Newsletter

July 21, 2004

Volume V, Issue 69

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To OTC Journal Members:

Family Room (OTC BB: FMLY) Going Debt Free: Sets The Table for Profits

I haven't written any editions on Family Room recently, so today's post close news release is providing an opportunity to bring everyone up to date.

This is the only company I am continuing to cover which didn't provide any significant move up in the March 2003 to March 2004 bull run. Nevertheless, I continue to be compelled by the upside potential if and when the company ever produces a big movie hit. It looks like 2004 will be their first profitable year just from production fees, which greatly reduces the downside risk.

Today, just after the market closed, Family Room announced it will eradicate all debt from its balance sheet in August (about $400,000). There are two pending revenue events for the company: Production kicks off on Submerged starring Steven Seagal, and they receive a one time, no cost fee from Dimension Films when they begin filming the remake of Amityville Horror.

As the company has stated in past press releases, they expect to operate cash flow positive in fiscal 2005, which began this past July 1st. In fact, in discussions with management, I have learned they anticipate Family Room will produce 10 movies in fiscal 2005. Three have already been signed which go into production before the end of the calendar year. Two are scheduled for early next year. Therefore, they are already half way to their goal.

Proceeds from the August revenues will be used to eradicate all long term debt. This move doesn't really do anything for the upside potential. However, it definitely mitigates the downside risk.

If there is no debt, there is no interest expense. If they operate cash flow positive from operations and have no debt, they can be around for a very long time without raising any additional capital. The fallout from the equity capital they raised in 2003 is what has killed the stock performance in 2004.

The movie Edison, starring Justin Timberlake, Morgan Freeman, Kevin Spacey, and LL Cool J, is now in post production. The early viewings are generating some real excitement, and Family Room is fairly confident the film will be picked up by a major studio for distribution.

I have been doing some homework on the technical side. As I have written in a number of past editions, the excess supply of stock, providing by last year's toxic financing, has damaged the upside potential for all of 2004. In short, I think the bad guys are down to their last few shares.

I believe the market is very close to absorbing this significant overhang, which could lead to higher levels in the near future. Note on the chart that volume has dried up considerably over the past several weeks. Recently, some of the companies I follow have bounced off very oversold conditions (i.e. AMW, NWIS, VTSI, and HYPD). Family Room could be getting ready to join the party. After all, the company feels it is in a position to generate profits off production fees alone in fiscal 2005. If they have a big hit, look out above.

Here is the complete text of today's news release for your review:

Wednesday, July 21, 2004 @ 4:00pm (Pacific)

Family Room Pushes Up Debt Free Projections

Wednesday, July 21, 2004, Los Angeles, CA: Emmett/Furla Films, a wholly owned subsidiary of Family Room Entertainment Corporation (NASDAQ OTC BB: FMLY), is pleased to announce that it anticipates being debt free by August 15, 2004. Family Room had originally planned to have all corporate debt removed from the corporate balance sheet by December 31, 2004. However, in light of the income that is projected for the first quarter of Fiscal 2005, Family Room anticipates being able pay off all corporate debt-to zero.

The announcement is based, in part, on the income from two forthcoming projects AMITYVILLE and SUBMERGED. AMITYVILLE is slated to begin filming on August 2, 2004, which will trigger payment to Emmett/Furla Films (Emmett/Furla Films has already been guaranteed this payment by means of being “pay-or-play”). SUBMERGED is also scheduled to begin principal photography on August 2, 2004 and thus, payment will also begin in connection with this project.

Family Room Entertainment Corporation, with its subsidiaries, Emmett Furla Films Productions, Emmett Furla Films Distribution and EFF Independent, is a publicly held company trading on the NASDAQ Bulletin Board under the symbol “FMLY”. Family Room Entertainment develops, produces and performs production related services for the entertainment industry. Family Room Entertainment’s aim is to create and produce high quality motion pictures with high profile talent that can be distributed to a worldwide audience. FMLY derives its income from producer fees, consulting and service fees as well as its participation in the profits of the various pictures it produces.

The FMLY co-founders, Randall Emmett and George Furla, believe that they have the expertise and contacts within the entertainment industry, specifically in the competitive production and distribution arenas, to profitably acquire content, package product by adding value to the content with top quality talent and produce motion pictures which are in the moderate to higher level budgets, which can be distributed to a mass worldwide audience. However, there is no assurance that any motion picture, which has not yet been released, will be released, that a change in the scheduled release dates of any such films will not occur or, if such motion picture is released, it will be successful.

Forward Looking Statement:
Safe Harbor: Statements contained in this news release, which is not historical facts, are forward-looking statements as that are defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties, which could cause results to differ materially from those, projected
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "ACT"). In particular, when used in the preceding discussion, the words "plan," "confident that," "believe," "expect," "intend to" and similar conditional expressions are intended to identify forward- looking statements within the meaning of the ACT and are subject to risks and uncertainties, and actual results could differ materially from those expressed in any forward-looking statements. Such risks and uncertainties include, but are not limited to, market conditions, competitive factors, the ability to successfully complete additional financings and other risks.

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