To OTC Journal Members:
 

Family Room (OTC BB: FMLY) Sticks With Horror Genre For Big Box Office

In keeping with the red hot horror remake box office bonanzas, Family Room announced Friday it had acquired both the rights and the financing to remake the 1985 horror classic "Day of the Dead".

This announcement comes on the heels of the phenomenal box office success of the remake of Amityville Horror. Those of you who follow Family Room know the company had the rights to the film and sold them to Dimension Films. Amityville has already delivered $60 million at the box office. Family Room received a one time payment for the rights last year, and does stand to make some additional residuals from the film. In addition, Family Room still owns the rights to three additional sequels. As Amityville has become a brand, I believe it is highly likely Dimension will be back for a sequel, and will no doubt pay more for the rights.

Financing for "Day of the Dead"has already been arranged, so the picture will be made. The writer, director, and cast will be announced at some point in the future.

I believe we will look back on the first half of 2005 as one of the most frustrating time periods imaginable. OTC Journal followings are delivering outstanding results, but stocks are going nowhere or down.

Family Room may be the most frustrating example of all. The stock opened the year at $.075. If I had told you on January 1 that FMLY would be producing the following films in 2005 long before any one else knew about it, where would you have guessed the stock would be trading by now?

• "LONELY HEARTS," starring John Travolta, James Gandofini and Salma Hayek
• "MERCENARY," starring Steven Seagal
• "16 BLOCKS," starring Bruce Willis for director Richard Donner ("LETHAL WEAPON")
• "THE CONTRACT," starring John Cusack and Academy Award winner Morgan Freeman with Academy Award Nominee Bruce Beresford directing
• "SATURDAY NIGHT SPECIAL," starring DMX
• "THE WICKER MAN," starring Nicolas Cage for director Neil LaBute ("IN THE COMPANY OF MEN")

Every single one of these films offers FMLY the opportunity to enjoy millions in box office residuals. FMLY is like a biotech company with a full pipeline and number of new drugs in Stage II clinical trials.

Yet, when we look at a chart of the stock in 2005, there is not one thing I can honestly say that is technically positive about this stock. Like Amityville, it is a horror picture. It continues to make a series of lower lows with no end in sight.

To add to the technical woes of FMLY, there could be additional significant dilution coming in the near future. FMLY's $1.9 million financing in December was achieved with convertible debt. The shares underlying the debt are not free trading at this time, but are in registration and close to becoming free trading. 

The financing is structured as five year debt to be paid in 60 monthly installments. The monthly payment can be made in either stock or cash. The conversion price of the shares have a ceiling of $.15, meaning the financier has an opportunity to make a much greater return if the stock trades above $.15.

If FMLY chooses to pay the monthly installments in cash, there will be no dilution. Therefore, it is impossible to predict how this financing will effect the stock. 

On the plus side, Emmett/Furla productions is becoming the premier independent film production company in Hollywood. They are mentioned in the Hollywood Reporter and Variety nearly every day, and have a number of new projects in the pipeline. They are working on a five picture deal with a huge name, another three picture deal with a nearly equally big name, and a partnership with a financier who will pick up the promotion costs of their films and take control from the big studios.

The current $5 million valuation of the company equates exactly to their current shareholders equity. This means the market is giving zero value to their films. 

I have been encouraging the company to consider changing their name to Emmett/Furla productions, and reverse splitting the stock to reduce the supply and make it a much higher price. On price alone there are many who might not considering picking up the shares today. Also, you will not see the name Family Room in the credits at the theater. Family Room is not mentioned in Variety. It is always wholly owned subsidiary Emmett/Furla productions. They are losing the branding potential of this free publicity.

The coup de grace for FMLY will be a major box office success with some back end residuals. Millions could flow to the company overnight. However, all the films you see listed above will not be in the theaters until 2006 and 2007. We won't know their levels of success until then.

I believe the problem with the stock is simple. People bought as the company continued to announce these outstanding new films, and the stock did not go up. They are losing patience and selling in a fear driven environment.

I have often thought of abandoning coverage of FMLY, but I know as long as the company continues on its current course, the stock will have its day eventually. I will continue to cover their news.

In the interim, anyone holding this stock has to look at it as a very long term hold, and has to be prepared for the possibility the stock could continue going lower. On the other hand, the right news could bring a flood of buying into the stock, and push it back up the chart.

If you were in it for a short term play, you have to sell. If you are long term, assume it could go much lower, but could also begin to trade back up. I just don't know. If you're uncomfortable, reduce your exposure or get out, but keep an eye on this company. If you are comfortable with the amount you have invested, hang in there. You have all the facts on which to make an informed decision now.

Have a safe and happy Memorial Day holiday. Don't forget to take a moment to pause and remember our brave men and women who fought and died for our freedom, and continue to do so today. God bless our troops and keep them in your thoughts and prayers this weekend.

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