{"url_path":"/sec/spty/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition","topic":"sec","document":{"doc_type":"10-K/A","doc_date":"2026-06-05","source_url":"https://www.sec.gov/Archives/edgar/data/1840102/0001520138-26-000207-index.html","accession_number":"0001520138-26-000207","cik":"0001840102","ticker":"SPTY","issuer_name":"SPECIFICITY, INC.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1840102/0001520138-26-000207-index.html","primary_entity_key":"0001840102","primary_entity_name":"SPECIFICITY, INC."},"word_count":2522,"has_tables":true,"body_markdown":"** **\n\n**Item 7. Management’s Discussion and Analysis of Financial Condition\nand Results of Operations**\n\n** **\n\nThe discussion and analysis of our financial condition and results\nof operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted\nin the United States of America. This discussion should be read in conjunction with the other sections of this Form 10-K/A, including\n“Risk Factors,” and the Financial Statements. The various sections of this discussion contain a number of forward-looking\nstatements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout\nthis Annual Report on Form 10-K/A. See “Forward-Looking Statements.” Our actual results may differ materially. The preparation\nof these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities\nand the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and\nexpenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater\ndetail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances,\nthe results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent\nfrom other sources. Actual results may differ from these estimates under different assumptions or conditions.\n\n \n\nAs used in this “Management’s Discussion and Analysis of Financial\nCondition and Results of Operation,” except where the context otherwise requires, the term “we,” “us,”\n“our,” or “the Company,” refers to the business of Specificity, Inc.\n\n** **\n\n 15 \n\n[Table of Contents](#toc) \n\n** **\n\n**Executive Overview**\n\n \n\nWe are a full service digital marketing firm that delivers marketing solutions\nin real-time to help our clients identify potential customers who are actively in the buying cycle. Our clients can select their digital\nmarket service and level that best suits their needs. We are primarily focused on attracting prospective clients that have revenues ranging\nfrom $5 million to $25 million with a focus on Business to Business (“B2B”) and Business to Consumer (“B2C”)\nconsumer markets and at least $5,100 in monthly marketing spend. Prospective clients in our target market often have their own marketing\nteams that can more effectively leverage our flagship Specificity digital marketing services. We have additional digital marketing solutions\nfor small business and do-it-yourself marketing professionals.\n\n \n\nOur underlying technology solution utilizes BiToS and Mobile Advertising\nIdentifiers (MAIDs) to build audiences, effectively eliminating bot traffic and ad waste and produces real-time messaging opportunities\nto reach target audiences more efficiently than broad based market messaging platforms. We also implements intuitive ad sequencing, audience\nID technology, Artificial Intelligence (“AI”) integration, saturation modeling, conversion funneling, Customer Relationship\nManagement (“CRM”) integration, traffic resolution, and comprehensive analytics reporting.\n\n \n\nWe primarily generate revenue through recurring fixed monthly digital\nservices agreements for the vast majority of our clients. We bill for our services at the beginning of each month, and our services are\ncompleted at the end of the month. We also generate revenue through marketing campaigns for product or service launches and other non-recurring\nevents.\n\n \n\n**Critical Accounting Policies and Estimates**\n\n \n\nOur significant accounting policies are more fully described in Note 4\nof our audited financial statements. Those material accounting estimates that we believe are the most critical to an investor’s\nunderstanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal\nof our financial position and results of operations and require the application of significant judgment by our management to determine\nthe appropriate assumptions to be used in the determination of certain estimates.\n\n \n\n*Accounts Receivable and Allowance for Doubtful Accounts*\n\n \n\nWe do not have significant accounts receivable as our billing practice\nrequires that our clients provide an upfront form of payment prior to commencement of services each billing period. Accordingly, we do\nnot expect to have write-offs or adjustments to accounts receivable which could have a material adverse effect on our financial position,\nresults of operations or cash flows as the portion which is deemed uncollectible is already taken into account when the revenue is recognized.\nAccounts receivable is recorded net of an allowance for doubtful accounts, if needed. We consider any significant changes to the financial\ncondition of our clients and any other external market factors that could indicate that our client may have difficulty meeting their\nfinancial obligations. We do not expect to have write-offs or adjustments to accounts receivable which could have a material adverse\neffect on our financial position, results of operations or cash flows as the portion which is deemed uncollectible is already taken into\naccount when the revenue is recognized.\n\n \n\n 16 \n\n[Table of Contents](#toc) \n\n* *\n\n*Revenue Recognition*\n\n \n\nWe recognize revenue in accordance with the Financial Accounting Standards\nBoard (“FASB”) issued Accounting Standards Codification (“ASC”) No. 606, *Revenue from Contracts with Customers*,\nwhich provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Our\ncontracts with clients are fee-for-service agreements to deliver digital marketing services. We bill our clients in advance for our services\non or before the 1st of each month unless cancelled by the client in accordance with the terms of the service agreement. Revenue\nis recorded as services are performed which typically all occurs within a calendar month. If any customer pays for digital marketing\nservices in advance for a planned campaign or non-recurring event, those payments are initially recorded as deferred revenue and then\nrecognized as revenue when digital marketing services are delivered. Our contracts with customers do not typically have performance conditions,\nmilestones or other conditions that would prevent revenue from being earned in the month our services are delivered.\n\n \n\n*Convertible Debt*\n\n \n\nWe may enter into negotiated short term convertible debt agreement to\nprovide bridge capital in between equity raises. Our convertible debt agreements often include an original issue discount ranging from\n10% to 25% and additional inducements including restricted stock, warrants as additional consideration, and common stock conversation\nfeatures that may be exercised by the noteholder that is either at or out of the money. We evaluate the terms of convertible debt issue\nprior to accepting such agreements to determine whether there are embedded derivative instruments, including embedded conversion options,\nwhich are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host\ninstrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated,\nthe bifurcated derivative instruments are accounted for as a single, compound derivative instrument. Convertible debt is treated as traditional\ndebt unless it includes a convertible debt feature as described below:\n\n \n\n·Freestanding\nStock Issued. We have issued stock as an inducement for convertible debt agreements.\nWe record the fair value of common stock issued as a debt discount as a contra liability\nand amortize it over the life of the convertible debt term and recognize common stock at\npar value and additional paid in capital if the stock consideration is not treated as a derivative.\nWe amortize debt discount in the caption “interest expense” in the statement\nof operations. We estimate the value of stock issued in connection with convertible debt\nbased on quoted market prices for the Company’s common stock which is a Level 1 fair\nvalue measurement.\n\n \n\n·Embedded\nDerivatives. Our convertible debt agreements do not typically contain embedded derivatives.\nWe estimate the fair value of the convertible debt derivative using the Black Scholes method\nupon the date of issuance. If the fair value of the convertible debt derivative is higher\nthan the face value of the convertible debt, the excess is immediately recognized as interest\nexpense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability\nwith an offsetting amount recorded as a debt discount, which offsets the carrying amount\nof the debt. The convertible debt derivative is revalued at the end of each reporting period\nand any change in fair value is recorded as a gain or loss in the statement of operations.\nThe debt discount is amortized through interest expense over the life of the debt.\n\n \n\n·Warrants\nto Purchase Common Stock. We have issued warrants as an inducement for convertible debt\nagreements. We estimate the fair value of any warrants issued in connection with convertible\ndebt and record the fair value of such warrants as a debt discount, which is recorded as\na contra-liability against the debt and amortized the balance over the life of the underlying\ndebt as amortization of debt discount expense which is included in the caption “interest\nexpense” in the statement of operations. The offset to contra-liability is recorded\nas additional paid in capital if the stock consideration is not treated as a derivative.\nWe estimate the fair value of warrants issued using a Black Scholes option pricing model\nwhich is a Level 2 fair value measurement.\n\n \n\n 17 \n\n[Table of Contents](#toc) \n\n* *\n\n*Share-Based Compensation*\n\n \n\nShare-based compensation is accounted for based on the requirements of\nASC 718 – “Compensation–Stock Compensation”, which requires recognition in the financial statements of the cost\nof employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee\nor director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires\nmeasurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the\naward. Share-based compensation is recorded in the statement of operations. Issuances of share-based compensation to date did not include\nany service performance element and as such equity awards were expensed and reported as share based compensation in the statement of\noperations when granted to recipients.\n\n \n\n**Results of Operations for the Year Ended December 31, 2025 as Compared\nto the Year Ended December 31, 2024**\n\n \n\nRevenues\n\n \n\nFor the year ended December 31, 2025, total revenue increased approximately\n10% to $1,090,450 as compared to $991,143 last year. Excluding new international revenues of approximately $64,669, domestic revenues\nincreased approximately 9%, as compared to last year. The increase in domestic revenues was attributable to three new large customer contracts.\nThe Company’s revenue may fluctuate from year to year depending on the customers digital marketing requirements. Customers are generally\npermitted to pause future marketing services which could materially affect the timing of expected revenues.\n\n \n\nCost of revenues\n\n \n\nDuring the year ended December 31, 2025, cost of revenues increased\nto $650,188 as compared to $522,715 last year. The increase was due to increased labor, market data volume and costs we use to run client\nmarketing campaigns and services. Our total cost of services may fluctuate from time to time depending on the types of marketing services\nand campaigns we run for our clients.\n\n \n\nOperating expenses\n\n \n\nDuring the year ended December 31, 2025, operating expenses decreased\nto $811,220 as compared to $974,128 last year. The decrease in operating expenses was primarily due to a reduction in our sales team and\nadministrative staff.\n\n \n\nOther expenses\n\n \n\nDuring the year ended December 31, 2025, other expenses increased to\n$183,109 as compared to $109,561 last year, primarily driven by higher original issue discount interest expense incurred in connection\nwith our convertible note issuances during 2025. In 2024, we recorded an extinguishment of debt charge of $11,409 related to our convertible\nnote conversion rate modification and another charge of $29,242 related to our early termination of our operating lease and the remainder\nrelated to our working capital funded debt interest costs.\n\n \n\nProvision for income taxes\n\n \n\nDuring the year ended December 31, 2025 and 2024, there was no provision\nfor income taxes as we had net operating losses. In 2024, we placed a full valuation allowance on net deferred tax assets of $2,275,710.\n\n \n\n 18 \n\n[Table of Contents](#toc) \n\n \n\nNet loss\n\n \n\nDuring the year ended December 31, 2025, our net loss decreased to\n$554,067 as compared to $615,261 last year due to the reasons stated above.\n\n \n\n**Liquidity and Capital Resources**\n\n \n\nWe may need to raise additional capital to fund our operations and there\ncan be no assurance that additional capital will be available on acceptable terms or at all. In the short term, we must raise additional\ncapital through debt or equity financing to support our business operations and to grow our business. Over the long term, we must successfully\nexecute our growth plans to increase profitable revenue and income streams to generate positive cash flows to sustain adequate liquidity\nto meet minimum operating requirements.\n\n \n\nNet Working Capital\n\n \n\nAt December 31, 2025, we had a net working capital deficit of approximately\n$1,259,042 compared to a net working capital deficit of $1,171,822 at December 31, 2024. Our immediate sources of liquidity include cash\nand cash equivalents and accounts receivable; however, these cashflows from operations at this stage of our development will not sustain\nour operations. As shown in our audited financial statements, we have, since inception, financed operations and limited capital expenditures\nthrough the sale of stock and convertible notes and working capital funded debt.\n\n \n\nWe relied on proceeds from customer payments and financing activities\nfrom the private placement sale of common stock and convertible debt in 2025 and 2024 to fund our business operations and growth plans.\n\n \n\nWe must successfully execute our business plan to increase profitability\nin order to achieve positive cash flows to sustain adequate liquidity without requiring additional funds from external sources to meet\nminimum operating requirements. We may need to raise additional capital to fund our operations and there can be no assurance that additional\ncapital will be available on acceptable terms or at all.\n\n \n\nCash Flows from Operating Activities\n\n \n\nCash provided by operating activities provides an indication of our\nability to generate sufficient cash flow from our recurring business activities. For the year ended December 31, 2025, net cash used in\noperations was approximately $149,371 driven by current year operating loss, partially offset by accrued interest and original issue discount\namortization, stock compensation and deferral of suppler payments. For the year ended December 31, 2024, net cash used in operations was\napproximately $361,875 driven by current year operating loss, partially offset by deferral of supplier payments, non-cash losses associated\nwith extinguishment of debt and lease termination costs and stock compensation.\n\n \n\nCash Flows from Investing Activities\n\n \n\nFor the year ended December 31, 2025 and 2024, there were no inflows or\noutflows for investing activities.\n\n \n\nCash Flows from Financing Activities\n\n \n\nCash provided by financing activities provides an indication of our\ndebt financing and proceeds from capital raise transactions. For the year ended December 31, 2025, net cash provided by financing activities\nwas $147,945, primarily due to the proceeds from convertible notes, related party advances to finance working capital funding loan repayments,\nStrata Agreement equity issuances, partially offset by related party advance repayments to our CEO and working capital funding repayments\nto our specialty lenders. For the year ended December 31, 2024, net cash provided by financing activities was $316,139, primarily due\nto the proceeds from proceeds specialty funder working capital loans and the sale of common stock.\n\n \n\n 19 \n\n[Table of Contents](#toc) \n\n** **\n\n**Off-Balance Sheet Arrangements**\n\n \n\nWe have no off-balance sheet financing arrangements.\n\n \n\n**Contractual Obligations**\n\n \n\nNot required of smaller reporting companies."}