Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America. This discussion should be read in conjunction with the other sections of this Form 10-K, including "Risk Factors," and the Financial Statements. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See "Forward-Looking Statements." Our actual results may differ materially. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

As used in this "Management's Discussion and Analysis of Financial Condition and Results of Operation," except where the context otherwise requires, the term "we," "us," "our," or "the Company," refers to the business of Specificity, Inc.

Executive Overview

We are a full service digital marketing firm that delivers marketing solutions in real-time to help our clients identify potential customers who are actively in the buying cycle. Our clients can select their digital market service and level that best suits their needs. We are primarily focused on attracting prospective clients that have revenues ranging from $5 million to $25 million with a focus on Business to Business ("B2B") and Business to Consumer ("B2C") consumer markets and at least $5,100 in monthly marketing spend. Prospective clients in our target market often have their own marketing teams that can more effectively leverage our flagship Specificity digital marketing services. We have additional digital marketing solutions for small business and do-it-yourself marketing professionals. Our underlying technology solution utilizes BiToS and Mobile Advertising Identifiers (MAIDs) to build audiences, effectively eliminating bot traffic and ad waste and produces real-time messaging opportunities to reach target audiences more efficiently than broad based market messaging platforms. We also implements intuitive ad sequencing, audience ID technology, Artificial Intelligence ("AI") integration, saturation modeling, conversion funneling, Customer Relationship Management ("CRM") integration, traffic resolution, and comprehensive analytics reporting.

We primarily generate revenue through recurring fixed monthly digital services agreements for the vast majority of our clients. We bill for our services at the beginning of each month and our services are completed at the end of the month. We also generate revenue through marketing campaigns for product or service launches and other non-recurring events.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 3 of our audited financial statements. Those material accounting estimates that we believe are the most critical to an investor's understanding of our financial results and condition are discussed immediately below and are particularly important to the portrayal of our financial position and results of operations and require the application of significant judgment by our management to determine the appropriate assumptions to be used in the determination of certain estimates.

Accounts Receivable and Allowance for Doubtful Accounts

We do not have significant accounts receivable as our billing practice requires that our clients provide an upfront form of payment prior to commencement of services each billing period. Accordingly, we do not expect to have write-offs or adjustments to accounts receivable which could have a material adverse effect on our financial position, results of operations or cash flows as the portion which is deemed uncollectible is already taken into account when the revenue is recognized. Accounts receivable is recorded net of an allowance for doubtful accounts, if needed. We consider any significant changes to the financial condition of our clients and any other external market factors that could indicate that our client may have difficulty meeting their financial obligations. We do not expect to have write-offs or adjustments to accounts receivable which could have a material adverse effect on our financial position, results of operations or cash flows as the portion which is deemed uncollectible is already taken into account when the revenue is recognized.

Revenue Recognition

We recognize revenue in accordance with The Financial Accounting Standards Board ("FASB") issued Accounting Standards Codification No. 606, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. Our contracts with clients are fee-for-service agreement to deliver digital marketing services. A significant number of our clients are billed a fixed monthly retainer for our services and such retainer is automatically renewed on a monthly basis on the first of the month unless cancelled by the client in accordance with the terms of the service agreement. Revenue is recorded as services are performed which typically all occurs within a calendar month. If any customer pays for digital marketing services in advance for a planned campaign or non-recurring event, those payments are initially recorded as deferred revenue and then recognized as revenue when digital marketing services are delivered. Our contracts with customers do not typically have performance conditions, milestones or other conditions that would prevent revenue from being earned in the month our services are delivered.

Convertible Debt

We may enter into negotiated short term convertible debt agreement to provide bridge capital in between equity raises. Our convertible debt agreements include an original issue discount, freestanding stock awards or warrants as additional consideration, and a common stock conversation feature that may be exercised by the noteholder that is either at or out of the money. We evaluate the terms of convertible debt issue prior to accepting such agreements to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. If a security or instrument becomes convertible only upon the occurrence of a future event outside the control of the Company, or, is convertible from inception, but contains conversion terms that change upon the occurrence of a future event, then any contingent beneficial conversion feature is measured and recognized when the triggering event occurs, and contingency has been resolved. Our prior convertible debt agreements included inducements such as restricted common stock and warrants to purchase common stock. We account for the following convertible debt features when present:

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Embedded Derivatives.We estimate the fair value of the convertible debt derivative using the Black Scholes method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt.

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Warrants issued as consideration with Convertible Debt.We estimate the fair value of any warrants issued in connection with convertible debt and record the fair value of such warrants as a debt discount, which is recorded as a contra-liability against the debt and amortized the balance over the life of the underlying debt as amortization of debt discount expense which is included in the caption "interest expense" in the statement of operations. The offset to contra-liability is recorded as additional paid in capital if the stock consideration is not treated as a derivative. We estimate the fair value of warrants issued using a Black Scholes option pricing model which is a Level 2 fair value measurement.

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Stock issued as consideration with Convertible Debt.We estimate the fair value of common stock awarded in connection with the issuance of convertible debt as a debt discount. We record debt discounts as a contra-liability against the debt and amortize the balance over the life of the underlying debt as amortization of debt discount expense which is included in the caption "interest expense" in the statement of operations. The offset to contra-liability is common stock for the par value of common stock issued and the balance is recorded as additional paid in capital if the stock consideration is not treated as a derivative. We estimate the value of stock issued in connection with convertible debt based on quoted market prices for the Company's common stock which is a Level 1 fair value measurement.

If the conversion feature does not qualify for either the derivative treatment or as a BCF, the convertible debt is treated as traditional debt.

Share-Based Compensation

Share-based compensation is accounted for based on the requirements of ASC 718 - "Compensation-Stock Compensation", which requires recognition in the financial statements of the cost of employee, non-employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award. Share-based compensation is recorded in the statement of operations. Issuances of share-based compensation to date did not include any service performance element and as such equity awards were expensed and reported as share based compensation in the statement of operations when granted to recipients.

Results of Operations for the Year Ended December 31, 2024 as Compared to the Year Ended December 31, 2023

Revenues

During the year ended December 31, 2024, our revenue decreased to $991,143 as compared to $1,096,575 in the same period last year. The decrease in revenues was primarily related to delays of new client marketing campaigns that were outside our control. The timing of revenues may vary from time to time depending on the types of marketing services and campaigns authorized by our clients.

Cost of revenues

During the year ended December 31, 2024, cost of revenues slightly decreased to $522,715 as compared to $548,278 last year. The decrease was due to lower market data costs we use to run client marketing campaigns and services. Our total cost of services may fluctuate from time to time depending on the types of marketing services and campaigns we run for our clients.

Operating expenses

During the year ended December 31, 2024, operating expenses significantly decreased to $974,128 as compared to $1,322,607 last year. The decrease in operating expenses was primarily due to a reduction in our sales team and administrative staff. We attempted to execute an aggressive sales growth strategy in 2022 and 2023 to test our ability to scale our business model; but later decided near the end of 2023 to scale back and run with a nimbler and more experienced sales team.

Other expenses

During the year ended December 31, 2024, other expenses decreased to $109,561 as compared to $295,326 last year. In 2024, we recorded an extinguishment of debt charge of $11,409 related to our convertible note conversion rate modification and another charge of $29,242 related to our early termination of our operating lease and the remainder related to our working capital funded debt interest costs. In 2023, we had higher interest charges related to original issue discounts tied to convertible debt and related debt inducements and a non-recurring intangible asset impairment charge associated with our decision to discontinue our investor center software solution.

Provision for income taxes

During the year ended December 31, 2024 and 2023, there was no provision for income taxes as we had a net operating losses. In 2023, we placed a full valuation allowance on net deferred tax assets of approximately $2,129,650.

Net loss

During the year ended December 31, 2024, our net loss decreased to $615,261 as compared to $1,069,636 last year due to the reasons stated above.

Liquidity and Capital Resources

We may need to raise additional capital to fund our operations and there can be no assurance that additional capital will be available on acceptable terms or at all. In the short term, we must raise additional capital through debt or equity financing to support our business operations and to grow our business. Over the long term, we must successfully execute our growth plans to increase profitable revenue and income streams to generate positive cash flows to sustain adequate liquidity to meet minimum operating requirements.

Net Working Capital

At December 31, 2024, we had a net working capital deficit of approximately $1,171,822 compared to a net working capital deficit of $920,469 at December 31, 2023. Our immediate sources of liquidity include cash and cash equivalents and accounts receivable; however, these cashflows from operations at this stage of our development will not sustain our operations. As shown in our audited financial statements, we have, since inception, financed operations and limited capital expenditures through the sale of stock and convertible notes and working capital funded debt.

We relied on proceeds from customer payments and financing activities from the private placement sale of common stock in 2024 and 2023 to fund our business operations and growth plans.

We must successfully execute our business plan to increase profitability in order to achieve positive cash flows to sustain adequate liquidity without requiring additional funds from external sources to meet minimum operating requirements. We may need to raise additional capital to fund our operations and there can be no assurance that additional capital will be available on acceptable terms or at all.

Cash Flows from Operating Activities

Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. For the year ended December 31, 2024, net cash used in operations was approximately $361,875 driven by current year operating loss, partially offset by stock compensation. For the year ended December 31, 2023, net cash used in operations was $603,658 driven primarily by current year operating loss and accrued liabilities, partially offset by non-cash expenses including debt discount amortization, intangible asset impairment and stock-based compensation.

Cash Flows from Investing Activities

For the year ended December 31, 2024 and 2023, there were no inflows or outflows for investing activities.

Cash Flows from Financing Activities

Cash provided by financing activities provides an indication of our debt financing and proceeds from capital raise transactions. For the year ended December 31, 2024, net cash provided by financing activities was $316,139, primarily due to the proceeds from proceeds specialty funder working capital loans and the sale of common stock. For the year ended December 31, 2023, net cash provided by financing activities was $629,999, primarily due to the proceeds from working capital funding advances from specialty lenders, proceeds from the sale of a convertible note, proceeds from sale of common stock and proceeds from advances from our CEO.

Off-Balance Sheet Arrangements

We have no off-balance sheet financing arrangements.

Contractual Obligations

Not required of smaller reporting companies.