10-Q: Concrete Leveling Systems Reports Deepening Losses and Going Concern Doubts Amid Stalled Gaming Venture

Concrete Leveling Systems, Inc. (CLEV) reported increased net losses and a deteriorating financial position for the quarter ended April 30, 2025, with auditors raising substantial doubt about its ability to continue as a going concern.

Summary

• Concrete Leveling Systems, Inc. (CLEV) reported a net loss of $11,709 for the three months ended April 30, 2025, an increase from $10,640 in the prior year period.
• For the nine months ended April 30, 2025, the company's net loss widened to $49,208, compared to $47,096 for the same period in 2024, primarily driven by higher legal and professional fees.
• Revenue remained flat at $175 for the three months ended April 30, 2025, and saw a slight increase to $483 for the nine months, attributed to higher parts sales.
• The company's financial health is precarious, with current liabilities exceeding current assets by $609,467 as of April 30, 2025, and total liabilities of $628,659 against total assets of $19,192.
• Management explicitly stated that existing cash flows are insufficient to meet operating requirements for the next twelve months, raising substantial doubt about the company's ability to continue as a going concern.
• The long-pending agreement with Jericho Associates, Inc. to enter the gaming and hospitality industry, initiated in March 2017, remains contingent on regulatory review, finalization of closing documents, and completion of financing, with significant share cancellations tied to its finalization.
• The company's internal controls over financial reporting were deemed ineffective as of April 30, 2025, due to material weaknesses including inadequate segregation of duties, lack of a code of ethics, and absence of an independent board of directors or related committees.

Sentiment

Score: 1

Explanation: The company is in a dire financial state, marked by increasing losses, a severe liquidity crisis, and a going concern warning from auditors. Its strategic diversification into gaming has been stalled for years, and significant material weaknesses in internal controls further undermine confidence. The reliance on related-party financing highlights its inability to secure external funding, painting a very negative outlook.

Positives

• Revenue for the nine months ended April 30, 2025, slightly increased to $483 from $450 in the prior year, driven by higher parts sales.
• Cost of sales for the three months ended April 30, 2025, decreased to $55 from $59, attributed to a favorable change in product mix from services to parts.

Negatives

• The company reported an increased net loss of $11,709 for the three months ended April 30, 2025, up from $10,640 in the prior year.
• The net loss for the nine months ended April 30, 2025, grew to $49,208, compared to $47,096 in the same period last year, primarily due to higher legal and professional fees.
• Current liabilities of $628,659 significantly exceed current assets of $19,192, resulting in a stockholders' deficit of $609,467 as of April 30, 2025.
• Cash on hand decreased to $743 as of April 30, 2025, from $887 as of July 31, 2024.
• Net cash used in operating activities increased to $43,873 for the nine months ended April 30, 2025, indicating a higher cash burn rate.
• The company is heavily reliant on advances from stockholders, which increased to $43,729 for the nine months ended April 30, 2025, to fund operations.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern due to sustained operating losses, significant working capital usage, and current liabilities exceeding current assets.
• The finalization of the gaming and hospitality business venture with Jericho Associates, Inc. is contingent on regulatory review, closing documents, and financing, which have been pending for years, posing a risk to the company's strategic diversification.
• The company does not have sufficient cash to meet its operating requirements for the next twelve months, necessitating additional financing through debt or equity securities, which may not be successful.
• Material weaknesses in internal control over financial reporting were identified, including inadequate segregation of duties, lack of a code of ethics, lack of a whistleblower policy, and absence of an independent board of directors or board committees related to financial reporting, increasing operational and financial risks.
• The company's financial statements do not include any adjustments that might result from the outcome of the going concern uncertainty, which could materially impact future financial reporting.
• The company's ability to achieve and maintain profitability and positive cash flow is dependent on successfully developing and marketing its products and generating sufficient revenues, which has not been demonstrated.

Future Outlook

The company anticipates significant increases in cash flows provided by financing activities during the next 12 months, as it intends to raise capital through either debt or equity securities to fund its business. Management believes that with the addition of its gaming and hospitality business, it will begin to generate increased revenue over the 2025 fiscal year, although this remains contingent on the finalization of the Jericho transaction.

Management Comments

• "Our revenues were flat during the three months ended April 30, 2025."
• "Our revenues increased during the nine months ended April 30, 2025, due to higher parts sales."
• "Our operating expenses increased during the three months ended April 30, 2025 primarily due to increases in our professional fees resulting from higher accounting and auditing fees."
• "The increased loss was due primarily to higher legal and professional fees."
• "We believe that with our existing cash flows, we do not have sufficient cash to meet our operating requirements for the next twelve months."
• "We believe that with the addition of our gaming and hospitality business, we will begin to generate increased revenue over the 2025 fiscal year."
• "Failure to generate sufficient revenues or additional financing when needed could cause us to go out of business."
• "We anticipate significant increases in cash flows provided by financing activities during the next 12 months, as we intend to raise capital through either debt or equity securities to fund our business."
• "Management believes that despite our material weaknesses set forth above, our financial statements for the nine month period ended April 30, 2025 are fairly stated, in all material respects, in accordance with U.S. GAAP."

Industry Context

Concrete Leveling Systems operates in the niche concrete leveling equipment manufacturing industry, which is generally stable but limited in growth potential for a small player. The company's long-standing, contingent plan to diversify into the casino gaming, hospitality, and entertainment industries, particularly in California and Nevada, represents a significant strategic shift into a highly regulated and competitive sector. This dual-segment approach, if realized, would place the company in two vastly different markets, requiring distinct operational and regulatory expertise. The gaming technology focus on skill-based games suggests an attempt to tap into evolving trends in the casino industry, but the prolonged delay in finalizing this venture indicates significant hurdles.

Comparison to Industry Standards

• The company's revenue of $175 for the quarter and $483 for nine months is extremely low, indicating minimal operational activity and is not comparable to established companies in either the construction equipment or gaming industries.
• The significant and growing accumulated deficit of $(609,467) and the auditors' going concern opinion are far below industry standards for financially healthy public companies.
• The reliance on related-party advances for financing, totaling over $499,000 in advances and $186,967 in notes payable from stockholders, is atypical for a sustainable public company and suggests an inability to secure traditional financing.
• The identified material weaknesses in internal controls, such as inadequate segregation of duties and lack of an independent board, fall significantly short of corporate governance best practices and regulatory expectations for public companies, regardless of size.
• The prolonged contingency of the Jericho Associates gaming project, pending since 2017, is highly unusual for a strategic diversification effort and suggests significant execution challenges compared to typical M&A timelines in the gaming or any other industry.

Corporate Governance

Related Party Transactions

• The company uses warehouse and office space belonging to one of its stockholders without charge for rent or other fees.
• 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. Interest accrual was waived effective July 31, 2013, but $15,139 in accrued interest remains.
• One stockholder and a company owned by the stockholder advanced a total of $124,817 between November 2012 and December 2020. On December 31, 2020, $124,217 of this was converted to a note payable at 7.25% interest, due on demand. Accrued interest on this note is $39,025.
• Another stockholder paid company invoices at various times between August 2018 and April 2025, resulting in advances owed by the company of $360,239 as of April 30, 2025. These advances carry no interest.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential future capital raises and share cancellations tied to the Jericho transaction. The substantial accumulated deficit and going concern warning indicate a high risk of capital loss.
• **Employees**: The company's precarious financial position and going concern doubt pose a risk to job security and long-term employment stability.
• **Creditors**: Related-party creditors are providing the primary source of financing, indicating high risk for any potential third-party creditors due to the company's inability to generate sufficient cash from operations.
• **Customers**: The company's limited operational scale and financial instability may impact its ability to consistently provide products and services, though current revenue is minimal.

Next Steps

• Management plans to implement changes to remediate material weaknesses in internal control over financial reporting in the 2025 fiscal year, including appointing additional qualified personnel, adopting a written whistleblower policy and code of ethics, and appointing an independent board of directors and related committees.
• The company intends to raise capital through either debt or equity securities during the next 12 months to fund its business operations.
• Finalization of the Jericho Associates, Inc. gaming and hospitality project is pending regulatory review, finalization of closing documents, and completion of financing arrangements.

Key Dates

Recommendation

Keywords

Concrete Leveling Systems, CLEV, 10-Q, Quarterly Report, Financial Results, Net Loss, Going Concern, Liquidity, Cash Flow, Stockholders Deficit, Jericho Associates, Gaming Industry, Hospitality Industry, Internal Controls, Material Weaknesses, Related Party Transactions, SEC Filing