SEC Filing Report: Concrete Leveling Systems, Inc. (CLEV) – Form 10-Q for the Period Ended January 31, 2025
Executive Summary
This report analyzes Concrete Leveling Systems, Inc.’s (CLEV) Form 10-Q filing for the quarterly period ended January 31, 2025. The company continues to struggle with profitability and faces significant going concern issues. While revenue saw a slight increase, operating expenses, particularly legal and professional fees, drove a higher net loss compared to the same period last year. Critically, management acknowledges material weaknesses in internal controls. The company’s reliance on stockholder advances for financing remains a significant risk. Given the financial instability, material weaknesses in internal controls, and going concern issues, a **sell** recommendation is warranted. The company needs to secure additional funding and address its internal control deficiencies to improve its long-term viability.
Company Overview
Concrete Leveling Systems, Inc. (CLEV) manufactures and sells specialized equipment for the concrete leveling industry. The company operates under the trade name CLS Fabricating, Inc. A significant aspect of their business strategy involves a potential expansion into the gaming and hospitality industry through an agreement with Jericho Associates, Inc., contingent upon regulatory approvals and financing for a casino and hotel resort project. The company is classified as a smaller reporting company.
Detailed Analysis
Financial Statement Analysis
| Metric |
Three Months Ended Jan 31, 2025 |
Three Months Ended Jan 31, 2024 |
Six Months Ended Jan 31, 2025 |
Six Months Ended Jan 31, 2024 |
Change (6 Months) |
| Revenue |
$125 |
$100 |
$308 |
$275 |
12.0% |
| Cost of Sales |
$10 |
$0 |
$69 |
$59 |
16.9% |
| Gross Margin |
$115 |
$100 |
$239 |
$216 |
10.6% |
| Legal & Professional Fees |
$7,450 |
$5,670 |
$27,404 |
$26,646 |
2.8% |
| Selling, General & Admin |
$2,777 |
$2,083 |
$5,155 |
$4,806 |
7.3% |
| Total Operating Expenses |
$10,227 |
$7,753 |
$32,559 |
$31,452 |
3.5% |
| Loss from Operations |
($10,112) |
($7,653) |
($32,320) |
($31,236) |
3.5% |
| Interest Expense |
($2,584) |
($2,619) |
($5,179) |
($5,220) |
-0.8% |
| Net Loss |
($12,696) |
($10,272) |
($37,499) |
($36,456) |
2.9% |
| Cash |
$677 |
N/A |
$677 |
$514 |
31.7% |
Key Observations:
- Revenue Growth: Modest revenue growth is observed, but it’s insufficient to offset operating expenses.
- Expense Increase: Legal and professional fees are a significant driver of increased operating expenses and net losses.
- Liquidity Crisis: The company’s cash position is critically low, raising serious concerns about its ability to meet short-term obligations.
- Reliance on Stockholder Advances: The company is heavily reliant on advances from stockholders to fund operations, which is not a sustainable long-term strategy.
- Negative Equity: The company has a significant stockholders’ deficit, indicating that liabilities far exceed assets.
Management’s Discussion and Analysis (MD&A)
Management acknowledges the going concern issue and attributes it to substantial operating losses and working capital usage. They express optimism about the potential gaming and hospitality business but admit the need for additional funding through debt or equity. The MD&A highlights the increased revenue due to higher parts sales and increased operating expenses due to higher accounting and auditing fees. The forward-looking statements are boilerplate and provide little concrete information about specific strategies to address the company’s challenges.
Red Flags:
- Going Concern: The auditor’s opinion raising substantial doubt about the company’s ability to continue as a going concern is a major red flag.
- Material Weaknesses in Internal Controls: Management’s admission of material weaknesses in internal control over financial reporting is concerning. These weaknesses include inadequate segregation of duties, lack of a code of ethics, lack of a whistleblower policy, lack of an independent board of directors or board committees related to financial reporting, and lack of multiple levels of supervision and review.
- Dependence on Related Party Transactions: Significant reliance on stockholder advances and rent-free use of facilities from stockholders raises concerns about potential conflicts of interest and the sustainability of these arrangements.
Uncommon Metrics
- Accrued Interest – Stockholders: The significant amount of accrued interest owed to stockholders ($51,912) further strains the company’s financial resources.
- Advances – Stockholders: The large balance of advances from stockholders ($351,239) highlights the company’s inability to secure funding from traditional sources.
Conclusion and Actionable Insights
Concrete Leveling Systems, Inc. faces significant financial challenges. The company’s low cash balance, reliance on stockholder advances, negative equity, and material weaknesses in internal controls paint a concerning picture. While management expresses optimism about future prospects, the current financial situation and the auditor’s going concern opinion warrant a **sell** recommendation.
Recommendations:
- Avoid Investment: The risks associated with CLEV outweigh any potential rewards at this time.
- Monitor Closely: If already invested, closely monitor the company’s ability to secure funding and address its internal control deficiencies.
- Seek Professional Advice: Consult with a financial advisor to determine the best course of action based on individual circumstances.