10-K: Specificity, Inc. Reports Continued Losses and Going Concern Doubt in 2024 Annual Filing, Citing Revenue Declines and Capital Raise Delays

Specificity, Inc.'s 2024 annual report reveals a net loss of $615,261 and a worsening working capital deficit, raising substantial doubt about its ability to continue as a going concern, despite efforts to streamline operations and secure new financing.

Summary

• Specificity, Inc. reported a net loss of $615,261 for the year ended December 31, 2024, a decrease from $1,069,636 in 2023.
• Revenue decreased to $991,143 in 2024 from $1,096,575 in 2023, primarily due to delays in new client marketing campaigns.
• Operating expenses significantly decreased to $974,128 in 2024 from $1,322,607 in 2023, attributed to a reduction in sales team and administrative staff.
• The company used $361,875 in cash from operating activities in 2024, an improvement from $603,658 used in 2023.
• As of December 31, 2024, Specificity, Inc. had a net working capital deficit of $1,171,822, worsening from $920,469 at December 31, 2023.
• An accumulated deficit of $8,081,892 was reported as of December 31, 2024.
• The company's independent auditors issued a going concern opinion, indicating substantial doubt about its ability to continue operations for the next 12 months.
• Capital raise efforts were delayed due to SEC enforcement proceedings against the company's former audit firm, BF Borgers CPA PC.
• Specificity, Inc. is an emerging growth company focused on digital marketing solutions for B2B and B2C markets, targeting small and medium-sized businesses (SMBs) with revenues between $5 million and $25 million.
• The company's CEO, Jason Wood, holds approximately 48% of outstanding common stock and 80% of all voting rights through Series A Preferred Stock, giving him significant control.

Sentiment

Score: 3

Explanation: The company faces significant financial distress, including a going concern doubt, worsening working capital deficit, and declining revenue. While cost management improved and a new COO was appointed, the reliance on external financing, internal control weaknesses, and delays in capital raise present substantial risks to its viability and growth.

Positives

• Net loss decreased to $615,261 in 2024 from $1,069,636 in 2023, indicating improved cost management.
• Cash used in operating activities decreased to $361,875 in 2024 from $603,658 in 2023, showing a reduction in cash burn from operations.
• Operating expenses significantly decreased by $348,479, primarily due to a reduction in sales and administrative staff, reflecting efforts to streamline operations.
• The company successfully engaged a new audit firm, CM3 Advisory, to reaudit prior financial statements and review 2024 quarterly statements, addressing a key compliance issue.
• Appointment of Richard Berry as COO on November 1, 2024, brings over 30 years of executive experience in driving innovation and growing revenue.

Negatives

• Substantial doubt exists about the company's ability to continue as a going concern, as stated by independent auditors.
• Revenue decreased to $991,143 in 2024 from $1,096,575 in 2023, primarily due to delays in new client marketing campaigns.
• Net working capital deficit worsened to $1,171,822 at December 31, 2024, from $920,469 at December 31, 2023.
• Cash and cash equivalents significantly decreased to $3,413 at December 31, 2024, from $49,149 at December 31, 2023, highlighting a severe cash shortage.
• The company has an accumulated deficit of $8,081,892 as of December 31, 2024.
• Material weaknesses in internal control over financial reporting were identified, including inadequate financial reporting monitoring, insufficient document retention policies, heavy reliance on outside consultants for financial reporting, and lack of board/audit committee oversight.
• The company is insolvent and has historically failed to generate sufficient cash flows from revenues to cover costs, relying on debt and equity financing.
• The Strata Purchase Agreement, a key source of equity capital, was unable to be utilized due to non-compliance with periodic financial reporting.
• A convertible note is in default, and its conversion price was decreased from $1.50 to $0.50, resulting in an $11,408 debt extinguishment loss.
• The company abandoned its office space and incurred a $29,242 loss on termination of operating lease.
• The CEO's personal expenses are covered in lieu of salary, totaling $88,240 in 2024 and $196,661 in 2023, which are treated as compensation.
• Unsecured, interest-free advances from the CEO and COO to the company total $295,669 as of December 31, 2024.
• The company's CEO, Jason Wood, holds 93.0% of the total voting rights, giving him significant control and potentially limiting minority shareholder influence.

Risks

• Insolvency and reliance on debt and equity financing, which has created a dilutive effect on common stock.
• Minimal revenues from operations make it difficult to evaluate future business prospects and could lead to poor budgetary decisions.
• Substantial doubt about the ability to continue as a going concern if unable to generate significant revenue or secure additional financing.
• Uncertainty regarding the ability to grow the business without additional financing beyond the existing Strata Purchase Agreement.
• Expenses required to operate as a public company (estimated $150,000 annually) will reduce funds available for business plan implementation.
• Failure to comply with reporting requirements could lead to delisting from OTCQB and increased difficulty in selling stock.
• The controlling stockholder (Jason Wood) has significant influence (93.0% voting power), potentially delaying or preventing a change in control and limiting minority shareholder influence.
• Risk of delisting from OTCQB if minimum bid price, freely traded float, or shareholder requirements are not met.
• Potential for issuing securities to investors in private placement transactions (PIPE transactions) at a discount to prevailing market price, leading to price depreciation and share dilution.
• Limited operating history and expected continued losses until the business scales and generates positive cash flow and net profit.
• No additional identified source of funding beyond the Strata Purchase Agreement and short-term bridge loans; directors have not guaranteed loans.
• Intensely competitive business environment where competitors are incorporating AI, potentially leading to innovation advantages, lower barriers to entry, and changes in customer expectations.
• Minimal capital restricts the ability to develop services and expand, requiring a minimum of $1,000,000 annually in working capital.
• Risk of losing or failing to attract/retain key executives or employees, whose skills and client relationships are critical assets.
• Exposure to the risk of client defaults, despite advanced billing practices.
• Subject to government regulation and litigation risk related to advertising, consumer privacy, and digital tracking technologies, leading to increased compliance costs and potential penalties.
• Reliance on information technology systems and risk of cybersecurity incidents affecting reputation or business.
• Dependence on current officers (CEO, COO, CRO) with no Key Man insurance; loss of officers could negatively affect operations.
• Identified material weaknesses in internal control over financial reporting (lack of segregation of duties, inadequate document retention, reliance on outside consultants, lack of board/audit committee oversight) could result in material misstatements.
• High risk of being forced to file for bankruptcy if unable to meet capital requirements.

Future Outlook

The company expects to continue incurring operating losses in the next fiscal year due to investments in sales resources to grow its target market base, which may outpace short-term revenues. A portion of the 2025 capital raise is expected to be spent on business development, acquisition of additional digital marketing capabilities, and hiring subject matter expertise to support infrastructure and public company reporting requirements. The long-term success is dependent on increasing profitable revenue and income streams to generate positive cash flows.

Management Comments

• "We expect a portion of our capital raise in 2025 will be spent on business development, development and/or acquisition of additional digital marketing capabilities and hiring subject matter expertise to support our infrastructure and public company reporting requirements."
• "Having a well-trained staff in place will not only allow for the expeditious on-boarding of new clients but will also go a long way in retaining clients we bring on. Strong client retention is foundational to long-term success in our business."
• "We have already automated much of what we do so the length of time required to properly train people is drastically reduced."
• "Our goal in doing so [tech incubator projects] is to spin them off into their own company and then take our profit when the time is right."
• "We feel we require annually a minimum of $1,000,000 in working capital through sales and/or capital raise activities to provide sufficient capital to fully develop our business plan."

Industry Context

Specificity, Inc. operates in a highly competitive and fragmented digital marketing industry, competing with large global holding companies and numerous independent agencies. The industry is rapidly evolving with significant investment in Artificial Intelligence (AI) solutions, which could lower barriers to entry and affect customer expectations. While large tech companies are removing targeting mechanisms, Specificity aims to differentiate by offering more targeted audience identification, which it believes lowers client cost per acquisition and improves ROI. The company's strategy to acquire new clients in mass is positioned against the backdrop of businesses seeking more targeted campaigns due to increased waste from less targeted approaches by larger platforms.

Comparison to Industry Standards

• The document does not provide specific comparable companies, projects, or results to assess against global benchmarks.
• The company operates in a highly competitive industry with larger, more diversified, and better-funded competitors like Omnicom Group Inc., Interpublic Group of Companies, Inc., WPP plc, Publicis Groupe SA, Dentsu Inc., Havas SA, and consultancies like Accenture and Deloitte, many of whom are actively incorporating AI into their business models.
• Specificity's focus on granular audience targeting and lower cost per acquisition aims to provide a competitive advantage against broader market messaging platforms, especially as larger tech companies limit targeting tools.

Management Changes

Corporate Governance

Legal Proceedings

• No material bankruptcy, receivership, or similar proceedings with respect to the company.
• No administrative or judicial proceedings arising from federal, state, or local environmental provisions.
• Not involved in any legal proceedings, nor aware of any pending or threatened litigation against the company.
• However, given the company's insolvency, there is a high risk of being forced to file for bankruptcy if capital requirements are not met.

Related Party Transactions

• On January 13, 2021, the company purchased 80% of Pickpocket, Inc. from CEO Jason Wood for a 5-year, 5% promissory note of $1,000,000. Accrued interest on this note was $100,000 as of December 31, 2024, and $50,000 as of December 31, 2023.
• The company covers the CEO's personal living expenses and other expenses incurred by entities controlled by Mr. Wood in lieu of a cash base salary. These amounts were $88,240 in 2024 and $196,661 in 2023, treated as compensation.
• The CEO and COO provided unsecured credit advances to the company to fund operations between financing rounds. These advances do not incur interest and are due on demand, totaling $295,669 as of December 31, 2024, and $284,500 as of December 31, 2023.
• On January 13, 2021, the company sold 260,000 shares of Series B Preferred Stock to Kevin Frisbie (a Director) for $250,000.
• In 2022, CEO Jason Wood sold 500,000 shares of registered common stock to various parties at $1.50 per share.

Stakeholder Impact

• Shareholders: Face significant dilution risk from ongoing debt and equity financing, including potential PIPE transactions at a discount. The substantial doubt about going concern status and material weaknesses in internal controls pose a high risk of investment loss. The CEO's controlling voting interest limits minority shareholder influence.
• Employees: The company reduced its sales team and administrative staff in late 2023. Future success depends on attracting and retaining highly skilled personnel with competitive compensation packages, which may include stock.
• Customers: Delays in new client marketing campaigns impacted 2024 revenues. The company's ability to deliver cutting-edge solutions and maintain client retention is crucial for its long-term success.
• Creditors: The company has working capital funding loans and a convertible note, some of which are in default. The going concern doubt increases the risk for creditors.
• Suppliers: The company's financial instability and reliance on external funding could impact its ability to meet obligations to suppliers.

Next Steps

• Remediate non-compliance with periodic financial reporting to utilize the Strata Purchase Agreement.
• Grow the sales team in Tampa and New England markets, then expand geographically.
• Achieve sequential revenue growth in 2025.
• Spend a portion of 2025 capital raise on business development, acquisition of additional digital marketing capabilities, and hiring subject matter expertise.
• Hire an internal team of experts to comply with additional SEC reporting requirements as the company grows.
• Develop and implement a remediation plan for identified material weaknesses in internal control over financial reporting in 2025 and 2026, including building an information repository, developing monthly financial accounting procedures, financial management coaching, and implementing policies for segregation of duties.
• Add staff, initiate training, and add additional subject matter expertise to improve processes, policies, procedures, and documentation of internal control processes.
• Continue to identify technology-based marketing solutions as a tech incubator, take equity share positions, and use internal resources to complete buildout and marketing, with the goal of spinning them off into their own companies.

Key Dates

Recommendation

Keywords

Digital Marketing, B2B Marketing, B2C Marketing, SMB Marketing, White-Label Marketing, Ad Agencies, Mobile Advertising Identifiers, MAIDs, Artificial Intelligence, AI Integration, Customer Relationship Management, CRM, Tech Incubator, SEC Filing, 10-K, Going Concern, Financial Reporting, Corporate Governance, Capital Raise, OTC Markets, SPTY