Clearsign Combustion (CLIR) shares have virtually exploded but research suggests the company itself may be just about to implode.
TheStreetSweeper offers this quick hit report highlighting the top risks poised to burn up the stock value.
The Seattle, Washington-based company is working on technology to improve emission performance and efficiency of combustion systems. The technologies are called Duplex and Electrodynamic Combustion Control or ECC.
But Clearsign has forgotten investment guru Warren Buffett’s advice: “Rule Number 1: Never lose money. Rule Number 2: Never forget Rule Number 1.” The company consistently loses money, offers zero-revenue, no significant sales since inception in 2008, no analyst interest, virtually no institutional interest, an uncertain future and depends on penny stock promotions to keep the stock fired up. A stock offering may be needed before long just to fuel company operations.
While other viewpoints are available here, we present details of the chief investment risks:
*Looming Dilution - Clearsign may very well need to conduct another stock offering within six to 12 months.
The company has always depended on stock offerings to stay in business. The finance-reviving stock offerings are shown in filings, here, and include:
- April and May 2012 – Initial public offering of 3.45 million shares at $4 per share. Cash to Clearsign: $11.6 million.
- March 2014 – Direct offering of 812,500 shares at $8 per share. Cash to Clearsign: $5.8 million.
- February 2015 – Public offering of 3 million shares at $5.85 per share. Cash to Clearsign: $16.3 million.
The chart, below, graphically shows how dilutive stock offerings keep Clearsign on its feet. The share count continues to rise, long with cash burn.
*Almost No Institutional Interest
Clearsign has attracted almost no institutional backing, leaving average investors carrying the losses. The Bloomberg chart below graphically shows the situation. The yellow sliver denotes revenue made in 2013. The green denotes the net losses delivered to the average investors.
*No Sales – Stock offerings have fueled the company because sales are historically paltry to non-existent. So lack of sales and rising expenses have consistently forced Clearsign into the red.
(Source: Yahoo Finance. As an emerging growth company, Clearsign is currently exempt from disclosing detailed “pay-on-say” executive compensation)
As the chart shows, Clearsign numbers grew dramatically worse in all respects into 2014.
*Insignificant Sales Potential - Clearsign announced orders in May and September.
On May 13, 2015, the company announced an unnamed Bakersfield, California oil producer ordered a retrofit for a steam generator for enhanced oil recovery.
On Monday, Sept. 14, 2015, the company announced Aera Energy placed a commercial order for its Clearsign Duplex technology. The Duplex will be retrofitted to a second steam generator for enhanced oil recovery.
Both orders appear to be from Aera. But Clearsign didn’t even announce the revenue size of either order, indicating the sales potential from what appears to be its only customer is likely incredibly tiny.
Though it appears the Duplex potential may be miniscule, what about the other technology – ECC?
*Lab Experiment – We wouldn’t call Clearsign’s ECC technology a high school lab experiment, but the ECC technology is clearly in the experimental stage. Indeed, according to the company’s second quarter financial filing:
“Regarding our ECC technology, we continue to conduct solid fuel laboratory testing in conjunction with six parties who contributed $110,000 in 2014 to our research. If successful, this would create a basis for further focused laboratory studies prior to any field demonstrations. There is no assurance that additional revenues will be realized, terms will be reached, or a final agreement executed between us and any of these companies.”
So, unfortunately, any potential commercial value evolving from these ECC tests may well be somewhere between low and non-existent and years away from becoming reality. If ever.
*Hubba-Hubba Hype – Absent meaningful news – and with no analysts interested in Clearsign – penny stock promoters spread hype to juice the stock price. Investors need to mentally red-flag this mountain of hype:
(Source: Yahoo Finance, click for full view)
Indeed, Clearsign is open about paying promoters. Its filings say the company grants shares of stock “to consultants who provide services related to capital raising, investor relations, and making a market in or promoting the Company’s securities.”
*Weak Association – MDB Capital has consistently underwritten Clearsign over the years. The firm most recently handled the February 2015 public offering, walking away with a cool $1 million in fees and 8.1 percent of the company stock.
The Clearsign-MDB association is costly and otherwise unfortunate because a long string of losers dog MDB’s portfolio.
Take a look at the stock charts of several of the firm’s top picks and case studies including two companies TheStreetSweeper has warned investors about, Resonant (RESN ~$14 day of TheStreetSweeper publication, now ~$5) and Uni-Pixel (UNXL ~$7 day of TheStreetSweeper publication, now ~$1 per share):
(Source: Yahoo Finance)
(Source: Yahoo Finance)
MDB Capital also served as underwriter (here) in 2012 for Parametric Sound Corp. (PAMT), which merged the next year into Turtle Beach (HEAR). The stock chart, indicating massive losses for early investors, is below:
(Source: Yahoo Finance)
MDB takes big risks and some of its deals have delivered losses to the majority of early investors. We just hope Clearsign isn’t the next stock to hop into the MDB doghouse.
Clearsign offers no sales, no real sales potential, disappointing financial backing, no analyst interest, virtually no institutional interest, blatant penny stock promotional activity and, in our view, not much potential.
Additionally, cash has dropped to $14 million, while Clearsign yearly burns through about $6 million. All considered, Shark Tank co-host Kevin O’Leary’s quote might apply to the stock just about now: “Take it behind the barn and shoot it.”
A generous valuation for Clearsign would be about $1.50 per share.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in CLIR and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].