10-Q: Concrete Leveling Systems Posts Q1 Profit Amid Merger Delays

Concrete Leveling Systems, Inc. reported a net income of $16,679 for the quarter ended October 31, 2025, a significant improvement from the prior year's loss, though its proposed merger with Jericho Associates remains contingent on regulatory and financing approvals.

Summary

• Net income reached $16,679 for the three months ended October 31, 2025, a substantial improvement from a net loss of $24,803 in the same period last year.
• Revenue surged to $55,000 for the quarter, up from $183 in the prior year, primarily due to the sale of a complete concrete leveling unit.
• Cash balance increased significantly to $29,414 as of October 31, 2025, compared to $824 on July 31, 2025.
• Net cash provided by operating activities was $28,590, a positive shift from net cash used of $126 in the prior year.
• The proposed merger with Jericho Associates, Inc., which would expand operations into gaming and hospitality, is still pending regulatory review, finalization of closing documents, and completion of financing.
• The company continues to operate with a stockholders' deficit of $(604,970) and current liabilities exceeding current assets by the same amount.
• Management believes existing cash resources are insufficient to sustain operations for the next twelve months, with funds projected to last only until February 28, 2026.

Sentiment

Score: 4

Explanation: While the company reported a positive net income and significant revenue growth for the quarter, this is overshadowed by severe going concern issues, material weaknesses in internal controls, and the prolonged, uncertain status of the critical Jericho merger, which is essential for long-term viability and diversification.

Positives

• Achieved net income of $16,679 for the quarter ended October 31, 2025, reversing a net loss of $24,803 in the prior year.
• Revenue increased significantly to $55,000 from $183 in the comparable prior-year period, driven by the sale of a complete leveling unit.
• Gross margin improved substantially to $53,950 from $100 year-over-year.
• Generated positive net cash from operating activities of $28,590, compared to using $126 in the prior year.
• Cash balance increased to $29,414 as of October 31, 2025, from $824 on July 31, 2025.
• Stockholders' deficit decreased from $(621,649) to $(604,970) during the quarter.

Negatives

• Current liabilities ($651,146) significantly exceed current assets ($46,176) by $604,970 as of October 31, 2025.
• The company has incurred significant losses and experienced negative cash flow from operations since inception, raising substantial doubt about its ability to continue as a going concern.
• Existing cash resources are insufficient to sustain operations for the next twelve months, with funds projected to last only through February 28, 2026.
• Disclosure controls and procedures were deemed not effective as of October 31, 2025, due to material weaknesses in internal control over financial reporting.
• Heavy reliance on advances from Jericho Associates, Inc. ($384,879 as of October 31, 2025) to fund operating expenses, which are contingent on the merger's consummation.
• Operating expenses increased to $35,020 from $22,331 year-over-year, primarily due to higher professional fees and commissions.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to historical losses, negative cash flow, and current liabilities exceeding current assets.
• Inability to generate sufficient revenue or obtain additional financing through debt or equity securities could lead to the company ceasing operations.
• The proposed merger with Jericho Associates, Inc. is contingent on regulatory review, finalization of closing documents, and completion of financing, which may not occur.
• Failure to successfully develop and market products and generate sufficient revenues could prevent the company from achieving and maintaining profitability and positive cash flow.
• Material weaknesses in internal control over financial reporting could adversely affect the company's ability to record, process, summarize, and report financial information.
• Reliance on related party advances (e.g., from Jericho) for operating expenses, with repayment contingent on the merger.
• Competition in both the concrete leveling and potential gaming/hospitality industries.
• The company's cash position of approximately $20,000 as of December 12, 2025, is only sufficient to finance operations through February 28, 2026.

Future Outlook

The company anticipates generating increased revenue with the addition of its gaming and hospitality business, contingent on the finalization of the Jericho merger. However, it acknowledges that existing cash flows are insufficient for the next twelve months and may require additional financing through debt or equity if revenue targets are not met. Management projects current funds will last only until February 28, 2026.

Management Comments

• "We believe that with the addition of our gaming and hospitality business, we will begin to generate increased revenue over the 2025 fiscal year."
• "However, if our revenue is not sufficient to allow us to meet our cash requirements during the next twelve months, the Company may need to raise additional funds through the sale of debt or equity securities."
• "Failure to generate sufficient revenues or additional financing when needed could cause us to go out of business."
• "Management believes the Company has funds currently to finance its operations through February 28, 2026."

Industry Context

The company currently operates in the niche concrete leveling equipment manufacturing industry. Its proposed merger with Jericho Associates, Inc. would diversify its operations significantly into the casino gaming, hospitality, entertainment, and leisure time industries, specifically targeting tribal and commercial casino gaming in California and Nevada, as well as casino gaming technology. This move represents a substantial strategic shift from its core business, aiming to tap into a much larger and different market.

Corporate Governance

Related Party Transactions

• The company uses warehouse and office space belonging to a stockholder without charge.
• Four stockholders loaned a total of $62,750 to the company between 2010 and 2012, with interest rates from 8.00% to 12.00%, due on demand. Accrued interest of $15,139 as of July 31, 2025, relates to interest prior to a waiver effective July 31, 2013.
• A stockholder and a company owned by the stockholder advanced $124,817 between November 2012 and December 2020, with $124,217 converted to a 7.25% note payable on December 31, 2020. Accrued interest is $43,528 as of October 31, 2025.
• Jericho Associates, Inc. provided non-interest-bearing advances totaling $384,879 as of October 31, 2025, to fund operating expenses, with repayment expected upon merger consummation.
• A stockholder advanced $7,160 as of October 31, 2025, with no interest.

Stakeholder Impact

• Shareholders: Potential for significant dilution if new equity is raised; uncertainty regarding the Jericho merger's impact on future share value; current management's shares are contingent on merger completion.
• Employees: Continued operational uncertainty due to going concern issues and reliance on external funding.
• Creditors: Risk due to the company's going concern doubt and high current liabilities relative to assets. Related party creditors (stockholders, Jericho) have significant exposure.
• Customers: Potential impact on product availability or service if the company's financial situation deteriorates further.

Next Steps

• Complete regulatory review, finalization of closing documents, and financing arrangements for the Jericho merger project.
• Generate sufficient revenue to sustain operations beyond February 28, 2026.
• Potentially raise additional funds through the sale of debt or equity securities.
• Continue assessing and implementing remediation measures to address material weaknesses in internal control over financial reporting.
• Adopt ASU 2023-09 in its annual financial statements for the year ending July 31, 2026.
• Evaluate the impact of ASU 2024-03 on its financial statement disclosures.

Key Dates

Recommendation

Despite a positive net income for the quarter, the company faces severe going concern issues, with cash projected to run out in a few months. The proposed merger, critical for diversification and long-term viability, has been pending for years with no clear resolution date. Material weaknesses in internal controls further compound the risk. The company's reliance on related-party funding and the significant disparity between current assets and liabilities indicate a highly precarious financial position, making it a high-risk investment with substantial downside potential.

Keywords

Concrete Leveling Systems, CLEV, 10-Q, Quarterly Report, Financial Results, Net Income, Revenue Growth, Going Concern, Jericho Associates, Merger Contingency, Gaming Industry, Hospitality Industry, Internal Controls, SEC Filing, Small Business Issuer, Nevada Corporation, Concrete Leveling Equipment, Casino Development