Worthy Financial

Worthy Financial, Inc. (WFI), the sole parent of the issuer, reported a net loss of $3,712,068 for the year ended December 31, 2019, with a working capital deficit of $3,769,586 and an accumulated deficit of $4,985,515 as of December 31, 2019.

“WFI, reported revenues of $1,054,984 for the year ended December 31, 2019 and had a net loss of $3,712,068. At December 31, 2019, WFI had a working capital deficit of $3,769,586 and had an accumulated deficit of $4,985,515.”

The Company is reliant on the efforts of Sally Outlaw (CEO/President) and Alan Jacobs (EVP/COO). Their loss could materially harm the business, and their expertise could not be easily replaced.

“We are reliant on the efforts of Sally Outlaw and Alan Jacobs. We rely on our management team and need additional key personnel to grow our business, and the loss of key employees or inability to hire key personnel could harm our business. We believe our success has depended, and continues to depend, on the efforts and talents of our executive officers and directors, Sally Outlaw and Alan Jacobs. Our key personnel have expertise that could not be easily replaced if we were to lose any or all of their services.”

The Company relies entirely on Sally Outlaw (CEO) and Alan Jacobs (CFO/Secretary) for management. The Company has no full-time employees of its own. Loss of either key person could materially harm the business.

“We are reliant on the efforts of Sally Outlaw and Alan Jacobs. We rely on our management team and need additional key personnel to grow our business, and the loss of key employees or inability to hire key personnel could harm our business. We believe our success has depended, and continues to depend, on the efforts and talents of our executive officers and directors, Sally Outlaw and Alan Jacobs.”

The Company is highly dependent on CEO Sally Outlaw and COO Alan Jacobs, with no employment agreements with these executives (only the CTO has an employment agreement). Loss of either could materially harm the business.

“We believe our success has depended, and continues to depend, on the efforts and talents of our executive officers, Sally Outlaw, our Chief Executive Officer, and Alan Jacobs, our Chief Operating Officer. Ms. Outlaw and Mr. Jacobs have expertise that could not be easily replaced if we were to lose any or all of their services. We currently do not have employment agreements with our executive officers, other than with James Eichman, our Chief Technology Officer.”

Worthy Peer Capital inadvertently sold $630,380 in bonds beyond its maximum offering amount due to a software coding error in redemption tracking, requiring rescission of those sales and refund to 2,250 investors.

“Notwithstanding the completion of the offering, Worthy Peer Capital inadvertently sold after March 17, 2020 $630,380 principal amount more in bonds than the maximum offering amount allowable under the offering statement due to a coding error as to redemption transactions in our software. As a result of the oversubscription, on March 25, 2020, Worthy Peer Capital rescinded the purchase and sale of the oversubscribed bonds by refunding and crediting the accounts of the 2,250 purchasers of the oversubscribed bonds their respective investment amounts, without any deduction therefrom, and cancelling the oversubscribed bonds.”

Bond holders may demand repayment (after 36 months, on 90 days notice) in amounts exceeding the Company's available cash, potentially causing delays or loss of investment. The bonds are unsecured and there is no sinking fund, insurance, or guarantee.

“The amount of repayments that bond holders demand at a given time may exceed the amount of funds we have available to make such payments which may result in a delay in repayment or loss of investment to the bond holders.”

On September 30, 2016 the SEC issued a Cease-and-Desist Order (Admin. Proc. File No. 3-17605) against D'Arelli Pruzansky, P.A. and Joseph D'Arelli, CPA (now CFO of the issuer), for failing to comply with SEC partner rotation requirements following a PCAOB inspection. The firm and individuals were ordered to cease and desist violations of Exchange Act Sections 10A(j) and 13(a), and to pay a joint civil penalty of $50,000.

“On September 30, 2016, the SEC issued an Order Instituting Cease-and-Desist Proceedings under Administrative Proceeding File No. 3-17605 pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (collectively, the 'Order') against D'Arelli Pruzansky, P.A. (the 'Firm'), Joseph D'Arelli, CPA, and Mitchell Pruzansky, CPA (collectively, the 'Respondents'). Respondents consented to the Order pursuant to Offers of Settlement, accepted by the SEC, pursuant to which Respondents neither admitted nor denied the findings in the Order.”

On September 30, 2016, the SEC issued a cease-and-desist order (Administrative Proceeding File No. 3-17605) against D'Arelli Pruzansky, P.A. and Joseph D'Arelli, CPA (now the Company's Senior VP/CFO) for failing to comply with SEC partner rotation requirements. Respondents consented to the order and paid a joint and several civil penalty of $50,000.

“On September 30, 2016, the SEC issued an Order Instituting Cease-and-Desist Proceedings under Administrative Proceeding File No. 3-17605 pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (collectively, the 'Order') against D'Arelli Pruzansky, P.A. (the 'Firm'), Joseph D'Arelli, CPA, and Mitchell Pruzansky, CPA (collectively, the 'Respondents'). Respondents consented to the Order pursuant to Offers of Settlement, accepted by the SEC, pursuant to which Respondents neither admitted nor denied the findings in the Order.”

The Company's CFO, Joseph D'Arelli, and his former firm D'Arelli Pruzansky, P.A. were subject to an SEC cease-and-desist order in 2016 for PCAOB partner-rotation violations and paid a $50,000 civil penalty jointly and severally.

“On September 30, 2016, the SEC issued an Order Instituting Cease-and-Desist Proceedings under Administrative Proceeding File No. 3-17605 pursuant to Section 21C of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (collectively, the 'Order') against D'Arelli Pruzansky, P.A. (the 'Firm'), Joseph D'Arelli, CPA, who currently serves as our CFO, and Mitchell Pruzansky, CPA (collectively, the 'Respondents'). Respondents consented to the Order pursuant to Offers of Settlement, accepted by the SEC, pursuant to which Respondents neither admitted nor denied the findings in the Order. During a PCAOB inspection in July 2015, the Firm was informed that it had failed to comply with the SEC's partner rotation requirements because Mr. D'Arelli and Mr. Pruzansky performed quarterly reviews after being the lead audit partner for five consecutive audits, with respect to two issuer audit clients. In August 2015, the Firm reviewed all of its engagements and self-reported instances of such rotation issues regarding additional issuer audit clients. Respondents were ordered to cease and desist from committing or causing any violations and any future violations of Sections 10A(j) and 13(a) of the Exchange Act and Rules 10A-2 and 13a-13 thereunder and to pay the SEC, jointly and severally, a civil penalty of $50,000.”

On September 30, 2016, the SEC issued an Order Instituting Cease-and-Desist Proceedings (Administrative Proceeding File No. 3-17605) against D'Arelli Pruzansky, P.A., Joseph D'Arelli, CPA, and Mitchell Pruzansky, CPA for failing to comply with SEC auditor partner rotation requirements (PCAOB violations). Respondents consented to the order without admitting or denying findings and jointly paid a civil penalty of $50,000.

“On September 30, 2016, the SEC issued an Order Instituting Cease-and-Desist Proceedings under Administrative Proceeding File No. 3-17605 pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (collectively, the 'Order') against D'Arelli Pruzansky, P.A. (the 'Firm'), Joseph D'Arelli, CPA, and Mitchell Pruzansky, CPA (collectively, the 'Respondents'). Respondents consented to the Order pursuant to Offers of Settlement, accepted by the SEC, pursuant to which Respondents neither admitted nor denied the findings in the Order. During a PCAOB inspection in July 2015, the Firm was informed that it had failed to comply with the SEC's partner rotation requirements because Mr. D'Arelli and Mr. Pruzansky performed quarterly reviews after being the lead audit partner for five consecutive audits, with respect to two issuer audit clients. In August 2015, the Firm reviewed all of its engagements and self-reported instances of such rotation issues regarding additional issuer audit clients. Respondents were ordered to cease and desist from committing or causing any violations and any future violations of Sections 10A(j) and 13(a) of the Securities Exchange Act of 1934 and Rules 10A-2 and 13a-13 thereunder and to pay the SEC, jointly and severally, a civil penalty of $50,000.”

In January 2021 the Company received an SEC subpoena relating to Peerbackers Advisory, LLC, a formerly wholly-owned registered investment adviser that was dissolved. The Company stated it is not the subject of enforcement proceedings and is cooperating.

“On January 11, 2021, the Company received a subpoena from the SEC in connection with Peerbackers Advisory, LLC ('Peerbackers'), a company that was wholly owned by the Company that was previously registered with the SEC as an investment adviser and did not conduct any business, requesting certain information from Peerbackers, the Company and the Company's operating subsidiaries. Peerbackers did not conduct any business, withdrew its SEC registration in July 2020 and was dissolved on January 16, 2021. The Company is not currently the subject of any enforcement proceedings. The Company is fully cooperating with the SEC's request.”

WPB2 failed to timely file post-qualification amendments to disclose interest rate increases and the post-qualification amendment had not yet been qualified as of January 27, 2025. WPB2 may be subject to SEC fines, penalties, or other enforcement actions.

“WPB2 has filed a post-qualification amendment to Form 1-A that includes the foregoing information, but it has yet to be qualified as of January 27, 2025. As a result of the foregoing, WPB2 may be subject to fines, penalties, or other enforcement actions.”

The Company competes for borrowers and business opportunities with sister entities Worthy Peer Capital II, Worthy Community Bonds, Inc., and Worthy Community Bonds II, Inc., all owned and managed by the same parent (WFI) and run by the same executive officers and directors, who do not devote all of their time to the Company.

“Worthy Peer Capital II, Inc.'s, Worthy Community Bonds, Inc.'s and Worthy Community Bonds II, Inc.'s business is similar to ours and we may be competing for borrowers with them; our executive officers and directors are also executive officers and directors of Worthy Peer Capital II, Inc., Worthy Community Bonds, Inc., Worthy Community Bonds II, Inc., and Worthy Management and they do not devote all of their time and efforts to our company.”

WFI is the sole parent and shareholder of the Company, Worthy Peer I, Worthy Peer II, and Worthy Management. Executive officers and directors simultaneously serve all entities and hold fiduciary duties to multiple competing affiliates. The Company may compete for borrowers with Worthy Peer I and Worthy Peer II. The Management Services Agreement with Worthy Management was not negotiated on an arm's-length basis. There are no assurances any conflict will be resolved in the Company's favor.

“We are subject to a number of conflicts of interest arising out of our relationship with WFI and its subsidiaries, including the following: WFI is our parent company and our sole shareholder. WFI is also the sole shareholder of Worthy Management, Worthy Peer I and Worthy Peer II. Accordingly, its executive officers and directors have fiduciary obligations to a number of entities. This potential conflict of interest poses a risk that the executive officers and directors may exercise their fiduciary duties in favor of affiliated entities rather than us even though they have fiduciary duties to us; Worthy Peer I's and Worthy Peer II's business is similar to ours and we may be competing for borrowers with them. This potential conflict of interest poses a risk that such borrowers may borrow from Worthy Peer I or Worthy Peer II rather than us; our executive officers and directors are also executive officers and directors of Worthy Peer I, Worthy Peer II and Worthy Management and they do not devote all of their time and efforts to our company.”

Worthy Peer Capital II made a loan of up to $550,000 (with $508,000 advanced) to a small business in which the Company's CFO, Joseph D'Arelli, is a minority shareholder and secured guarantor. The Company also received a 17.5% equity interest in that business as a condition of the loan.

“In March 2020, Worthy Peer Capital II entered into a loan receivable agreement with a small business of which its Chief Financial Officer, Joseph D'Arelli is a minority shareholder and a secured guarantor. The loan commitment is up to $550,000. As of June 30, 2020 Worthy Peer Capital II has loaned $508,000. The loan receivable pays interest at 18% per annum and has a 3 year term. Worthy Peer Capital II also received a 17.5% equity interest in the small business as a condition of the loan commitment.”

The Management Services Agreement with Worthy Management, Inc. was not negotiated on an arm's-length basis. The reimbursement amounts are determined by executive officers and directors who simultaneously serve as officers and directors of both the Company and Worthy Management. Additionally, the same officers serve all affiliated Worthy entities (Worthy Peer Capital I, II, Community Bonds, Inc.) that compete with the Company for borrowers, creating layered conflicts of interest.

“the terms of the Management Services Agreement with Worthy Management were not negotiated on an arms-length basis and the amounts to be reimbursed thereunder will be equal to the costs incurred by Worthy Management in paying for the staff and office expenses for the Company under the Management Services Agreement, will be determined by our executive officers and directors who are also executive officers and directors of Worthy Management notwithstanding that they are executive officers and directors of both our Company and Worthy Management.”

The Management Services Agreement with WWMI (a WWI subsidiary) was not negotiated on an arms-length basis. Reimbursement amounts are determined by executive officers who hold dual roles at both the Company and WWMI, creating a potential for self-dealing.

“The terms of the Management Services Agreement with WWMI, to be executed upon the initial closing of this offering, will not be negotiated on an arms-length basis and the amounts to be reimbursed thereunder will be equal to the costs incurred by WWMI in paying for the staff and office expenses for the Company under the Management Services Agreement, will be determined by certain of our executive officers and directors who are also executive officers and directors of WWMI.”

The Management Services Agreement between the Company and Worthy Management, Inc. (an affiliate controlled by parent WFI) was not negotiated on an arms-length basis. The same executive officers and directors control both the Company and Worthy Management, creating a conflict in determining reimbursement amounts.

“the terms of the Management Services Agreement with Worthy Management were not negotiated on an arms-length basis and the amounts to be reimbursed thereunder will be equal to the costs incurred by Worthy Management in paying for the staff and office expenses for the Company under the Management Services Agreement, will be determined by our executive officers and directors who are also executive officers and directors of Worthy Management notwithstanding that they are executive officers and directors of both our Company and Worthy Management.”

The Company's officers and directors (Sally Outlaw, Alan Jacobs, Jungkun Centofanti) simultaneously hold officer and director roles at the parent company WWI, its subsidiary WWMI (which provides management services), and the target acquisition entities WFI, WPB, and WPB2. The Management Services Agreement with WWMI was not negotiated on an arms-length basis. There are no assurances conflicts will be resolved in the Company's favor.

“We are subject to a number of conflicts of interest and related party transactions arising out of WWI's relationship with WFI and the Acquisition, including the following: Our Company has several officers and directors who are also officers and directors of WWI, WWMI, WFI, WWR, and the companies that will be acquired by WWI if the Acquisition closes ... The terms of the Management Services Agreement with WWMI, to be executed upon the initial closing of this offering, will not be negotiated on an arms-length basis and the amounts to be reimbursed thereunder will be equal to the costs incurred by WWMI in paying for the staff and office expenses for the Company under the Management Services Agreement, will be determined by certain of our executive officers and directors who are also executive officers and directors of WWMI.”

Multiple executive officers and directors of Worthy Wealth serve simultaneously at Worthy Financial, Inc. and its subsidiaries (WPB, WPB2, and others), creating conflicts of interest. These officers may devote insufficient time to the Company. The SPA acquisition is a related-party transaction between entities sharing key personnel. Terms of the Management Services Agreement with WWM will not be negotiated at arms-length.

“We are subject to a number of conflicts of interest arising out of our relationship with WFI and its subsidiaries, including the WPB Companies and WWR, which may not be resolved in our favor. ... Certain of our executive officers and directors, but not all, are also executive officers and directors of WFI, and its subsidiaries Worthy Peer Capital, Inc., Worthy Peer Capital II, Inc., Worthy Community Bonds, Inc., Worthy Property Bonds, Inc., Worthy Property Bonds 2, Inc., Worthy Wealth Realty, Inc., and Worthy Management.”

Sally Outlaw and Alan Jacobs serve as officers and directors simultaneously at the Company, WWI, WWMI, WFI, WPB, and WPB2. They also hold equity stakes in both WWI and WFI. This creates fiduciary conflicts across competing entities. The Management Services Agreement with WWMI was not negotiated at arms-length and the reimbursement amounts are set by these same dual-role officers.

“We are subject to a number of conflicts of interest and related party transactions arising out of WWI's relationship with WFI and the Acquisition, including the following: Our Company has several officers and directors who are also officers and directors of WWI, WWMI, WFI and the companies that will be acquired by WWI if the Acquisition closes ... and, accordingly, such persons have fiduciary obligations to other entities as well as to the Company.”

The Company's license to use WFI's Worthy Fintech Platform and Worthy App is governed only by a verbal agreement (not a written contract). This creates material uncertainty around enforceability, proof of terms, and potential disputes. The license fee is $10 per active user per year.

“On July 1, 2020, we entered into a verbal agreement (not a written agreement) with WFI to pay a license fee to WFI in the amount of $10 per active user per year. There are no other terms to such verbal agreement. In light of the fact that our agreement with WFI is a verbal contract (rather than a written contract), we and WFI are exposed to the following risks: the risk that we and WFI misunderstood an important term or terms of the contract, such as how much was to be paid or what services were to be performed; the risk that we and WFI will have a dispute regarding what was agreed to because we and WFI are only relying on memory; and the risk that a court will not enforce the contract because we and WFI may not be able to prove the existence of the contract or its terms.”

The Company's agreement with WFI to use the Worthy Fintech Platform is a verbal (not written) contract, creating risk of dispute over terms, inability to prove its existence in court, and potential adverse effect on business if a court declines to enforce it.

“On November 2, 2020, we entered into a verbal agreement (not a written agreement) with WFI to pay a license fee to WFI in the amount of $10 per active user per year. There are no other terms to such verbal agreement. In light of the fact that our agreement with WFI is a verbal contract (rather than a written contract), we and WFI are exposed to the following risks:”