intangibles and the fair value of our definite life intangible asset proves to be less than our unamortized carrying amount, we would take a
charge to earnings for the decline. Should factors affecting the value of our definite life intangibles change significantly, such as declining contract retention rates or reduced contractual cash flows, we may need to record an impairment charge in
amounts that are significant to our financial statements.

Goodwill

Goodwill is not amortized and is required to be tested annually for impairment or more frequently if changes in circumstances, such as an adverse change to our business environment, cause us to believe that goodwill
may be impaired. Goodwill is allocated at the reporting unit level. If the fair value of the reporting unit falls below the book value of the reporting unit at an impairment assessment date, an impairment charge would be recorded. Should our
business environment or other factors change, our goodwill may become impaired and may result in charges to our income statements that are material.

Should our business environment or other factors change, our goodwill may become impaired and may result in charges to our income statements that are material.

Off Balance Sheet Arrangements

LETTER OF CREDIT

In September 2006, the Company entered into an agreement with BB & T (the bank) of Kingsport, TN whereas the bank issued a letter of credit in the amount of
$1,000,000.00 for the benefit of U.S Fire Insurance Company of Morristown, NJ as underlying collateral for the Companys workers compensation policy. This letter of credit is fully supported by a CD in the amount of $1,000,000.00 which is held
by the bank.

WORKERS COMPENSATION INSURANCE

On June 21, 2006, the Company was issued a policy from U. S Fire Insurance Company of Morristown, NJ for workers compensation coverage. This policy is to run from June 21, 2006 to June 20, 2007 and contains per claim
deductible amounts of $350,000 with an aggregate stop loss of $1,600,000. This policy is supported by a $1,000,000 Letter of Credit issued by BB & T of Kingsport, TN. The Letter of Credit is fully secured by a CD in the amount of $1,000,000
which is held by BB & T. The Company elected to increase its per claim deductibles after analysis of its past years historical claims in anticipation of lowered annual cost of its workers compensation insurance. Historically, the Company
had paid approximately $1.2 million dollars per annum for full workers compensation coverage. Through December 31, 2006 or 12 months the Company had paid approximately $372,000 in policy administrative cost and approximately $210,000 in actual
claim losses. On June 30, 2006, US Fire Insurance Company had reserved an additional $250,000 as possible losses on pending claims.



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Under this insurance program, we establish reserves, using actuarial estimates, for all losses covered under the policies
As such, we believe our estimates have been accurate in the past. We are not aware of anything that would likely cause these estimates to change materially. To the extent our losses exceed our collateral and assets or the limits of our insurance
policies, they will have to be funded by us. If we are forced to satisfy losses that exceed our policy limits we may be forced to liquidate certain material assets to satisfy these obligations. This would have a material adverse effect on the
Companys results of operations and financial condition.

Preferred Stock

Mr. Lunan currently holds shares of preferred stock in Bad Toys Holdings, Inc. (Bad Toys). The Company has approved the issuance of preferred shares with identical rights, preferences and
designations to those preferred shares Mr. Lunan currently holds in Bad Toys.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

Commodity Price Risk

We are exposed to an increase in the price of refined fuels, principally diesel fuel. We use approximately 50,000
gallons of diesel fuel per month, or 600,000 gallons per year. An increase or decrease in diesel fuel costs will affect our operating expenses. For comparative purposes, for every $0.50 per gallon increase, our operating costs per year will increase
by approximately $300,000 per year based on our current fuel consumption. In order to offset the rising costs of fuel, the Company is in negotiations with certain counties in which it operates to help subsidies the fuel costs as well developing
efficiency plans with crews and dispatch for travel routes and use of vehicles.



|Item 4. | Controls and Procedures
|------- | -----------------------

Developing Disclosure Controls and
Procedures

The Companys Chief Executive and Chief Financial Officer is devoting effort to continue to develop and
implement a system of disclosure controls and procedures to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management and its officers, as
appropriate, to allow timely decisions regarding required disclosure.

Managements Conclusions as to Effectiveness of Disclosure Controls and
Procedures

The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending March 31, 2007 covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange
Act. This conclusion by the Companys Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after March 31, 2007.

The Company has limited working capital and has maintained minimal staffing in the financial and administrative areas. This limits the overall checks and balances in the system of financial controls.

Changes in Internal Controls over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, in order to move toward establishing an effective internal control
environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes. During the first quarter of fiscal year 2007, there have been no changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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Inherent Limitations of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are
met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.

PART II OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

Pacific Capital, L.P. v. Emergystat, Inc.,
et al.On August 24, 2005, Pacific Capital, LP (Pacific Capital) filed a complaint in the Law Court for Sullivan County at Kingsport, Tennessee, Civil Action No. C36478(M) naming eleven defendants, including the Company and
its subsidiaries, Emergystat, Inc. and Southland Health Services, LLC, and Bad Toys Holdings, Inc. (BTH), which formerly owned a majority of the Companys stock. The complaint seeks to recover $874,437.44 (plus interest, costs, and
attorneys fees) that Pacific Capital alleges it is owed under a Secured Promissory Note issued by Quality Care Ambulance Service, Inc. (QCA) and Quality Transportation Services, Inc. (QTS) to Pacific Capital in the
original principal amount of $1,000,000 (the Note). The complaint also seeks an award of punitive damages in the amount of $3 million, or alternatively, an award of treble damages. The primary crux of Pacific Capitals complaint is
centered on its allegations that Southland Health Services, LLC, assumed a debt owed to Pacific Capital by QCA in the amount of $602,389.43 and that the Company and BTH are liable to Pacific Capital under a successor-in-interest and/or
merger/consolidation theory. Pacific Capital has asserted a total of twenty-two claims against the various defendants in the case. Southland Health Services, LLC, the Company, and BTH vigorously oppose the allegations and claims of Pacific Capital
and believe that no monies are owed to Pacific Capital by them. Pacific Capital voluntarily dismissed Defendant Joseph Cerone from this case in March 2007. It is suspected that Defendant Cerone was dismissed so that Pacific Capital could obtain
relief from the automatic stay imposed in the case by Defendant Cerones bankruptcy. Because he has been dismissed from the case, Defendant Cerones previously-filed motion to consolidate this case with Bad Toys Holdings, Inc. v. Glenn
Crawford, et al. is now moot. The Court recently held a scheduling conference with the parties, during which a number of deadlines were set, including a jury trial date of September 15, 2008. An estimate cannot be made as to the likelihood of an
adverse outcome and we cannot give nor estimate a range of possible loss.

Mississippi Division of Medicaid Investigation. On October 1,
2004, the Attorney General of Mississippi, through its Medicaid Fraud Control Unit, initiated an investigation of the Companys subsidiary, Med Express of Mississippi, LLC (Med Express), regarding various billing issues including
Leake County, Mississippi. The period under review is from January 2000 through December 2004, which occurred prior to the acquisition of the Company by Bad Toys Holdings, Inc. The Company is contractually obligated by the county governments to
provide Advance Life Support (ALS) service in response to all calls it receives in the Mississippi counties in which it operates. Due to this, prior management billed the State of Mississippi at an ALS rate for each transport provided,
even if a Basic Life Support (BLS) service would have been sufficient under the circumstances. The State of Mississippi has taken the position that it should have been billed at a BLS rate if a BLS transport was provided, regardless of
what type of service mandated by the county. Due to these actions, the State of Mississippi has issued a draft assessment to the Company based on a statistical sample, which the Company believes contains multiple errors. The Company has hired an
expert statistician to review the findings of the State of Mississippi. The consultant and the State are working together to resolve the matters related to the statistical sample. An estimate cannot be made as to the likelihood of an adverse outcome
and we cannot give and estimate a range of loss. The Company continues to treat this matter very seriously and is working with the Attorney General to resolve this matter as expeditiously as possible. In addition, it now bills the State of
Mississippi based on the type of service provided and no longer bases its billing on the type of ambulance used to perform the service.

Emergystat
of Sulligent, Inc. v. United States Internal Revenue Service. The Internal Revenue Service has assessed Emergystat of Sulligent, Inc. (Sulligent), a subsidiary of the Company, with a deficiency of approximately $2,800,000,
inclusive of penalties and interest, for the entitys failure to collect and remit employment taxes for the tax periods ended December 2000, December 2001, September 2002, December 2002, March 2003, December
2003, June 2004 and September 2004. On May 18, 2005, the Internal Revenue Service issued its Notice of



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Determination Concerning Collection Action(s) under § 6320 and/or 6330. Pursuant to the notice, the Internal Revenue Service advised Sulligent that it
would not be eligible for collection alternatives and that the Internal Revenue Service could proceed to levy against Sulligents assets. On June 16, 2005, Sulligent filed a complaint against the United States in the United States District
Court for the Northern District of Alabama, case number 05-cv-01319, pursuant to 26 U.S.C. § 6330, requesting a review of the Internal Revenue Services collection actions. By the filing of this action, the Internal Revenue Service was
stayed from taking further collection actions against Sulligent, pending the disposition of the lawsuit. The government has filed a Motion for Summary Judgment, which, if granted, would result in the dismissal of the lawsuit. The Motion for Summary
Judgment was heard on August 21, 2006. On August 17, 2006, the government filed a motion asserting that cause exists under 26 U.S.C. § 6330(e)(1) to permit the Internal Revenue Service to levy while the action is pending, on the
grounds that Sulligent incurred substantial new unpaid employment tax liabilities after filing the district court action. The Court found for the Internal Revenue Service, which may levy upon the assets of Sulligent.

General Electric Capital Corporation v. Bad Toys Holdings, Inc. On or about March 6, 2006, GE Capital filed a complaint against our parent company,
Bad Toys Holdings, Inc. in the United States District Court for the District of Maryland, Civil Action No. 06-cv-559. GE Capitals complaint arose from the Tri-Party Agreement that GE Capital contends obligates Bad Toys to guarantee the
performance of Emergystat, Inc., a Mississippi corporation, Emergystat of Sulligent, Inc., an Alabama corporation, Extended Emergency Medical Services, Inc., an Alabama corporation, and Med Express of Mississippi, LLC, a Mississippi limited
liability company (collectively, the Borrower) under that certain Loan and Security Agreement dated April 30, 2003 by and among the Borrower and GE Capital (the GE Line of Credit) and the Borrowers payment of its
obligation to GE Healthcare Financial Services (the GE Healthcare Obligation) (the Guaranty). The GE Line of Credit is a $5,000,000 revolving line of credit with a term of two years and a minimum interest rate of 6.5% and is
secured by the Borrowers accounts receivables. Bad Toys has responded to the complaint and filed affirmative defenses that, if successful, would deny any relief in favor of GE Capital. On October 12, 2006, GE Capital moved for summary
judgment against Bad Toys, seeking at least $2 million on its claims. Both parties exchanged written discovery in the case, and the Company deposed GECC. On February 26, 2007, the Court heard oral argument on GE Capitals motion for
summary judgment. After the hearing, the Court granted GE Capitals motion in part in the amount of $1,745,452, and deferred ruling on the balance of GE Capitals claims in the approximate amount of $532,000. A final hearing on
the matter is scheduled for June 11, 2007.

Bad Toys Holdings, Inc. v. Glenn Crawford, et al.; Glen Crawford, et al. v. Emergystat of Sulligent,
et al.; Glenn Crawford, et al. v. Bad Toys Holdings, Inc., et al.On December 12, 2005, Bad Toys Holdings, Inc., which formerly owned the majority of the stock of the Company, filed a complaint in the Law Court for Sullivan County at
Kingsport, Tennessee against Glenn Crawford, Joseph Donovan, and Joe Cerone, the former shareholders of the Company, seeking, among other things, a purchase price adjustment under the Capital Stock Purchase Agreement entered into by the parties on
December 26, 2004, by which Bad Toys purchased the outstanding stock of the Company. The defendants misrepresented to Bad Toys the financial condition of the Company, thereby causing a significant inflation in the agreed upon purchase price.
Bad Toys has asserted various claims, and with the litigation, it expects to obtain at least a reduction in the purchase price of the Company. Bad Toys has also demanded compensatory and punitive damages. Defendant Joseph Cerone was voluntarily
dismissed from the case of Pacific Capital, L.P. v. Emergystat, Inc., et al.; therefore, his motion to consolidate the Pacific Capital case with this case is now moot. Defendant Cerones bankruptcy filing has put an automatic stay
on further proceedings in this matter.

In addition to the matters described above, the Internal Revenue Service assessed Emergystat of Sulligent, Inc.,
our subsidiary, with a deficiency of approximately $2,800,000, inclusive of penalties and interest, for the entitys failure to collect and remit employment taxes for the tax periods ended December 31, 2005 and March 31, 2006. On July 5, 2006,
the IRS sent Sulligent a Notice of Intent to Levy in connection with the assessment. Shortly thereafter, Sulligent filed a Collection Due Process request in response to the proposed levy. On October 19, 2006, the IRS issued its Notice of
Determination Concerning Collection Action(s) under § 6320 and/or 6330 in response to Sulligents Collection Due Process Request. Pursuant to the notice, the IRS advised Sulligent that it would not be eligible for collection alternatives
and that the IRS could proceed to levy against Sulligents assets. On November 20 2006, the period under which Sulligent could request a review of the IRSs collection actions expired. As such, the IRS also may levy Sulligents assets
to satisfy the above-described tax deficiencies.

Other than those proceedings described above, neither the Company nor our property is a party to any
known proceeding that a governmental authority is contemplating.

Other than as described above, this disclosure does not cover levies or other
administrative actions taken by the United States Internal Revenue Service or state departments of revenue.



|Item 1A. | Risk Factors
|-------- | ------------

An investment in our common shares involves a high
degree of risk and is subject to many uncertainties. These risks and uncertainties may adversely affect our business, operating results and financial condition. In order to attain an appreciation for these risks and uncertainties, investors should
read the risk factors included in our annual report on Form 10-K, filed with the United States Securities and Exchange Commission on April 17, 2007 (the Annual Report), in their entirety and consider all of the information and
advisements contained therein. There have been no material changes to the risk factors dislosed in our Annual Report.





|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

Unregistered Sales of Equity Securities

Other than sales previously reported, there were no unregistered sales of equity securities during
the fiscal quarter ended March 31, 2007.



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##### Table of Contents

Issuer Purchases of Equity Securities

The Company did not repurchase any equity securities during the fiscal quarter ended March 31, 2007.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Other than as described in the
section of this filing titled Legal Proceedings, there have been no material defaults in the paying of interest or principal.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------



|         |  |                                                                                                                                                                                                                                                                                        
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits |  |                                                                                                                                                                                                                                                                                        
|*2.2     |  | Form of Common Stock Exchange Agreement dated May 2, 2004 by and among Southland Health Services, Inc. and the shareholders of Emergystat, Inc. and Emergystat of Sulligent,
Inc.                                                                                                      
|         | 
|*2.3     |  | Form of Asset Purchase Agreement dated May 2, 2004 by and among Southland Health Services, LLC and Quality Care Ambulance Services, Inc.                                                                                                                                               
|         | 
|*2.1     |  | Form of Contribution and Stock Agreement dated May 2, 2004 by and among Southland Health Services, Inc. and Roy Joseph Cerone, as sole member of Southland Health Services, LLC.                                                                                                       
|         | 
|*2.4     |  | Agreement of Merger and Plan of Reorganization dated May 24, 2006 by and among Southland Health Services, Inc., a Delaware corporation and Southland Health Services, Inc., a Florida
corporation.                                                                                     
|         | 
|*3.1     |  | Certificate of Incorporation of Southland Health Services, Inc.                                                                                                                                                                                                                        
|         | 
|*3.2     |  | Articles of Incorporation of Southland Health Services, Inc.                                                                                                                                                                                                                           
|         | 
|*3.3     |  | By-Laws of Southland Health Services, Inc.                                                                                                                                                                                                                                             
|         | 
|**10.1   |  | Loan and Security Agreement dated April 30, 2003 by and between Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, and
General Electric Capital Corporation, Inc.                                             
|         | 
|*10.2    |  | Form of Tri Party Agreement dated February 3, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad
Toys Holdings, Inc. and General Electric Capital Corporation, Inc.                     
|         | 
|*10.3    |  | Form of Restructuring Agreement dated March 18, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad
Toys Holdings, Inc. and General Electric Capital Corporation, Inc.                   
|         | 
|*10.4    |  | Form of Amendment No. 1 to Restructuring Agreement dated April 29, 2005 by and among Emgerystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of
Mississippi, LLC, Bad Toys Holdings, Inc. and General Electric Capital Corporation, Inc.
|         | 
|*10.5    |  | Form of Forbearance Agreement dated May 31, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad Toys
Holdings, Inc. and General Electric Capital Corporation, Inc.                       
|         | 
|*10.6    |  | Form of Second Forbearance Agreement dated July 15, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC,
Bad Toys Holdings, Inc. and General Electric Capital Corporation, Inc.               
|         | 
|*10.7    |  | Form of Indemnification Agreement dated July 15, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad
Toys Holdings, Inc. and General Electric Capital Corporation, Inc.                  
|         | 
|*10.8    |  | Third Forbearance Agreement dated September 1, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad
Toys Holdings, Inc. and General Electric Capital Corporation, Inc.                    
|         | 
|*10.9    |  | Fourth Forbearance Agreement dated October 1, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad
Toys Holdings, Inc. and General Electric Capital Corporation, Inc.                     
|         | 
|*10.10   |  | Fifth Forbearance Agreement dated November, 2005 by and among Emergystat, Inc., Emergystat of Sulligent, Inc., Extended Emergency Medical Services, Inc. Med Express of Mississippi, LLC, Bad Toys
Holdings, Inc. and General Electric Capital Corporation, Inc.                       



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##### Table of Contents

|         |  |                                                                                                                                                          
|-------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|**10.11  |  | Employment Agreement by and between Southland Health Services, Inc. and T. Alan Walls dated July 29, 2004.                                               
|         | 
|**10.12  |  | Promissory note issued by Glenn Crawford to Emergystat, Inc. dated December 31, 2002 in the original principal amount of $702,568.                       
|         | 
|**10.13  |  | Promissory note issued by Glenn Crawford to Emergystat, Inc. dated December 31, 2003 in the original principal amount of $1,000,000.                     
|         | 
|**10.14  |  | Promissory note issued by Glenn Crawford to Emergystat, Inc. dated December 31, 2003 in the original principal amount of $500,000.                       
|         | 
|***10.15 |  | Interest Bearing Demand Line of Credit Promissory Note issued by the Company to Larry Lunan on December 28, 2006.                                        
|         | 
|*21.1    |  | List of consolidated entities of the Company.                                                                                                            
|         | 
|****31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
|         | 
|****31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
|         | 
|****32.1 |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.       
|         | 
|****32.1 |  | Certification of Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|         | 
|****99.1 |  | Risk Factors incorporated by reference into Part II  Item 1A of this report.                                                                            

---

|* | Previously filed as an Exhibit to the Registration Statement on Form S-1 filed with the Securities and Exchange Commission on June 7, 2006
|- | ------------------------------------------------------------------------------------------------------------------------------------------

|** | Previously filed as an Exhibit to the Registration Statement on Amendment No. 1 to Form S-1 filed with the Securities and Exchange Commission on October 13, 2006.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Previously filed as an Exhibit to the Registration Statement on Amendment No. 5 to Form S-1 filed with the Securities and Exchange Commission on December 29, 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|**** | Filed herewith.
|---- | ---------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



SOUTHLAND HEALTH SERVICES, INC.By

/s/ Larry N. LunanLarry N. LunanPresident and Chief Executive OfficerDate: May 21, 2007




27