10-Q: 1606 Corp. Q3 2025: AI Chatbot Focus Amidst Going Concern

1606 Corp. reports continued net losses and a going concern warning for Q3 2025, shifting fully to AI chatbot development after exiting CBD product sales.

Summary

• Net loss for the nine months ended September 30, 2025, was $802,966, a significant decrease from $4,195,265 for the same period in 2024.
• No revenue was generated for the nine months ended September 30, 2025, compared to $7,195 in revenue from consulting services in 2024.
• Total operating expenses decreased to $402,762 for the nine months ended September 30, 2025, from $3,932,839 in 2024, primarily due to the absence of stock-based compensation ($2.99 million in 2024).
• The company has a "going concern" warning, indicating substantial doubt about its ability to continue operations for the next twelve months without raising additional capital.
• Cash balance as of September 30, 2025, was critically low at $998, down from $2,078 at December 31, 2024.
• Total current liabilities increased to $2,904,041 as of September 30, 2025, from $2,205,632 at December 31, 2024.
• Derivative liabilities significantly increased to $1,706,892 as of September 30, 2025, from $40,603 at December 31, 2024.
• The company has fully transitioned from selling CBD products to focusing solely on AI chatbot development (ChatCBDW and Chat IR).
• Material weaknesses in internal control over financial reporting were identified, including a lack of a functioning audit committee and inadequate segregation of duties.

Sentiment

Score: 2

Explanation: The company faces severe financial challenges, including a "going concern" warning, critically low cash, no revenue, and increasing liabilities. While operating expenses decreased, this was largely due to a non-recurring stock-based compensation expense from the prior year, not improved operational efficiency. The strategic pivot to AI chatbots has yet to yield any revenue, and significant internal control weaknesses are present.

Positives

• Significant reduction in net loss for the nine months ended September 30, 2025, to $802,966 from $4,195,265 in the prior year, primarily due to lower operating expenses.
• Operating expenses decreased substantially from $3,932,839 in the nine months ended September 30, 2024, to $402,762 in the same period of 2025, mainly due to the absence of stock-based compensation.
• Successful development and launch of two AI chatbots: ChatCBDW for the CBD industry (beta live since October 31, 2023) and Chat IR for public companies (completed April 30, 2024).
• Strategic partnerships established, including with Cool Blue Distribution for ChatCBDW beta testing and engagement with AR XTLabs for AI chatbot development.
• The company is actively pursuing a monthly recurring licensing fee model for its AI chatbot services.

Negatives

• No revenue generated for the three and nine months ended September 30, 2025, indicating a complete cessation of previous revenue streams and a failure to generate new revenue from AI chatbots.
• The company has a "going concern" warning, highlighting significant financial instability and dependence on future capital raises.
• Cash balance is critically low at $998 as of September 30, 2025.
• Total current liabilities increased by over $700,000 to $2,904,041, driven largely by a massive increase in derivative liabilities.
• Accumulated deficit grew to $7,739,968 as of September 30, 2025, from $6,937,002 at December 31, 2024.
• The company is in default on a promissory note payable to Singlepoint for $63,456, with accrued interest of $11,900.
• Significant increase in derivative liabilities to $1,706,892 from $40,603, indicating complex and potentially volatile financial instruments.
• Net loss per share remained at $(0.00) for the three months ended September 30, 2025, and $(0.01) for the nine months ended September 30, 2025, despite a lower overall net loss, due to a substantial increase in weighted average common shares outstanding.

Risks

• Going Concern: Substantial doubt about the company's ability to continue as a going concern for the next twelve months due to lack of significant profitable operations and dependence on raising capital.
• Liquidity Risk: Critical cash balance of $998 and a stated cash need of approximately $1,000,000 to continue operations for the next 12 months.
• Revenue Generation: Failure to generate any revenue from its new AI chatbot business model for the nine months ended September 30, 2025.
• Default on Debt: The company is in default on a promissory note payable to Singlepoint.
• Derivative Liabilities Volatility: Significant and increasing derivative liabilities ($1,706,892) introduce complexity and potential volatility to financial results due to fair value changes.
• Internal Control Weaknesses: Material weaknesses in internal control over financial reporting, including lack of a functioning audit committee and inadequate segregation of duties, pose risks to financial reporting reliability.
• Dilution: Continued issuance of common stock for cash, note conversions, and preferred stock conversions (e.g., 88,709,285 shares issued in nine months ended Sept 30, 2025) leads to significant shareholder dilution.
• Forward-Looking Statements: Actual results may differ materially from forward-looking statements due to known and unknown risks and uncertainties.

Future Outlook

The company plans to generate revenue from its AI chatbot services (ChatCBDW and Chat IR) through a monthly recurring licensing fee model. Management intends to pursue additional equity financing through private placements of common stock to sustain operations and achieve profitability, as they do not anticipate achieving profitable operations or adequate cash flows in the near term. The company has a stated cash need of approximately $1,000,000 to continue operations for the next 12 months.

Management Comments

• "Management believes the assumptions made to carve out the Company's underlying standalone financial statements from the consolidated Singlepoint results prior to the April 2021 spin-off are reasonable."
• "Management will continue to pursue additional equity financing through private placements of the Company's common stock."
• "We are working towards getting CBD brands and retailers to sign up for the bot on a monthly basis."
• "We are focused on signing business to use the chatbot with a monthly recurring licensing fee model."
• "Our plans to pay off current liabilities through sales and increasing revenue through sales of our services and or products, or through financing activities as mentioned above, although there is no guarantee that we will ultimately do so."

Industry Context

1606 Corp. is positioning itself in the growing AI chatbot market, specifically targeting the CBD industry with ChatCBDW and public companies with Chat IR. This aligns with broader industry trends of leveraging AI for customer engagement, information dissemination, and operational efficiency. The shift from direct CBD product sales to AI software-as-a-service (SaaS) reflects a strategic pivot towards a potentially higher-margin, scalable business model, though the company has yet to demonstrate revenue generation in this new segment. The use of Microsoft Azure and integration with ChatGPT indicates reliance on established AI infrastructure.

Comparison to Industry Standards

• The company's lack of revenue generation from its AI chatbot services for the nine months ended September 30, 2025, contrasts sharply with the rapid growth and adoption seen in the broader AI and SaaS industries, where companies like OpenAI (developer of ChatGPT) and various AI-powered customer service platforms are experiencing significant revenue expansion and market penetration. For example, many early-stage AI companies, even those pre-revenue, typically demonstrate user growth or pilot program successes that indicate future revenue potential, which is not evident here.
• The company's critical cash position ($998) and "going concern" warning are far below typical industry benchmarks for sustainable operations, especially for technology companies that often require substantial capital for R&D and market penetration, often raising millions in seed or Series A funding.
• The significant increase in derivative liabilities and reliance on convertible notes with substantial discounts (e.g., 25% discount to market price for conversions) suggests a challenging capital raising environment compared to more established or promising AI ventures that can secure funding on more favorable terms, often at higher valuations and with less dilutive structures.
• The identified material weaknesses in internal controls, including the lack of a functioning audit committee and inadequate segregation of duties, fall short of corporate governance standards expected of publicly traded companies, regardless of size, and are a red flag for investors compared to well-governed peers in the technology sector.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a party to claims and actions arising out of its business operations from time to time. Management evaluates these to assess probable or possible losses and makes accruals where appropriate. No specific material legal proceedings are detailed as of September 30, 2025.

Related Party Transactions

• Promissory Note to Singlepoint Inc.: In June 2021, the company issued a promissory note for $63,456 to Singlepoint Inc. (its former parent company) for asset purchase. The note bears 5% interest, has a three-year term, and is due in monthly installments of $1,902. The company is currently in default, with accrued interest totaling $11,900 as of September 30, 2025.
• Promissory Note to Former CEO and Shareholder: During the nine months ended September 30, 2025, the company borrowed $489,000 in cash payments from its former CEO and shareholder and repaid $25,000. An addendum dated August 6, 2025, amended the note to a principal balance of $1,739,550, accruing 10% interest per annum, and made it convertible into common stock at a 25% discount to the closing bid price. The convertible note principal balance totaled $1,829,550 as of September 30, 2025.

Stakeholder Impact

• Shareholders: Significant dilution risk due to ongoing issuance of common stock for cash and conversions (e.g., 88,709,285 shares issued in nine months ended Sept 30, 2025). The "going concern" warning and lack of revenue pose a substantial risk to investment value.
• Creditors: The company is in default on a related party note and has increasing convertible note and derivative liabilities, indicating elevated credit risk.
• Employees: The company's financial instability and "going concern" warning could impact job security and future compensation.
• Customers: The company's ability to sustain and develop its AI chatbot services could be impacted by its financial health, potentially affecting service reliability and future innovation for its clients.

Next Steps

• Continue efforts to sign CBD brands and retailers for the ChatCBDW bot on a monthly recurring licensing fee model.
• Focus on signing public companies to use the Chat IR bot with a monthly recurring licensing fee model.
• Pursue additional equity financing through private placements of common stock to sustain operations.
• Address the identified material weaknesses in internal control over financial reporting, including establishing a functioning audit committee and improving segregation of duties.
• Develop strategies to increase revenue and/or manage operating expenses to achieve profitability and address the going concern issue.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a "going concern" warning, critically low cash reserves ($998), and zero revenue from its new business model. Liabilities are increasing, and the company is in default on existing debt. Significant shareholder dilution is ongoing, and material weaknesses in internal controls raise serious governance concerns. Without a clear path to profitability or substantial, non-dilutive capital infusion, the investment carries extremely high risk, making a "strong sell" recommendation appropriate for any existing holdings.

Keywords

AI Chatbot, CBD Industry, Public Companies, Artificial Intelligence, SEC Filing, 10-Q, Financial Report, Going Concern, Derivative Liability, Corporate Governance, Stock Dilution, Technology, Software, SaaS