10-K: Specificity Inc. Reports Fiscal Year 2023 Results, Navigates Audit Firm Challenges

Specificity Inc.'s 2023 10-K filing reveals a net loss, efforts to secure financing, and a change in audit firms amidst SEC enforcement proceedings.

Summary

• Specificity Inc., a digital marketing firm, reported a net loss of $1,069,636 for the year ended December 31, 2023, and used cash of $603,658 in operating activities.
• Revenue decreased slightly to $1.1 million compared to $1.2 million in 2022, while cost of revenues decreased to $548,278 from $765,888.
• Operating expenses significantly decreased to $1.3 million from $4.1 million in 2022, primarily due to a reduction in sales team and administrative staff.
• The company's ability to raise additional equity capital was delayed due to SEC enforcement proceedings against its former audit firm, BF Borgers CPA PC.
• Specificity hired CM3 Advisory as its new independent registered accounting firm and is leveraging a Strata Purchase Agreement to raise equity.
• The company is focused on achieving sequential revenue growth and adding vertically integrated marketing solution capabilities.
• There is substantial doubt about the company's ability to continue as a going concern without additional financing or revenue generation.
• As of December 31, 2023, the market value of the company's common stock held by non-affiliates was $3,037,578.
• As of February 24, 2025, there were approximately 104 stockholders of record of the company's common stock.
• The company identified material weaknesses in its internal control over financial reporting and is developing a remediation plan.

Sentiment

Score: 4

Explanation: The document presents a mixed picture, with decreased losses and operating expenses offset by declining revenue, a going concern warning, and internal control weaknesses. The change in auditors and potential capital raise add uncertainty.

Positives

• Operating expenses were significantly reduced, indicating improved cost management.
• The company secured a Strata Purchase Agreement to raise additional equity.
• The company is focused on achieving sequential revenue growth and adding vertically integrated marketing solution capabilities.
• The company has automated much of what it does so the length of time required to properly train people is drastically reduced.

Negatives

• The company reported a net loss of $1,069,636 for the year ended December 31, 2023.
• Revenue decreased slightly compared to the previous year.
• The company has a net working capital deficit of $920,369.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company identified material weaknesses in its internal control over financial reporting.

Risks

• The company's ability to continue as a going concern is dependent on raising additional capital and generating sufficient revenues.
• The company faces intense competition in the digital marketing industry.
• The company's controlling stockholder has significant influence over the company.
• The company's securities may be delisted from the OTCQB market.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company is exposed to the risk of client defaults.
• The company is subject to regulations and litigation risk that could restrict its activities or negatively impact its revenues.
• The company relies extensively on information technology systems and cybersecurity incidents could adversely affect it.
• The company is dependent upon its current officers.

Future Outlook

The company believes its 2025 focus will continue to be achieving sequential revenue growth and adding additional vertically integrated marketing solution capabilities its clients demand, and expects a portion of its 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 its infrastructure and public company reporting requirements.

Management Comments

• The company is focused on achieving sequential revenue growth and adding additional vertically integrated marketing solution capabilities.
• The company intends to leverage the Strata Purchase Agreement to raise equity necessary to execute its full business plan.

Industry Context

The digital marketing industry is highly competitive and fragmented, with numerous agencies vying for clients; Specificity competes with large global holding companies and independent agencies, and must provide innovative solutions leveraging data, technology, and creativity to maintain and grow client relationships.

Comparison to Industry Standards

• The document does not provide enough information to make a detailed comparison to industry standards.
• The document mentions competition from Omnicom Group Inc., Interpublic Group of Companies, Inc., WPP plc, Publicis Groupe SA, Dentsu Inc. and Havas SA, as well as with numerous independent agencies that operate in multiple markets.
• The document mentions competition from consultancies, like Accenture and Deloitte, tech platforms, media companies and other services firms that offer related services.

Management Changes

Related Party Transactions

• The company has related party transactions with its CEO, including payment of personal expenses in lieu of salary and a promissory note related to the acquisition of Pickpocket Inc.
• The company's CEO and COO provided unsecured credit advances to the company to fund operations in between financing rounds.

Stakeholder Impact

• Shareholders face the risk of dilution and potential loss of investment due to the company's need for additional financing and the going concern warning.
• Employees may be affected by potential cost-cutting measures or changes in company strategy.
• Customers may experience changes in service offerings or pricing as the company adapts to its financial situation.
• Creditors face the risk of non-payment or delayed payment due to the company's financial difficulties.

Next Steps

• The company plans to execute its business plan to increase profitability.
• The company plans to leverage the Strata Purchase Agreement to raise equity.
• The company plans to remediate material weaknesses in its internal control over financial reporting.
• The company plans to add staff, initiate training, and add additional subject matter expertise to improve its processes, policies, procedures, and documentation of its internal control processes.

Key Dates

Keywords

digital marketing, financial results, going concern, internal control, capital raise, revenue, net loss, Specificity Inc., audit firm, Strata Purchase Agreement