10-Q: CARO HOLDINGS Q2 Loss Widens, Revenue Down 78% Amid AI Push

Caro Holdings Inc. reported a widened net loss and a significant revenue decline for the three and six months ended September 30, 2025, while continuing its pivot to B2B/B2C/D2C e-commerce and AI solutions.

Summary

• Net loss for the three months ended September 30, 2025, increased to $81,861 from $68,155 in the prior year period.
• Net loss for the six months ended September 30, 2025, increased to $118,171 from $114,583 in the prior year period.
• Revenue for the three months ended September 30, 2025, decreased by 78% to $1,229 from $5,626 in the prior year period.
• Revenue for the six months ended September 30, 2025, decreased by 70% to $7,215 from $24,443 in the prior year period.
• Operating expenses decreased by 25% to $34,548 for the three months and by 22% to $68,734 for the six months ended September 30, 2025, primarily due to reduced advertising, marketing, service, subscription, and management consulting fees.
• Other expenses increased significantly, by 76% to $48,542 for the three months and by 11% to $56,652 for the six months, mainly due to higher interest expense and debt issuance costs on convertible notes.
• Cash balance decreased to $7,380 as of September 30, 2025, from $14,566 as of March 31, 2025.
• Working capital deficiency worsened to $1,461,647 as of September 30, 2025, from $1,344,304 as of March 31, 2025.
• Total convertible notes payable increased to $1,451,000 as of September 30, 2025, from $1,365,500 as of March 31, 2025.
• The company has an accumulated deficit of $1,914,078 as of September 30, 2025.
• The core B2B, B2C, and D2C e-commerce platform is complete, and the company is actively soliciting clients.
• An AI automation framework for small and mid-sized businesses was introduced in July 2025.
• The acquisition of a spirits industry marketplace provider is expected to be completed during the quarter ended March 31, 2026.

Sentiment

Score: 2

Explanation: The company faces severe financial challenges, including significant revenue decline, widening losses, a substantial accumulated deficit, and a going concern warning. While strategic pivots to e-commerce and AI are underway, their impact is not yet reflected in financial performance, and internal control weaknesses add to the negative outlook.

Positives

• Operating expenses decreased for both the three-month (25%) and six-month (22%) periods, indicating some cost control.
• Net cash used in operating activities improved, decreasing to $40,346 for the six months ended September 30, 2025, from $50,361 in the prior year.
• The core B2B, B2C, and D2C e-commerce platform is complete, and the company is actively soliciting clients in multiple industries.
• The company introduced a full-cycle AI automation framework in July 2025 and is developing AI agents for investor relations, reporting, and compliance.
• The company is pursuing strategic growth through product development, direct outreach, and channel partnerships, targeting brands needing enhanced digital infrastructure and AI-enabled operations.

Negatives

• Significant revenue decline of 78% for the three months and 70% for the six months ended September 30, 2025.
• Net loss widened for both the three-month (20% increase) and six-month (3% increase) periods.
• Cash balance decreased by nearly 50% from March 31, 2025, to September 30, 2025.
• Working capital deficiency worsened, indicating increasing short-term liquidity challenges.
• Total convertible notes payable and accrued interest payable increased, adding to debt burden.
• The company has an accumulated deficit of $1,914,078 and has sustained losses since inception.
• Management concluded that disclosure controls and procedures were not effective due to material weaknesses, including inadequate segregation of duties and ineffective risk management.

Risks

• Substantial doubt about the ability to continue as a going concern due to accumulated deficit, net losses, and dependence on raising additional capital.
• Uncertainty regarding the availability of additional funds on acceptable terms.
• Reliance on equity sales of common stock for funding, which will result in dilution to existing stockholders.
• Material weaknesses in internal control over financial reporting, including inadequate segregation of duties, ineffective risk management, and insufficient written policies and procedures for accounting and financial reporting.
• The acquisition of the spirits industry marketplace provider is contingent on the acquiree reaching future milestones, and there is no guarantee of completion.
• The company is an early-stage development company with minimal revenues and limited cash on hand.
• Foreign currency translation risks due to operations in Great British Pounds.

Future Outlook

The company intends to create subsidiaries in markets with significant sales opportunities and continues to modify and enhance its e-commerce software for chosen vertical markets. It plans to support brands requiring enhanced digital infrastructure and AI-enabled operations through ongoing product development, direct outreach, and strategic channel partnerships. The acquisition of a spirits industry marketplace provider is expected to be completed during the quarter ended March 31, 2026.

Management Comments

• Management believes that the current actions to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
• We believe that our systems will become one of our most important assets.
• Our ability to successfully create brand awareness is dependent upon our ability to address the changing needs and priorities of each brands target customers.
• We plan to focus much of our marketing efforts to recruit partners.
• Management concluded that our disclosure controls and procedures were not effective... as a result of continuing material weaknesses in our internal control over financial reporting.

Industry Context

The company is pivoting from a niche subscription box model to a broader B2B, B2C, and D2C e-commerce platform, integrating AI automation and specialized marketplaces. This aligns with broader industry trends of digital transformation, AI adoption, and the increasing demand for comprehensive e-commerce solutions, particularly for small to mid-sized businesses seeking to enhance their online presence. The focus on specific vertical markets like pet care and spirits also reflects a strategy to capture specialized market segments.

Comparison to Industry Standards

• The significant revenue decline and widening net losses are concerning, especially for a company in the high-growth e-commerce and AI sectors, where competitors often demonstrate rapid revenue expansion.
• The substantial working capital deficiency and reliance on convertible debt suggest a financial position weaker than many established or even well-funded early-stage companies in the digital solutions space.
• The disclosed material weaknesses in internal controls are a red flag, indicating a lack of robust financial governance compared to industry best practices for public companies.
• While the development of AI automation frameworks is a positive strategic move, the current financial performance does not yet reflect successful monetization or market penetration comparable to more mature or better-capitalized tech firms.

Corporate Governance

Legal Proceedings

• The company is not involved in any pending legal proceeding or litigation, and no governmental authority is contemplating any proceeding that would likely have a material adverse effect.

Related Party Transactions

• Incurred $50 in management consulting fees to the director and COO for the three months ended September 30, 2025 (compared to $4,469 in prior year).
• Incurred $10,922 in management consulting fees to the director and COO for the six months ended September 30, 2025 (compared to $7,624 in prior year).
• Received repayment of $3,821 from a related party during the six months ended September 30, 2025.
• Amount due to current directors of the company was $60,547 as of September 30, 2025, up from $56,476 as of March 31, 2025.

Stakeholder Impact

• Shareholders: Significant dilution risk from future equity capital raises. Continued losses and going concern uncertainty pose a risk to investment value.
• Creditors: Increased convertible notes payable and accrued interest indicate higher debt burden, potentially increasing credit risk.
• Management/Employees: The company's ability to continue as a going concern directly impacts job security and operational stability.
• Customers/Partners: The company's financial instability and internal control weaknesses could affect its ability to deliver on its platform and service commitments.

Next Steps

• Continue to modify and enhance the e-commerce software for chosen vertical markets.
• Solicit clients in multiple industries for the B2B, B2C, and D2C platform.
• Create subsidiaries in markets with significant sales opportunities.
• Complete the acquisition of the spirits industry marketplace provider during the quarter ended March 31, 2026.
• Refine AI automation tools based on pilot program data.
• Raise additional capital through debt or equity financing to fund operations and implement the business plan.
• Remediate material weaknesses in internal control over financial reporting.

Key Dates

Recommendation

The company exhibits severe financial distress with substantial revenue declines (78% and 70% for the three and six months, respectively), widening net losses, a rapidly diminishing cash balance, and a worsening working capital deficiency. The explicit 'going concern' warning, coupled with increasing convertible debt and material weaknesses in internal controls, indicates a high probability of further financial deterioration and significant shareholder dilution. While strategic pivots to AI and e-commerce are noted, their positive impact is not evident in current financials, and the company's ability to execute these plans is severely hampered by its precarious financial state. This presents an extremely high-risk investment profile.

Keywords

e-commerce platform, AI automation, B2B, B2C, D2C, digital transformation, software development, startup, going concern, convertible notes, financial results, SEC filing, quarterly report, CARO Holdings