Last Thursday’s conference call hosted by Family Room’s George Furla did little to change my view that FMLY is going to continue to slowly grind down the charts under the oppressive weight of excess supply. The end of 2004 marked the third year in a row the company engaged in a toxic financing.
Despite having 8 movies in post production this year, and completing $180 million in film production, nothing is going to change in the near future. The only hope Furla lays out for shareholders is the possibility of taking out the convertible note or executing a stock buy back program through the proceeds from a major box office success.
Despite having 8 movies in post production, George only forecast two with profit potential “could” find their way in theaters in 2006- specifically 16 Blocks with Bruce Willis and The Wicker Man with Nicolas Cage.
It’s a long time until 2006, and even if the company had a box office success north of $50 million, there is no telling how long it will take until they see a producer profit check. Between now and then, supplies in excess of 10 to 20 million shares could find their way into an unreceptive market.
The pattern on the chart in depressing. This is a weekly chart dating back to 2003. Each leg down in the stock can be tied directly to another toxic financing the company engaged in.
I’m very impressed with this year’s slate of productions. They have raised their profile immensely, and the menu of high profile talent should lead them on to bigger and better productions in the future.
However, there is a pattern here that keeps repeating. Company runs out of cash, engages in toxic financing, shares become free trading, stock grinds down.
Unfortunately, management offered no ideas to change the pattern, and therefore I believe the pattern will continue.
For those who want the hard numbers- here they are: at the beginning of this chart the company had 20 million share I&O. Currently, the company has 90 million shares I&O. The company recently registered another 90 million shares- 48 million of which are realistically going to have to find their way into the market over time. It could a lot more- at the current price that number of shares would only account for about 1/2 their convertible debt. As Mr. Furla stated, $100k of the $2 million in debt has been redeemed so far. If I’m doing the math right, the company has issued about 4 million shares to cover the $100k in debt. All free trading, all with a cost basis below the current market.
Unless massive demand surfaces for this stock, it will probably just keep grinding south. Edison has not been picked up for theatrical distribution at this time. No hope for a big pay day there yet. We are at least 9 months to 1 year away from a payday on this year’s productions.
In the conference call, Furla alluded to an arrangement the company is working on to self finance the promotion and advertising for its own films. That is the only catalyst I see on the horizon that could possibly bring a new and enthusiatic audience to the stock. If not, FMLY will simply continue grinding lower with no end in sight. If you’ve lost patience, just sell it and move on.