Been continuing my reading on this name and the more I read, the less comfortable I am. The company business model is suspect. Simply put, they have been selling franchises and master franchises by qualifying purchasers using Seed Capital. Seed is an entity that appears to get multiple credit card approvals for financing the franchises. Stop for minute and think about that. Interest on Credit Cards is typically 22% and higher. The master franchises bring in a much higher fee, naturally. The revenue of the company spiked when they had success in selling lots of these franchises. But how strong are they when they've bought them using Seed Capital? In the CFO lawsuit, he alluded to the fact that only a small portion of the franchises actually made enough revenue in their business model to make money. Economically for CLCN, it's the ongoing royalty income that is most meaningful. But if the franchises are profitable, the royalty income is a big ?. On Edgar, when you go back and read the notes to the financials, pay particular attention to the related party transactions. In doing so, realize that you are reading restated numbers because the company didn't properly disclose these related party transactions to you the first time around. Go back and do the following;
Look at the CEO salary each year. Look at the bonus he gets for signing up franchises. It's no wonder the goal has become signing up as many as you can regardless of financial strength/ business savy.
Add to that number the related party transactions which we were lied too about.
Compare all this to the remaining funds accruing to the rest of the shareholder base.
Once you've done that ... ask yourself if this company is really managing the business for the shareholders or as a personal ATM machine. It's no wonder the stock price has imploded and I could see it falling towards the cash value/share until we have a better understanding of the sustainability of the model and the managements intents with the free cash flow.
