Family Room Entertainment (OTC BB: FMLY); 2005 Should Be a Breakout Year
Family Room has not joined the post summer rebound party yet, but it's still early in the game. The best moves generally come after the third week in October. The stock, which started 2004 at $.105, jumped up a little in the first quarter, but has been in the doldrums ever since. It currently trades between $.07 and $.08 as if it were asleep.
As of the end of June there were 87 million shares issued and outstanding, equating to a $6.5 million market valuation. Family Room engaged in several toxic equity financings in 2003, and the dilutive effect of excess supply is being felt in the stock to this day.
FMLY, through wholly owned subsidiary Emmett/Furla Productions, is an independent film producer. The company has produced dozens of movies, most of which went straight to cable. Their revenues have come from producer fees which only amount to several hundred thousand dollars per movie. The upside is in the producer profits the company could make off a hit movie.
Emmett/Furla is beginning to prosper in a meaningful way. In the spring they finished production on Edison, starring Kevin Spacey, Morgan Freeman, Justin Timberlake, and LL Cool J. The film is in post production right now. FMLY is getting ready to show the film to potential distributors. The film should show up in movie theaters in the late Spring or early Summer of next year. If the film eclipses $40 million at the box office, FMLY stands to make substantial money from producer profits.
88 minutes, starring Al Pacino, is scheduled to begin production in January. This film is a major breakthrough for the company. For the first time in the history, Family Room will have box office bonuses. In the past, Family Room has only had a percentage of the producer profits, which can be an elusive result. On this film, Family Room will have bonus payments as the film hits certain box office performance levels. No profit calculation is required. Therefore, the upside for shareholders on this one is much enhanced.
Friday, after the market closed, Family Room announced it will begin production on another Steven Seagal movie. They just wrapped up production on one Seagal movie, and are already beginning work on another.
They are currently producing a previously undisclosed movie starring Snoop Dog- details to be disclosed at a future time. Family Room has not publicized the film, but it has been reported on in Variety.
Family Room expects to go into production on approximately seven new movies in the first half of 2005. These projects have not been formally announced. Several have scripts, budgets, and directors. Commitments are being solicited from the prospective cast members, and the names being discussed take the company to a whole new level.
The American Film Markets Convention takes place the first week of November. At the convention, Family Room will be disclosing the number and scope of the films it plans to produce in the first half of 2005. We will then learn the details of 2005's calendar.
The chart you see tracks the performance of FMLY in 2004. The formation is known as a "Regression Channel". This stock needs to reverse course and break out of this long term bearish regression channel. A solid break above the blue line would be very bullish.
I believe three factors are working in our favor. First, the toxic supply of stock which has been plaguing this particular issue has been mostly absorbed by the market. Volume like we had in the first quarter should send the stock back up. The caveat- there have been technical disappointments in the past and my track record is poor on this stock.
Second, the size, scope, and talent associated with the slate of new films scheduled for next year should bring some interest to the stock.
Third, FMLY has publicly stated it will turn cash flow positive off operations from producer fees alone in fiscal 2005 (it started July 1). This means the company doesn't need to engage in any more toxic financings.
In short, I believe long suffering shareholders are on the brink of seeing a recovery. For you penny stock lovers, look for FMLY to follow the likes of NWKI, VTSI, and HYPD over the next month.
