Notes to Financial Statements
July 31, 2018 And 2017
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Concrete Leveling Systems, Inc. (hereinafter the “Company”), is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
Nature of Operations
The Company manufactures for sale specialized equipment for use in the concrete leveling industry. The Company’s product is sold primarily to end users.
On March 24, 2017, the Company entered into an agreement with Jericho Associates, Inc. (“Jericho”), a start-up company which plans to operate in the gaming, hospitality and entertainment industries. The Company issued Jericho 7,151,416 shares of the Company’s common stock, subject to a performance requirement, which provides that by March 1, 2018, if the management of Jericho does not identify at least one entity or business opportunity for acquisition, in order to supplement the Company’s current business operations, the shares issued as part of the agreement shall be returned to the Company. In July 2017, an additional 481,000 shares were issued to shareholders of Jericho under the same contingencies as the original shares.
On February 25, 2018, Jericho identified the acquisition of 50% interests in two LLCs (the “LLCs”). The LLCs have a Term Sheet agreement to develop a casino and hotel resort, and provide certain gaming equipment on a shared profit basis. The project is in the process of regulatory review, finalization of closing documents, and completion of financing. Notwithstanding the identification of the business opportunity, the shares issued to Jericho remain contingent upon the regulatory review, the finalization of closing documentation, and the completion of financing arrangements for the project. On September 22, 2017, the Company and Jericho mutually agreed to extend the performance requirement until December 24, 2017. On November 9, 2017, the Company and Jericho mutually agreed to extend the performance requirement to March 1, 2018.
Also, upon the regulatory review, the finalization of closing documentation, and the completion of financing arrangements for the project, the Company’s President will cancel all shares of common stock held (879,167 shares as of July 31, 2018), the Company’s Chief Executive Officer will cancel all but 523,000 shares of common stock held (2,951,667 shares as of July 31, 2018), subject to an 18-month non-dilution right in order to maintain an ownership percentage of 4.99%, and the Company’s Secretary will cancel all but 45,000 shares of common stock held (185,000 shares as of July 31, 2018). On August 13, 2018, the agreement with Jericho was amended to provide that the Chief Executive Officer would retain an additional 27,000 shares of common stock (total of 550,000) on the closing and that the Anti-dilution Right was eliminated.
Under Accounting Standards Codification (“ASC”) 718-10-25-20,
Compensation – Stock Compensation
, there is no accounting related to the potential acquisition other than the issuance of the contingent shares at par value because the performance measure is the acquisition of a company. The achievement of this measure is not probable until the business is acquired.
Revenue Recognition
The Company recognizes revenue when product is shipped or picked up by the customer.
Accounts Receivable
The Company grants credit to its customers in the ordinary course of business. The Company provides for an allowance for uncollectable receivables based on prior experience. The allowance was $0 at July 31, 2018 and 2017.
Advertising and Marketing
Advertising and marketing costs are charged to operations when incurred. Advertising costs were $-0- for the years ended July 31, 2018, and 2017.
Inventories
Inventories, which consist of parts and work in progress, are recorded at the lower of first-in first-out cost or net realizable value (estimated selling price less costs of completion, disposal and transportation).
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation is provided for by using the straight- line and accelerated methods over the estimated useful lives of the respective assets.
Maintenance and repairs are charged to expense as incurred. Major additions and betterments are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the determination of net income.
Going Concern
The Company has sustained substantial operating losses since its inception. In addition, the Company has used substantial amounts of working capital in its operations. Further, at July 31, 2018, current liabilities exceed current assets by $266,261, and total liabilities exceed total assets by $266,261.
Success will be dependent upon management’s ability to obtain future financing and liquidity, and success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and liabilities approximates the fair value reported on the balance sheet.
NOTE 3 – NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, ASU No. 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”) was issued. The amendments in ASU 2014-09 affect any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in ASC 605,
Revenue Recognition
, and most industry-specific guidance.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period.
The Company will adopt this new standard effective for the year ending July 31, 2019, including interim periods within that reporting period, and shall disclose qualitative and quantitative information on all of the following in regard to our contract with a customer.
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a.
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Revenue recognized from contracts with customers.
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b.
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Any impairment losses recognized on any receivables or contract assets arising from the firm’s contracts with customers.
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c.
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The opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers.
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d.
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Revenue recognized in the reporting period that was included in the contract liability balance at the beginning of the period.
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e.
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Revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods.
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f.
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Significant changes in the contract asset or liability balances during the reporting period.
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g.
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Performance obligation in contracts with customers
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The Company believes the effect on the current accounting policies will be immaterial as the current accounting for revenue from our customer contracts does not materially differ from the new standard.
NOTE 4 – NOTES RECEIVABLE
On January 31, 2018, the balance of the note and interest receivable totaling $2,857 were written off as uncollectable.
On July 31, 2017, the balance of the note receivable was $26,447, the interest rate was 6.00% and was due in monthly payments through April 2026.
Management had established an estimated allowance for loan losses and uncollectable interest income based on its experience with specific debtors, including payment history, condition and location of collateral, and estimated cost of resale. The allowances totaled $25,069 at July 31, 2017.
NOTE 5 - INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Additionally, the recognition of future tax benefits, such as net operating loss carry forwards, is required to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities result in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such asset is required. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some or all of the deferred tax asset will not be realized. In assessing the realizability of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies.
As of July 31, 2018, the Company had net operating loss carry forwards of approximately $555,239 that may be available to reduce future years’ taxable income in varying amounts through 2038.
The Company’s income tax returns are subject to examination by tax authorities. Generally, the statute of limitations related to the Company’s federal and state income tax return is three years from the date of filing. The state impact of any federal changes of prior years remains subject to examination for a period up to five years after formal notification to the states.
Management has evaluated tax positions in accordance with FASB ASC 740,
Income Taxes
, and has not identified any significant tax positions, other than those disclosed.
Income taxes on continuing operations include the following:
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July 31, 2018
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July 31, 2017
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Currently payable
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$
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0
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$
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0
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Deferred
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0
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0
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Total
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$
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0
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$
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0
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A reconciliation of the effective tax rate with the statutory U.S. income tax rate is as follows:
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July 31, 2018
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July 31, 2017
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% of
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% of
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Pretax
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Pretax
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Income
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Amount
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Income
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Amount
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Income taxes per statement of operations
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$
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0
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0
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%
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$
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0
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0
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%
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Loss for financial reporting purposes without tax expense or benefit
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(7,700
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)
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(21
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)
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(13,400
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)
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(34
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)
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Income taxes at statutory rate
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$
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(7,700
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)
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(21
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)%
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$
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(13,400
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)
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(34
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)%
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The components of and changes in the net deferred taxes were as follows:
Deferred tax assets:
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July 31, 2018
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July 31, 2017
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Net operating loss carryforwards
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$
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116,600
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$
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181,400
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Allowances for uncollectable accounts
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0
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8,800
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Compensation and miscellaneous
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3,200
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5,300
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Deferred tax assets
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119,800
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195,500
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Valuation Allowance
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(119,800
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)
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(195,500
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)
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Net deferred tax assets:
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$
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0
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$
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0
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Tax periods ended July 31, 2014 through 2018 are subject to examination by major taxing authorities.
NOTE 6 - RELATED PARTIES
The Company uses warehouse and office space belonging to one of its stockholders. The stockholder does not charge the Company rent or other fees for the use of these facilities.
On July 31, 2009, the Company entered into a distribution agreement with another company owned by one of the Company’s stockholders. The agreement gives the related party exclusive distribution rights for the Company’s products. Commissions are earned when the sale of a leveling unit is completed. Commission expense totaled $-0- for the years ended July 31, 2018 and 2017. The amount payable to the related party was $0 and $35,486 at July 31, 2018 and 2017.
Four stockholders of the Company loaned a total of $62,750 to the Company at various times during the years ended July 31, 2010 through 2012. The loans carry interest rates from 8.00% to 12.00% and are due on demand. The balances on the loans are $62,750 at both July 31, 2018 and 2017. Effective July 31, 2013, further interest accrual was waived by the noteholders.
One of the Company’s stockholders and a company owned by the stockholder advanced a total of $119,666 to the Company at various times between November 2012 and July 2018. The balances on the advances are $119,666 and $117,000 at July 31, 2018 and 2017, respectively. The advances carry no interest.
Another stockholder of the Company paid invoices of the Company totaling $67,366 during the year ended July 31, 2018. This amount is still owed to the stockholder at July 31, 2018.
NOTE 7 - SUBSEQUENT EVENTS
The Company has evaluated all subsequent events through October 25, 2018, the date the financial statements were available to be issued.
On August 19, 2018, Jericho announced that it had entered into an agreement to acquire all of the issued and outstanding shares of VegasWinners, Inc. a newly formed Nevada corporation (the “Jericho/VegasWinners Transaction”). VegasWinners, Inc. was incorporated in the State of Nevada to engage in the business of providing sports gaming information, analysis, advice and predictions. The acquisition by Jericho is contingent on several factors, including the making of a loan of $300,000 to VegasWinners, Inc., obtaining a minimum of $1,100,000 in funding by Jericho to provide to VegasWinners, Inc. and certain VegasWinners, Inc. performance criteria. On October 18, 2018, Jericho advanced $232,500 of the $300,000 interim loan to VegasWinners, Inc.
All of the issued and outstanding shares of VegasWinners, Inc will be acquired from, Wayne Allyn Root (“Root”), of Las Vegas, Nevada, the sole shareholder of VegasWinners, Inc., in exchange for 5 shares of Jericho. Upon the closing of the Jericho/VegasWinners Transaction, the Company will issue to Root, 300,000 shares of the Company’s common stock in exchange for Root’s 5 common shares of Jericho.
Root is the Chief Executive Officer and President of Vegas Winners, Inc. and has entered into a three year employment agreement with VegasWinners, Inc.
In connection with acquisition of VegasWinners, Inc., Jericho has entered into a three year Employment Agreement with Root, which provides that upon the closing of the Jericho VegasWinners Transaction, and the closing of the Registrants acquisition of Jericho, Root will become the Senior Vice President of Marketing, Media, Entertainment and Communications for Jericho.