AnalystGroup newsletter:Q&A on FAMH (today)
Questions and Answers for FAMH
We received many inquiries about FAMH last week from our readers. The decline of the stock price was caused by some inexperience investors who are nervous about the delay of 97' 10-K release by FAMH. We don't see anything wrong with that. If FAMH were a reporting company, the concern would have been legitimate. Again, this newsletter is catering for investors, not for daytraders or momentum players. Volatility in NASDAQ and OTC BB is normal. Don't have to worry if you are an investor. If you want to become a momentum player, please subscribe our another newsletter entitled "Trader's Paradise" by sending an e-mail to traders@the-stock-market.com with "subscribe" in the subject line. The following is some answers for some questions that have been asked frequently regarding FAMH.
Q: Why do some FAMH investors debate about why FAMH has not filed its 10-K with the SEC so far?
A: Many OTC BB companies do not file its 10-K and 10-Q with the SEC. We won't recommend any companies that have not filed 10-K and 10-Q with the SEC in the future. All companies that we recommended promised us to file its 10-K and 10-Q with the SEC as soon as possible if they have not filed with the SEC before. The initial audited accounting procedures often take much longer than expected, as assets and inventories have to be fully evaluated. Any acquisition will further complicate this process. On the other hand, according to the SEC rules, it requires an extensive review process (it may take up to one month) for its first filing if a company wants to become a fully reporting company. 10-Q and 10-K can't be released to public in any form without the SEC permission before 10-Q and 10-K have been filed with the SEC. After a company becomes a fully reporting company, the company just needs to file its 10-K and 10-Q with the SEC regularly and don't need this review proces!
s any more.
Q: It has past almost 5 months for the year of 1998, I don't understand why so many investors are nervous about FAMH 97's financials. Should we invest in a company's future or past?
A: Of course, we should invest in a company's future. We believe that some inexperience investors just don't understand what they invest. They bought, because some people told them so. When they sold, because some people said so. You must do your own research, so you know what you expect. As a reader of the Undervalued Dog, you know something that other investors don't know. It should be very easy for you to make a decision.
Q: I can't find any official information about FAMH financials. How did your newsletter find it?
A: Regarding FAMH, we collects information from those who are working for the company and made an estimation. We made a mistake in the previous follow-up for FAMH. FAMH has 50 M outstanding shares now, but we used 24 M shares (97' number) in our system. Thus, the book value should be about 0.46/share, including several acquisitions. The projected EPS will be around $0.25/share (net incomes will be about $12 M for 1998). Revenue from Morton Downey Show will be net income, as FAMH has invested its money in the Show before. We estimated it may earn $2.4 M net income in 1998 for FAMH. In addition, $33 M new contracts with Myriad Employment Services will add about $3M net income. The net incomes will be about $2.5M from new acquisitions and other businesses like Workman's Shop and Payroll Processing (profit margins: 30-40%). Information Technology staffing may have some unexpected revenues with a very high profit margin in 1998. Floating shares should be 16 M shares, not!
we mentioned 20 M shares last time, as we just found 6 M shares are restricted for one more year. If FAMH continues to buy shares back in the open market as they are doing now, these numbers will be better at the end of this year.
Q: I don't understand why FAMH said in a news release they would file its 10-K with the SEC on May 1, 1998, but I can't find its 10-K in EDGAR so far, why?
A: Again, FAMH filed its 97' 10-K with the SEC. But the SEC requires an extensive review process for companies that file their 10-K for the first time before the 10-K is listed by EDGAR. The EPS was about $0.11/share with approximate 24 M outstanding shares in 1997. The money raised by 504 financing was not included in EPS. Many investors were nervous and sold their shares, possibly because they don't understand how the system works and fear the delay of 10-K release means bad news. In this case, it is not true for a company that files its 10-K or 10-Q for the first time. It may create an opportunity for the company to buy some shares back at a cheaper price and preserve more cash for business expansion or for some investors who have extensive information about FAMH like our readers. Again, we should look into the company fundamentals and businesses. Remember, FAMH is still growing. It's no question that many minor problems will accompany the company in the near futur!
e as the company becomes better and better. It is ridiculous that some people scrutinize FAMH as it is well established company like Microsoft.
Q: How does the increase in outstanding shares affect the stock value?
A: Though FAMH outstanding shares have been doubled this year, the company's revenues will be 15 times bigger ($120 to 140 M) in 1998 than the revenues ($8.5 M) in 1997. This increase in outstanding shares is reasonable and normal for a growth company in consideration of its dramatic growth in revenues, net incomes and book value. We still target the stock price at $2.50 at (PE=10) if FAMH is not listed on NASDAQ. We often use PE from 5 to 10 for estimation of potential price of an OTC BB stock.
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