WORTHY FINANCIAL, INC.

FORM C-AR

ANNUAL REPORT

April 27, 2023

One Boca Commerce Center

551 NW 77 Street, Suite 212

Boca Raton, FL 33487

Phone: (561) 288-8467

www.worthy.us

THE COMPANY

Worthy Financial, Inc. was formed on February 24, 2016 as a Delaware corporation. We were organized to create a “Worthy Community,” focusing on peer financing and secured lending, which we were initially targeting to the millennials who are surpassing the baby boomers as the nation’s largest living generation. For additional information on our company, please see the section entitled “The Company and Its Business.”

No federal or state securities commission or regulatory authority has passed upon the accuracy or adequacy of this document. The U.S. Securities and Exchange Commission (the “SEC”) does not pass upon the accuracy or completeness of any disclosure document or literature. The Company is filing this Form C-AR pursuant to Regulation CF (§ 227.100 et seq.) which requires that it must file a report with the Commission annually and post the report on its website at www.worthy.us no later than 120 days after the end of each fiscal year covered by the report.

THIS FORM C-AR DOES NOT CONSTITUTE AN OFFER TO PURCHASE OR SELL SECURITIES.

TABLE OF CONTENTS 

ABOUT THIS FORM C-AR	3
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS	3
RISK FACTORS	4
THE COMPANY AND ITS BUSINESS	13
THE TEAM	24
OWNERSHIP AND CAPITAL STRUCTURE; RIGHTS OF THE SECURITIES	26
FINANCIAL STATEMENTS	31
REGULATORY INFORMATION	38
FINANCIAL STATEMENTS	F-1

2

ABOUT THIS FORM C-AR

You should rely only on the information contained in this Form C-AR. We have not authorized anyone to provide you with information different from that contained in this Form C-AR. You should assume that the information contained in this Form C-AR is accurate only as of the date of this Form C-AR, regardless of the time of delivery of this Form C-AR. Our business, financial condition, results of operations, and prospects may have changed since that date. Statements contained herein as to the content of any agreements or other document are summaries and, therefore, are necessarily selective and incomplete and are qualified in their entirety by the actual agreements or other documents.

This Annual Report on Form C-AR is dated April 27, 2022 (the “Annual Report”).

When used herein, the terms “we,” “us,” “ours,” “Worthy Financial,” “WFI,” and the “Company” refer to Worthy Financial, Inc., a Delaware corporation, together with our wholly-owned subsidiary Worthy Peer Capital, Inc., a Delaware corporation (“Worthy Peer Capital”), and its wholly-owned subsidiary Worthy Lending, LLC, a Delaware limited liability company (“Worthy Lending”), our wholly-owned subsidiary Worthy Peer Capital II, Inc. a Florida corporation (“Worthy Peer Capital II”) and its wholly-owned subsidiary Worthy Lending II, LLC, a Delaware limited liability company (“Worthy Lending II”), our wholly-owned subsidiary Worthy Community Bonds, Inc., a Florida corporation (“Worthy Community Bonds”), and its wholly-owned subsidiary Worthy Lending III, LLC, a Delaware limited liability company (“Worthy Lending III”), our wholly-owned subsidiary Worthy Community Bonds II, Inc., a Florida corporation (“Worthy Community Bonds II”), and its wholly-owned subsidiary Worthy Lending IV, LLC, a Delaware limited liability company (“Worthy Lending IV”), Worthy Property Bonds, Inc., a Florida corporation (“Worthy Property Bonds”) and its wholly-owned Subsidiary Worthy Lending V, LLC, a Delaware limited liability company (“Worthy Lending V”), Worthy Property Bonds 2, Inc., a Florida corporation (“Worthy Property Bonds 2”) and its wholly-owned Subsidiary Worthy Lending VI, LLC, a Delaware limited liability company (“Worthy Lending VI”)and our wholly-owned subsidiary Worthy Management, Inc. (“Worthy Management”), a Florida corporation. “Worthy Bonds” refers to bonds issued or to be issued by Worthy Peer Capital, Worthy Peer Capital II, Worthy Community Bonds, Worthy Community Bonds II, Worthy Property Bonds and Worthy Property Bonds 2.

The information which appears on, or is accessible through our websites at www.worthy.us, www.worthybonds.com and www.worthylending.com is not a part of, and is not incorporated by reference into, this Annual Report.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. Forward-looking statements include information concerning our possible or assumed future results of operations and expenses, business strategies and plans, competitive position, business environment, and potential growth opportunities. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this Annual Report. You should read this Annual Report and the other documents that we have filed with the SEC, completely and with the understanding that our actual future results may be materially different from what we expect.

Any forward-looking statement made by us in this Annual Report speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

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RISK FACTORS

Investing in our securities involves risks. In addition to the other information contained in this Annual Report, you should carefully consider the following risks. The occurrence of any of the following risks might cause you to lose all or a part of your investment. Some statements in this Annual Report, including statements in the following risk factors, constitute forward-looking statements. Please refer to “Special Note Regarding Forward-Looking Statements” for more information regarding forward-looking statements.

Risks Related to our Industry

The lending industry is highly regulated. Changes in regulations or in the way regulations are applied to our business could adversely affect our business.

Changes in laws or regulations or the regulatory application or judicial interpretation of the laws and regulations applicable to us could adversely affect our ability to operate in the manner in which we intend to conduct business or make it more difficult or costly for us to participate in or otherwise make loans. A material failure to comply with any such laws or regulations could result in regulatory actions, lawsuits, and damage to our reputation, which could have a material adverse effect on our business and financial condition and our ability to participate in and perform our obligations to investors and other constituents.

The initiation of a proceeding relating to one or more allegations or findings of any violation of such laws could result in modifications in our methods of doing business that could impair our ability to collect payments on our loans or to acquire additional loans or could result in the requirement that we pay damages and/or cancel the balance or other amounts owing under loans associated with such violation. We cannot assure you that such claims will not be asserted against us in the future.

Worsening economic conditions may result in decreased demand for loans, cause borrowers’ default rates to increase, and harm our operating results.

Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets, historically have created a difficult environment for companies in the lending industry. Many factors, including factors that are beyond our control, may have a detrimental impact on our operating performance. These factors include general economic conditions, unemployment levels, energy costs and interest rates, as well as events such as natural disasters, global pandemics such as the COVID-19 outbreak, acts of war, terrorism, and catastrophes.

Our borrowers are small businesses. Accordingly, our borrowers have historically been, and may in the future remain, more likely to be affected or more severely affected than large enterprises by adverse economic conditions. These conditions may result in a decline in the demand for loans by potential borrowers or higher default rates by borrowers.

There can be no assurance that economic conditions will remain favorable for our business or that demand for loans in which we participate or default rates by borrowers will remain at current levels. Reduced demand for loans would negatively impact our growth and revenue, while increased default rates by borrowers may inhibit our access to capital and negatively impact our profitability. Further, if an insufficient number of qualified individuals and small businesses apply for loans, our growth and revenue would be negatively impacted.

We operate in a competitive market, which may intensify, and competition may limit our ability to implement our business model and have a material adverse effect on our business, financial condition, and results of operations.

We operate in a competitive market, which may intensify, and competition may limit our ability to implement our business model and have a material adverse effect on our business, financial condition, and results of operations. Our competitors may be able to have a lower cost for their services, which would lead to borrowers choosing such other competitors over the Company. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of loans and investments, offer more attractive pricing or other terms and establish more relationships than us.

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The ongoing COVID-19 pandemic, which has included multiple variations of the original virus, may cause an overall decline in the economy as a whole, and may materially harm our business, results of operations and financial condition.

The Company’s operations have been, and may continue to be, affected by the ongoing outbreak of COVID-19 which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by future variants of the virus or waves of outbreaks is still uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows.

Possible areas that may be affected include, but are not limited to, higher redemption rate of holders of the Worthy Bonds, a decline in the demand for loans by potential borrowers or higher default rates by borrowers, and unavailability of professional services and other resources. In addition, the employees of affiliated companies that provide services to us could be medically or mentally affected by the pandemic and may be required to work remotely. This situation could cause a reduction in productivity or the inability to complete critical tasks for the Company.

Several borrowers, especially companies in the retail sector and others manufacturing for or distributing to the retail industry, experienced reductions in revenue and cash flow. We have worked constructively with such borrowers to reschedule interest and/or principal payments to accommodate such COVID-19 related cases.

The entire actual effects of the ongoing pandemic are difficult to assess at this time as the actual effects will depend on many factors beyond the control and knowledge of the Company. However, new waves or variants may cause an overall decline in the economy as a whole and therefore may materially harm our business, results of operations and financial condition.

Risks Related to Our Company

We have a history of losses, which we expect to continue.

The Company is currently not profitable. The Company expects that it will lose money in the foreseeable future, and we may not be able to achieve profitable operations. In order to achieve profitable operations, we will need to raise significant proceeds from our planned Regulation A Offering pursuant to SEC file No. 024-11341, which we have filed with the SEC, as amended and which has not yet been declared qualified by the SEC at this time, and the sale of Worthy Bonds through Regulation A offerings conducted by our subsidiaries and effectively deploy the proceeds of the Worthy Bond offerings by making secured loans or other permissible investments that provide a sufficient return to pay the interest payments on the Worthy Bonds, fund our operating expenses and generate a net profit. The Company cannot be certain that its business will be successful or that it will generate significant revenues and become profitable. An investment in the Company is highly speculative, and no assurance can be given that the shareholders will realize any return on their investment or that they will not lose their entire investment.

There is substantial doubt about our ability to continue as a going concern.

During the years ended December 31, 2022 and 2021, the Company generated net losses of approximately $9,949,000 and $6,400,000, and had cash provided by and (used in) operations of approximately ($4,401,000) and $176,000 for the years ended December 31, 2022 and 2021, respectively. The net losses incurred from inception have resulted in an accumulated deficit of approximately $25,459,000 at December 31, 2022. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of these consolidated financial statements. During 2023, the Company continues to incur losses. No assurances can be given that the Company will achieve success without seeking additional financing. There is no assurance additional financing or that any additional financing if required, can be obtained, or obtained on reasonable terms acceptable to the Company. These consolidated financial statements do not include adjustments related to the recoverability and classifications of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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We may need to raise additional capital.

We may have substantial future cash requirements but no assured financing source to meet such requirements. We do not presently generate sufficient revenues to pay the interest on the Worthy Bonds and fund our operating expenses. Our future capital requirements will depend on a number of factors, including our ability to generate sufficient “spread” between the interest rate on the Worthy Bonds and the interest our lending subsidiaries receive from loans and other permissible investments they make using proceeds received from the sale of Worthy Bonds. If adequate funds are not available, the Company may be required to delay or scale back its business plan.

We may experience losses on the loans we make or other permissible investments by our lending subsidiaries.

While the loans made and to be made by our lending subsidiaries are and are planned to be primarily secured by the assets of the borrowers, there is no assurance that general economic conditions or the specific business and financial condition of the borrower, will not result in loan defaults. In that event, we would incur the costs to foreclose on our secured interests and there are no assurances that the amount we may recover from the disposal of the assets will equal the amounts of the obligation and associated costs.

Competition for employees is intense, and we may not be able to attract and retain the highly skilled employees whom we need to support our business.

Currently, our staffing needs are satisfied by a total of 12 full time employees and 1 independent contractor who provides a substantial portion of their time to us. We will need to expand our employee base as our Company continues to grow. Competition for highly skilled personnel, especially data analytics personnel, is extremely intense, and we could face difficulty identifying and hiring qualified individuals in many areas of our business. We may not be able to hire and retain such personnel. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we intend to invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve borrowers could diminish, resulting in a material adverse effect on our business.

We have a limited history in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We have a limited history in an evolving industry that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to:

● continue to sell Worthy Bonds;

● expand the user base for the Worthy App and the Worthy Website;

● increase the number and total volume of loans and other credit products extended to borrowers;

● improve the terms on which loans are made to borrowers as our business becomes more efficient;

● increase the effectiveness of our subsidiaries’ direct marketing and lead generation through referral sources;

● successfully develop and deploy new products;

● favorably compete with other companies that are currently in, or may in the future enter, the business of lending to small businesses;

● successfully navigate economic conditions and fluctuations in the credit market;

● effectively manage the growth of our business; and

● successfully expand our business into adjacent markets.

We may not be able to successfully address these risks and difficulties, which could harm our business and cause our operating results to suffer.

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Our subsidiaries have begun to make loans with the proceeds from the sale of bonds, however their lending history is limited.

Worthy Lending, the first lending subsidiary we established, made its first loan in September 2018 and, as of the date of this Annual Report, our lending subsidiaries have approximately 38 outstanding loans. While our lending subsidiaries have identified several additional opportunities for investment, their lending history is limited. Interest that our subsidiaries earn on the proceeds from their Regulation A offerings of bonds will not cover interest payments accruing on the bonds or the subsidiaries’ operating expenses. Accordingly, until such time as our subsidiaries are able to generate significant income from their loans and investments they will be required to utilize cash on hand and the net proceeds of their respective offerings to make the interest payments, which will reduce the amount of proceeds available to them to make loans.

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

Our subsidiaries will use their commercially reasonable efforts to maintain sufficient cash and cash equivalents on hand to honor repayment demands of bond holders. Historically, each of Worthy Peer Capital, Worthy Peer Capital II and Worthy Community Bonds have set aside, and we expect Worthy Community Bonds II and Worthy Property Bonds will set aside, approximately 20% of the proceeds from their respective sales of Worthy Bonds in cash and cash equivalents. However, in the event there are more demands for repayment than available cash and cash equivalents on hand at a subsidiary, our subsidiaries may be required to (i) liquidate some of their respective publicly traded investments, loan portfolio, and other investments, (ii) seek commercial bank and non-bank lending sources, such as insurance companies, private equity funds and private lending organizations, for the provision of credit facilities, including, but not limited to, lines of credit, pursuant to which funds would be advanced to the subsidiary, or (iii) seek capital contributions from the Company.

During the year ended December 31, 2022, Worthy Peer Capital redeemed bonds totaling approximately $5,225,000. The Company funded these redemption requests using cash and cash equivalents, by liquidating publicly traded securities and by liquidating loans.

During the year ended December 31, 2022, Worthy Peer Capital II, Worthy Community Bonds and Worthy Property Bonds had approximately $6,928,000, $9,014,000 and $919,000, respectively, in bond redemptions. In each case, those subsidiaries used cash and cash equivalents, liquidated publicly traded securities or liquidated loans to meet the redemption requests.

In the event that subsidiaries cannot access the above sources of funds to honor repayments within the time frame of the repayment requests of bond holders, bond holders might have to wait for repayment until the above sources are realized. If the above sources do not generate enough funds to honor bond holders’ requests for repayment, there is a risk that the bond holders may lose some or all of their investment in the Worthy Bonds.

On August 22, 2022, Worthy Peer Capital, Inc. advised all bondholders that due to a number of domestic and global economic factors, some of its loans to small businesses, including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing, have defaulted in their payment obligations. While the Worthy Peer Capital, Inc.’s portfolio of real estate loans continues to perform well, the foregoing defaults in small business loans has caused current illiquidity of Worthy Peer Capital, Inc.’s overall loan portfolio. As a result, Worthy Peer Capital, Inc. temporarily delayed the redemption of outstanding bonds while continuing to accrue the 5.5% interest, as of April 1, 2023. $8,885,663 of Worthy Peer Capital Bonds had initially been subject to the suspension of redemptions. Since the date of suspension, Worthy Peer Capital, Inc. has made redemptions, in order of bond maturity and redemption requests, of approximately $1,278,000 and expects to continue to make redemptions as permitted by loan and investment liquidity. Prior to the suspension in redemptions Worthy Peer Capital, Inc. had redeemed $41,114,337 of Worthy Peer Capital Bonds. Collectively, Worthy Peer Capital, Inc. and sister companies Worthy Peer Capital II, Inc., and Worthy Community Bonds, Inc., have redeemed approximately $102,854,500 of Worthy Bonds to date. Worthy Peer Capital, Inc. continues to pursue outstanding loan collections and will redeem outstanding bonds with accrued interest as loan collections and other asset liquidation permits and will do so automatically in the order of bond maturity and redemption requests. To the extent that Worthy Peer Capital, Inc.’s asset liquidity does not provide sufficient funds for full bond redemption, it is the intention of WFI, the parent company of Worthy Peer Capital, Inc., to provide capital contributions to Worthy Peer Capital, Inc. from a pending equity financing.

If the information provided by borrowers is incorrect or fraudulent, we may misjudge a customer’s qualification to receive a loan, and our operating results may be harmed.

Our loan participation or loan decisions are based partly on information provided to us by loan applicants. To the extent that these applicants provide information to us in a manner that we are unable to verify, we may not be able to accurately assess the associated risk. In addition, data provided by third-party sources is a significant component of our underwriting process, and this data may contain inaccuracies. Inaccurate analysis of credit data that could result from false loan application information could harm our reputation, business, and operating results.

Our risk management efforts may not be effective.

We could incur substantial losses, and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, liquidity risk, and other market-related risk, as well as operational risks related to our business, assets, and liabilities. To the extent our models used to assess the creditworthiness of potential borrowers do not adequately identify potential risks, the risk profile of such borrowers could be higher than anticipated. Our risk management policies, procedures, and techniques may not be sufficient to identify all of the risks we are exposed to, mitigate the risks that we have identified, or identify concentrations of risk or additional risks to which we may become subject in the future.

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Our subsidiaries rely on various referral sources and other borrower lead generation sources, including lending platforms.

Unlike banks and other larger competitors with significant resources, our subsidiaries rely on smaller-scale marketing efforts, affinity groups, partners, and loan referral services to acquire borrowers. We do not have exclusive rights to referral services, and we cannot control which loans or the volume of loans we are sent. In addition, our competitors may enter into exclusive or reciprocal arrangements with their own referral services, which might significantly reduce the number of borrowers we are referred. Any significant reduction in borrower referrals could have an adverse impact on our loan volume, which will have a correspondingly adverse impact on our operations and our Company.

Our loans may be unsecured obligations of our borrowers.

We believe that some of our loans may be unsecured obligations of the borrowers. This means that, for those loans, we will not be able to foreclose on any assets of our borrowers in the event that they default. This limits our recourse in the event of a default. We may also attract borrowers who have fewer assets and may be engaged in less developed businesses than our peers. If we are unable to access collateral on our loans that default, our results of operations may be adversely impacted.

A significant disruption in our computer systems or a cybersecurity breach could adversely affect our operations.

We rely extensively on our computer systems to manage our loan origination and other processes. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber security breaches, vandalism, severe weather conditions, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities. If our systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to perform critical functions, which could adversely affect our business and results of operations. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information and a loss of confidence in our security measures, which could harm our business.

Our ability to protect the confidential information of our borrowers and investors may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions.

We process certain sensitive data from our borrowers and investors. While we have taken steps to protect confidential information that we receive or have access to, our security measures could be breached. Any accidental or willful security breaches or other unauthorized access to our systems could cause confidential borrower and investor information to be stolen and used for criminal purposes. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, our relationships with borrowers and investors could be severely damaged, and we could incur significant liability.

Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, federal regulators and many federal and state laws and regulations require companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause borrowers and investors to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation, we could lose borrowers and investors and our business and operations could be adversely affected.

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Any significant disruption in service on our platform or in our computer systems, including events beyond our control, could prevent us from processing or posting payments on loans, reduce the attractiveness of our marketplace and result in a loss of borrowers or investors.

In the event of a system outage and physical data loss, our ability to perform our servicing obligations, process applications or make loans available would be materially and adversely affected. The satisfactory performance, reliability and availability of our technology are critical to our operations, customer service, reputation and our ability to attract new and retain existing borrowers and investors.

Any interruptions or delays in our service, whether as a result of third-party error, our error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with our borrowers and investors and our reputation. Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. Our disaster recovery plan has not been tested under actual disaster conditions, and we may not have sufficient capacity to recover all data and services in the event of an outage. These factors could prevent us from processing or posting payments on the loans, damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause borrowers and investors to abandon our marketplace, any of which could adversely affect our business, financial condition and results of operations.

Our subsidiaries contract with third parties to provide services related to their online web lending and marketing, as well as systems that automate the servicing of their loan portfolios. While there are material cybersecurity risks associated with these services, we require that our vendors provide industry-leading encryption, strong access control policies, Statement on Standards for Attestation Engagements (SSAE) 16 audited data centers, systematic methods for testing risks and uncovering vulnerabilities, and industry compliance audits to ensure data and assets are protected. To date, we have not experienced any cyber incidents that were material, either individually or in the aggregate.

If our estimates of loan receivable losses are not adequate to absorb actual losses, our provision for loan receivable losses would increase, which would adversely affect our results of operations.

We maintain an allowance for loans receivable losses. To estimate the appropriate level of allowance for loan receivable losses, we consider known and relevant internal and external factors that affect loan receivable collectability, including the total amount of loan receivables outstanding, historical loan receivable charge-offs, our current collection patterns, and economic trends. If customer behavior changes as a result of economic conditions and if we are unable to predict how the unemployment rate, housing foreclosures, and general economic uncertainty may affect our allowance for loan receivable losses, our provision may be inadequate. Our allowance for loan receivable losses is an estimate, and if actual loan receivable losses are materially greater than our allowance for loan receivable losses, our financial position, liquidity, and results of operations could be adversely affected.

If a significant portion of our subsidiaries’ loan portfolios are past due, it could impact their ability to service payments on Worthy Bonds, which could adversely affect our results of operations.

Our subsidiaries’ loans generally are structured as interest only for at least the first year of repayment, then begin paying interest and principal in later years with all principal being due at maturity. At December 31, 2021, the Company had 2 loans receivable past due and on non-accrual status, which were past due by more than 90 days. These loans have a principal balance of $2,393,526 and accrued interest receivable balance of $209,963 at December 31, 2021. If our subsidiaries are unable to collect interest and principal on such loans or if their past due loan receivables increase as a percentage of their portfolios, they will be required to utilize cash on hand and the net proceeds of their respective offerings to make the interest payments and redemptions on their Worthy Bonds, which will reduce the amount of proceeds available to them to make loans and could adversely affect our results of operations.

We will face increasing competition and, if we do not compete effectively, our operating results could be harmed.

We compete with other companies that lend to small businesses. These companies include traditional banks, merchant cash advance providers, and newer, technology-enabled lenders. In addition, other technology companies that lend primarily to individual consumers have already begun to focus, or may in the future focus, their efforts on lending to small businesses. If we are not able to compete effectively with our competitors, our operating results could be harmed.

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Many of these competitors have significantly more resources and greater brand recognition than we do and may be able to attract borrowers more effectively than we do.

When new competitors seek to enter one of our markets, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or credit terms prevalent in that market, which could adversely affect our market share or ability to explore new market opportunities. Our pricing and credit terms could deteriorate if we act to meet these competitive challenges. Further, to the extent that the fees we pay to our strategic partners and borrower referral sources are not competitive with those paid by our competitors, whether on new loans or renewals or both, these partners and sources may choose to direct their business elsewhere. All of the foregoing could adversely affect our business, results of operations, financial condition, and future growth.

The collection, processing, storage, use, and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, or differing views of personal privacy rights.

We receive, collect, process, transmit, store, and use a large volume of personally identifiable information and other sensitive data from borrowers and purchasers of the Worthy Bonds and services. There are federal, state, and foreign laws regarding privacy, recording telephone calls, and the storing, sharing, use, disclosure, and protection of personally identifiable information and sensitive data. Specifically, personally identifiable information is increasingly subject to legislation and regulations to protect the privacy of personal information that is collected, processed, and transmitted. Any violations of these laws and regulations may require us to change our business practices or operational structure, address legal claims, and sustain monetary penalties, or other harms to our business.

The regulatory framework for privacy issues in the United States and internationally is constantly evolving and is likely to remain uncertain for the foreseeable future. The interpretation and application of such laws is often uncertain, and such laws may be interpreted and applied in a manner inconsistent with other binding laws or with our current policies and practices. If either we or our third-party service providers are unable to address any privacy concerns, even if unfounded, or to comply with applicable laws and regulations, it could result in additional costs and liability, damage our reputation, and harm our business.

We are reliant on the efforts of our officers and directors.

We rely on our management team and need additional key personnel to grow our business; 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 officers and directors.

Risks Related to Being Deemed an Investment Company under the Investment Company Act

We could be materially and adversely affected if we are deemed to be an investment company under the Investment Company Act.

We rely on the exception from the Investment Company Act set forth in Sections 3(c)(5)(c), 3(c)(5)(A) and/or 3(c)(5)(B) of the Investment Company Act, which excludes from the definition of investment company “any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates.

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We believe that Worthy Peer Capital, Worthy Peer Capital II, Worthy Community Bonds and Worthy Community Bonds II fall within the exception to the definition of an investment company provided by Section 3(c)(5)(a) and/or Section 3(c)(5)(b) of the Investment Company Act of 1940 (the “Investment Company Act”). Section 3(c)(5)(a) provides an exemption for a company that is primarily engaged in purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable and other obligations representing part or all of the sales price of merchandise, insurance, and services. Section 3(c)(5)(b) provides an exemption for a company that is primarily engaged in making loans to manufacturers, wholesalers and retailers of and to prospective purchasers of specified merchandise and/or services. To a lesser extent (not more than 45%) these subsidiaries may also make (i) secured loans to other borrowers, (ii) acquire mortgage or equity interests in real estate; (iii) make fixed income and/or equity investments; and (iv) and other types of loans and investments, provided the amount and nature of such loans does not cause them to lose their exemption from the registration requirements of the Investment Company Act. If for any reason we fail to meet the requirements of the exemptions provided by Section 3(c)(5)(a) and/or 3(c)(5)(b), Worthy Peer Capital, Worthy Peer Capital II, Worthy Community Bonds or Worthy Community Bonds II would be required to register as an investment company and be excluded from the Regulation A exemption from full registration of our bonds, which could materially and adversely affect our business.

“We believe that Worthy Property Bonds falls within the exception to the definition of an investment company provided by section 3(c)(5)(c) of the Investment Company Act which provides an exemption for a company that is primarily engaged in purchasing or otherwise acquiring mortgages and other liens on an interest in real estate. If for any reason we fail to meet the requirements of the exemption provided by section 3(c)(5)(c), Worthy Property Bonds would be required to register as an investment company and be excluded from the Regulation A exemption from full registration of its bonds which could materially and adversely affect our business.”

It is possible that the staff of the SEC could disagree with any of our determinations. If the staff of the SEC were to disagree with our analysis under the Investment Company Act, we would need to adjust our investment strategy. Any such adjustment in our strategy could have a material adverse effect on us. If we are deemed to be an investment company, we may be required to register as an investment company if we are unable to dispose of the disqualifying assets, which could have a material adverse effect on us.

Registration under the Investment Company Act would require us to comply with a variety of substantive requirements that impose, among other things:

● limitations on capital structure;

● restrictions on specified investments;

● restrictions on leverage or senior securities;

● restrictions on unsecured borrowings;

● prohibitions on transactions with affiliates; and

● compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us. Registration with the SEC as an investment company would be costly, would subject us to a host of complex regulations and would divert attention from the conduct of our business, which could materially and adversely affect us. In addition, we would no longer be eligible to offer our securities under Regulation A of the Securities Act if we were required to register as an investment company.

If we are deemed to be an investment company under the Investment Company Act and are therefore ineligible to rely on Regulation A to sell securities, the unregistered issuance of our securities to the investors pursuant to this Offering would be considered in violation of Section 5 of the Securities Act if there was no other available exemption from registration for this issuance giving the investors a right of rescission.

We rely on the exception from the Investment Company Act set forth in Section 3(c)(5)(A) and/or Section 3 (c)(5)(B) of the Investment Company Act, however, if the Company is deemed to be an investment company under the Investment Company Act, we would no longer be eligible to offer our securities under Regulation A of the Securities Act in this Offering, or at all. In the event that this occurs, the Company would have to immediately terminate this Offering. The unregistered issuance of our securities to the investors pursuant to this Offering would be considered in violation of Section 5 of the Securities Act if there was no other available exemption from registration for this issuance. The securities sold in this Offering prior to such termination would be subject to a private right of action for rescission or damages by the purchasing investors. Additionally, the Company may not have the funds required to address all rescissions if a large number of investors seek rescission at the same time, and as a result, we may be delayed in the delivery of funds for such rescissions and may be required to sell some of our assets, which may take significant amounts of time and may yield less than is needed to meet our rescission obligations. Additionally, the Company would not be able to raise funds in any other offering pursuant to Regulation A to meet such rescission obligations, as the Company would not be eligible to do so.

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If we are deemed to be an investment company under the Investment Company Act and are therefore ineligible to rely on Regulation A for this Offering, it could result in a large number of investors demanding repayment in a short period of time, and the Company may not have funds to satisfy those demands.

We rely on the exception from the Investment Company Act set forth in Section 3(c)(5)(A) and/or Section 3 (c)(5)(B) of the Investment Company Act, however, in the event that the Company is deemed to be an investment company under the Investment Company Act, we would no longer be eligible to offer our Worthy Bonds under Regulation A of the Securities Act in this Offering, or at all. If this occurs, it could result in a large number of investors demanding repayment in a short period of time, and the Company may not have funds to satisfy those demands. As a result, we may be delayed in the delivery of funds and may be required to sell some of our assets, which may take significant amounts of time and may yield less than is needed to meet our obligations. Additionally, the Company would not be able to raise funds in any other offering pursuant to Regulation A to meet such demands, as the Company would not be eligible to do so.

If we are deemed to be an investment company under the Investment Company Act and sell securities in reliance on Regulation A and operate as an unregistered investment company, we could be subject to liability under Section 5 of the Securities Act.

In the event that the Company is deemed to be an investment company under the Investment Company Act, and if we sell securities in reliance on Regulation A and operate as an unregistered investment company due to a failure to qualify for the Section 3(c)(5)(A) and/or Section 3 (c)(5)(B) exemption of the Investment Company Act, for any Worthy Bonds sold by us in reliance on Regulation A, the Company could be liable for violating Section 5 of the Securities Act if any of the securities issued in this Offering would be considered to be an unregistered issuance of securities if no other exemption from registration is available. Section 5 allows purchasers to sue the Company for selling a non-exempt security without registering it, whereby the purchasers seek rescission with interest, or damages if the purchaser sold his securities for less than he purchased them. The Company could also be subject to enforcement action by the SEC that claims a violation of Section 5 of the Securities Act. Additionally, if the Company was required to register as an investment company but failed to do so and therefore operated as an unregistered investment company, the Company could be subject to monetary penalties and injunctive relief in an action brought by the SEC.

We are subject to the risk of fluctuating interest rates, which could harm our business operations.

We expect to generate net income from the difference between the interest rates we charge borrowers or otherwise make from our permissible investments, including loan origination fees paid by borrowers, and the interest we pay to the holders of bonds. Due to fluctuations in interest rates, we may not be able to charge borrowers an interest rate sufficient for us to generate income, which could harm our planned business operations.

The Company is controlled by its officers and directors.

The Company’s officers and directors currently hold over 60% of the Company’s Common Stock, and at the conclusion of our planned Regulation A offering will continue to hold a majority of the Company’s voting stock. As a result, investors will not have the ability to control or influence a vote of the shareholders.

There is no public market for shares of our common stock, and none is expected to develop.

There is no formal marketplace for the resale of our common stock and the Company does not expect that such a market will develop in the near future. Investors should assume that they may not be able to liquidate their investment for some time or be able to pledge their shares as collateral.

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THE COMPANY AND ITS BUSINESS

Overview

The Company was organized to create a “Worthy Community” to provide financial services initially targeted to millennials who are surpassing the baby boomers as the nation’s largest living generation. Management believes that this demographic in large part has a basic distrust of old guard financial institutions, is burdened by student loans and other debt, change employment frequently and is unable to save money and/or fund a retirement program.

The Company was formed on February 24, 2016 as a Delaware corporation. Our principal address is One Boca Commerce Center, 551 NW 77 Street, Suite 212, Boca Raton, FL, 33487. Our phone number is (561) 288-8467. The information that appears on, or is accessible through our websites at www.worthybonds.com, www.joinworthy.us and www.worthylending.com is not a part of, and is not incorporated by reference into, this Annual Report.

Corporate Organization

The diagram below illustrates our corporate organization and the ownership of our Company:

THE WORTHY COMPANIES

(1)	Worthy Financial, Inc. owns 100% of the issued and outstanding capital stock of Worthy Management, Inc., Worthy Peer Capital, Inc., Worthy Peer Capital II, Inc., Worthy Community Bonds, Inc., Worthy Community Bonds II, Inc., Worthy Property Bonds, Inc. and Worthy Property Bonds 2, Inc.
(2)	Worthy Peer Capital, Inc., Worthy Peer Capital II, Inc., Worthy Community Bonds, Inc., Worthy Community Bonds II, Inc., Worthy Property Bonds, Inc. and Worthy Property Bonds 2, Inc. are each a party to a management services agreement with Worthy Management, Inc.
(3)	Worthy Peer Capital, Inc., Worthy Peer Capital II, Inc., Worthy Community Bonds, Inc., Worthy Community Bonds II, Inc., Worthy Property Bonds, Inc. and Worthy Property Bonds 2, Inc. own 100% of the issued and outstanding membership interests of Worthy Lending, LLC, Worthy Lending II, LLC, Worthy Lending III, LLC Worthy Lending IV, LLC, Worthy Lending V, LLC, Worthy Lending VI, LLC respectively.

Our Regulation A Offering

On October 14, 2020, we filed an Offering Statement on Form 1-A under SEC File No. 024-11341, as amended by Amendment No. 1 filed on November 15, 2020, Amendment No. 2 filed on December 23, 2020, Amendment No. 3 filed on January 22, 2021, Amendment No. 4 filed on February 12, 2021, and Amendment No. 5 filed on March 15, 2021, and Amendment No. 6 filed on May 25, 2021 for a public offering pursuant to Regulation A of $20,000,000 of our common stock (referred to herein as our “Planned Regulation A Offering”). As of the date of this Annual Report the Planned Regulation A Offering has not yet been qualified by the Securities and Exchange Commission.

Worthy Fintech Platform

The Company has developed technology solutions, including the Worthy App and the Worthy Website, to facilitate the purchase of Worthy Bonds and to provide information to bond investors on their accounts. The Company, which is the sole owner of the technology underlying the Worthy App and the Worthy Website, received a license fee from its subsidiaries equal to $10 per active user on the Worthy Fintech Platform each year. “Active user” is defined as an individual that has registered with the Worthy Fintech Platform (providing an email address) and that has purchased at least one bond from a subsidiary. In September of 2021 the Company amended the agreement, including making it a written agreement. The amendment changes the payment terms to $4 per registered user per year. The fee is subject to periodic review and adjustment. We refer to these each as the “Worthy App,” the “Worthy Website” and together as the “Worthy Fintech Platform.” Monthly license fees paid by subsidiaries to the Company do not appear as revenues on the Company’s consolidated financial statements as they are eliminated in consolidation.

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Worthy App

The Worthy App was designed to support the target market for our bonds, which we believe is approximately 74 million millennials, who spend more than $600 billion a year on products and services. The Worthy App seeks to provide an easy way for our target market to micro invest, including monetizing their debit card purchases, credit card purchases and other checking account transactions by “rounding up” each purchase to the next highest dollar until the “round up” reaches $10.00 at which time the user would purchase a $10.00 bond from our operating subsidiaries pursuant to an offering pursuant to Regulation A each (a “Worthy Bond offering”). Our subsidiaries Worthy Peer Capital, Worthy Peer Capital II and Worthy Community Bonds previously conducted such offerings and our subsidiaries Worthy Peer Capital and Worthy Community Bonds II have filed new Offering Statements which have not yet been qualified by the Securities and Exchange Commission. The Worthy App is available via the web at worthybonds.com or for Apple iPhone users from the Apple Store and for Android phone users from Google Play.

Procedurally, Worthy App users download the application and simply link their bank account to the App. If engaging in the round-up feature, they connect their debit card or credit card to the App. Every time the user shops or completes any checking account transaction, the App automatically rounds up their purchase to the next dollar, tracks the spare change and then permits the user to use it to invest in worthy bonds. The user’s bank accounts are monitored, and the money is transferred via ACH once the round up amounts reach $10.00.

Users can also make one time or recurring purchases of bonds.

Worthy Website

By accessing our websites at www.worthybonds.com and www.joinworthy.com, prospective investors in Worthy Bonds can create a username and password, and indicate agreement to our terms and conditions and privacy policy.

The following features are available to participants in the Worthy Bonds programs through our website:

● Available Online Directly from Us. Users can purchase Worthy Bonds directly through our websites;

● No Purchase Fees Charged. We have not charged any commission or fees to purchase Worthy Bonds through our websites. Purchasers may be charged a transaction fee if their method of payment requires us to incur an expense. The transaction fee is equal to the amount that we are charged by the payment processor. However, other financial intermediaries, if engaged by an investor, may separately charge investors commissions or fees;

● Invest as Little as $10. Users are able to build ownership over time by making purchases as low as $10 of Worthy Bonds;

● Flexible, Secure Payment Options. Users may purchase bonds through our websites either electronically or by wire transfer; and

● View Your Portfolio Online. Users can view their investments, returns, and transaction history online, as well as receive tax information and other portfolio reports.

In addition to millennials, we may also seek to establish strategic relationships with local and national companies to incorporate our services into the benefits they provide to their hourly employees, borrowers and users, as well as veterans and municipal employees and colleges and university alumni associations.

Our Subsidiaries

Our business is primarily conducted through our operating subsidiaries, Worthy Peer Capital (“WPC”), Worthy Peer Capital II (“WPC II”), Worthy Community Bonds (“WCB”), Worthy Community Bonds II (“WCB II”), Worthy Property Bonds (“WPB”), Worthy Property Bonds 2 (“WPB 2”), and their subsidiaries. Our most recent and current bond offering focuses on a use of proceeds for first mortgage real estate loans. Under our subsidiaries’ business models, we intend to generate revenue in multiple ways, through:

● fees charged to borrowers,

● interest generated from each loan that we make and

● fees from ancillary services that we may introduce to our Worthy members.

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Worthy Management has no operations. Its purpose is to pay obligations such as rent and payroll allocable to our operating subsidiaries. Each of our operating subsidiaries has entered into a management services agreement with Worthy Management under which each makes a monthly contribution to Worthy Management relating to its allocated share of such expenses.

Worthy Peer Capital and Worthy Lending

Worthy Peer Capital provides at least 55% (excluding cash and government securities) of its assets to be used for loans to manufacturers, wholesalers and retailers secured by (i) inventory and/or equipment, and (ii) accounts receivable and (iii) purchase orders. To a lesser extent (not more than 45% of assets), Worthy Peer Capital may also provide (i) secured loans to other borrowers, (ii) acquire mortgage or equity interests in real estate; (iii) make fixed income and/or equity investments; and (iv) and other types of loans and investments, provided the amount and nature of such activities does not cause it to lose its exemption from regulation as an investment company pursuant to the Investment Company Act.

Worthy Bond Offering

In January 2018 Worthy Peer Capital launched an offering pursuant to Regulation A under the Securities Act under the terms of an offering circular that was initially qualified by the SEC on January 4, 2018. On March 17, 2020, the offering was completed. From January 2018 through March 17, 2020, Worthy Peer Capital sold approximately $50 million aggregate principal amount of Worthy Bonds to 12,285 investors. Notwithstanding the completion of the offering, Worthy Peer Capital inadvertently sold after March 17, 2020 $594,240 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.

The Worthy Bonds sold by Worthy Peer Capital:

● were priced at $10.00 each;

● represent a full and unconditional obligation of Worthy Peer Capital;

● bear interest at 5% per annum, 5.5% effective April 1, 2023;

● have a term of three years, renewable at the option of the bond holder for up to two additional three-year terms;

● may be redeemed by the holder;

● holders seeking to redeem more than $50,000 principal amount of bonds issued by Worthy Peer Capital must give 30 days prior written notice;

● are subject to redemption by Worthy Peer Capital; and

● are not payment dependent on any underlying small business loan.

The Worthy Bonds issued by Worthy Peer Capital are not dependent upon any particular loan and remain at all times the general obligations of Worthy Peer Capital. Proceeds from the sale of the Worthy Bonds were used to fund loans and, up to 5% for general corporate purposes.

Since Worthy Peer Capital has completed the foregoing offering, it may no longer offer interest reinvestment in Worthy Bonds under the auto-invest program to bondholders who selected this reinvestment feature as Worthy Peer Capital may not issue any more Worthy Bonds under the foregoing offering statement. As a result, Worthy Peer Capital pays interest on interest (compounded interest) and credits such interest to such bondholders’ accounts in accordance with the terms of the Worthy Bonds that it issued.

On December 16, 2020, Worthy Peer Capital filed a new Offering Statement on Form 1-A with the SEC under SEC File No. 024-11389, as amended by Amendment No. 1 to Form 1-A filed with the SEC on January 28, 2021, and as amended by Amendment No. 2 to Form 1-A filed with the SEC on March 22, 2021, and Amendment No. 3 to Form 1-A filed with the SEC on May 27, 2021 for a public offering pursuant to Regulation A of $15,000,000 aggregate principal amount of renewal bonds and $59,920,000 aggregate principal amount of demand bonds and $80,000 aggregate principal as rewards under our worthy Demand Bond Rewards Program. This offering has not yet been qualified by the Securities and Exchange Commission.

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Worthy Peer Capital’s Loan and Investment Portfolio

Beginning in September 2018, Worthy Peer Capital, through its subsidiary Worthy Lending, began deploying the net proceeds it had raised through its sale of Worthy Bonds by loaning funds directly to borrowers under loan agreements.

The loans to manufacturers, wholesalers and retailers range in size from approximately $150,000 to $5,000,000 and pay interest at varying rates ranging from 0.83% per month to 1.5% per month and some pay collateral management fees between 0.5% and 1% per month. Some of the loan agreements have customary loan origination fees, which have been netted against loan costs with the net amount recorded as deferred revenue to be recognized as revenue over the term of the loan. The term of the loans range from two to three years, with no prepayment penalty and generally pay only interest with principal due at maturity. The loans are primarily secured by the assets of the borrowers.

At December 31, 2022 and 2021, Worthy Peer Capital has real estate loans. Each loan is secured by a first mortgage in the real estate, and is located in the state of Florida. Each loan has a maturity date of 1,2,3 or 4 years. These loans pay interest at rates between 9.5% and 10.5% and are serviced by an outside, unrelated party.

On August 22, 2022, Worthy Peer Capital, Inc. advised all bondholders that due to a number of domestic and global economic factors, some of its loans to small businesses, including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing, have defaulted in their payment obligations. While the Worthy Peer Capital, Inc.’s portfolio of real estate loans continues to perform well, the foregoing defaults in small business loans has caused current illiquidity of Worthy Peer Capital, Inc.’s overall loan portfolio. As a result, Worthy Peer Capital, Inc. temporarily delayed the redemption of outstanding bonds while continuing to accrue interest (5% until March 31, 2023 and 5.5% effective April 1, 2023). $8,885,663 of Worthy Peer Capital Bonds had initially been subject to the suspension of redemptions. Since the date of suspension, Worthy Peer Capital, Inc. has made redemptions, in order of bond maturity and redemption requests, of approximately $1,278,000 and expects to continue to make redemptions as permitted by loan and investment liquidity. Prior to the suspension in redemptions Worthy Peer Capital, Inc. had redeemed $41,114,337 of Worthy Peer Capital Bonds. Collectively, Worthy Peer Capital, Inc. and sister companies Worthy Peer Capital II, Inc., and Worthy Community Bonds, Inc., have redeemed approximately $102,854,500 of Worthy Bonds to date. Worthy Peer Capital, Inc. continues to pursue outstanding loan collections and will redeem outstanding bonds with accrued interest as loan collections and other asset liquidation permits and will do so automatically in the order of bond maturity and redemption requests. To the extent that Worthy Peer Capital, Inc.’s asset liquidity does not provide sufficient funds for full bond redemption, it is the intention of WFI, the parent company of Worthy Peer Capital, Inc., to provide capital contributions to Worthy Peer Capital, Inc. from a pending equity financing.

Worthy Peer Capital II and Worthy Lending II

Our wholly-owned subsidiary Worthy Peer Capital II, completed an offering pursuant to Regulation A of its Worthy Bonds, which was qualified by the SEC on March 17, 2020. On October 1, 2020, Worthy Peer Capital II completed the offering and from March 17, 2020 through October 1, 2020, Worthy Peer Capital II sold approximately $50 million aggregate principal amount of its Worthy Bonds to 17,823 investors.

Worthy Peer Capital II, through Worthy Lending II is, implementing its business model. Worthy Peer Capital II’s business model is centered primarily around providing loans for small businesses including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing. To a lesser extent, Worthy Peer Capital II may also provide loans to other borrowers, acquire mortgage or equity interests in real estate, make fixed income and/or equity investments, and other types of loans and investments, provided the amount and nature of such activities does not cause Worthy Peer Capital II to lose its exemption from regulation as an investment company pursuant to the Investment Company Act.

Beginning in March of 2020, Worthy Peer Capital II, through its wholly owned subsidiary Worthy Lending II, began deploying the net Bond proceeds by loaning funds under loan agreements.

Worthy Bond Offering

The Worthy Bonds sold by Worthy Peer Capital II:

● were priced at $10.00 each;

● represent a full and unconditional obligation of Worthy Peer Capital II;

● bear interest at 5% per annum, (5.5% effective April 1, 2023) compounded and credited to bondholders’ Worthy accounts;

● have a three-year term, renewable at the option of the bond holder for up to two additional three-year terms;

● are redeemable at any time at the option of the holder;

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● holders seeking to redeem more than $50,000 principal amount of bonds issued by Worthy Peer Capital II must give 30 days prior written notice;

● are subject to redemption by Worthy Peer Capital II at any time;

● are not payment dependent on any underlying small business or other loan; and

● are unsecured.

The Worthy Bonds issued by Worthy Peer Capital II are not dependent upon any particular loan and remain at all times the general obligations of Worthy Peer Capital II. Proceeds from the sale of the Worthy Bonds were used to fund loans and, up to 5% for general corporate purposes.

Since Worthy Peer Capital II has completed the foregoing offering, it may no longer offer interest reinvestment in Worthy Bonds under the auto-invest program to bondholders who selected this reinvestment feature as Worthy Peer Capital II may not issue any more Worthy Bonds under the foregoing offering statement. As a result, Worthy Peer Capital II pays interest on interest (compounded interest) and credits such interest to such bondholders’ accounts in accordance with the terms of the Worthy Bonds that it issued.

Worthy Peer Capital II’s Loan and Investment Portfolio

The loans to small businesses, currently including loans to wholesalers and retailers range in size from $200,000 to $5,000,000 and pay interest at varying rates ranging from 1% to 1.5% per month. The term of the loans range from six months to three years and with no prepayment penalty and generally pay only interest with principal due at maturity. Our loans consist primarily of loans to small businesses and are secured by the assets of the borrowers, including inventory, equipment, and accounts receivable.

At December 31, 2022, Worthy Peer Capital II was invested in real estate related loans. Each loan is secured by a first mortgage in the real estate, and is located in the state of Florida. Each loan has a maturity date of 1 to 3.5 years. These loans pay interest at rates between 9.5% and 10.5% and are serviced by an outside, unrelated party.

Worthy Peer Capital II maintains a portfolio of investments on its consolidated balance sheet as investments held at fair value. Fair value includes gross unrealized gains, gross unrealized losses, accrued interest, and amortized cost. Worthy Peer Capital II typically invests in public preferred and common equities, private market real estate investments with the primary objective to earn diversified risk-adjusted returns while the corporate bonds, certificates of deposit, asset backed securities, and government securities are intended to mitigate risk and minimize potential risk of principal loss. Worthy Peer Capital II’s investment policy targets 20% portfolio weight in the more conservative investments.

Worthy Community Bonds and Worthy Lending III

Our wholly-owned subsidiary Worthy Community Bonds was formed on June 30, 2020. On September 29, 2020, Worthy Community Bonds commenced a public offering pursuant to Regulation A of $50 million aggregate principal amount of Worthy Community Bonds under its qualified Offering Statement. On February 26, 2021, Worthy Community Bonds completed the offering. From September 29, 2020 through February 26, 2021, Worthy Community Bonds sold approximately $50 million aggregate principal amount of Worthy Community Bonds to 18,914 investors.

Worthy Community Bonds is implementing its business model through Worthy Lending III. Worthy Community Bonds’ business model is centered primarily around providing loans for small businesses, including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing. To a lesser extent, Worthy Community Bonds may also provide loans to other borrowers, acquire mortgage or equity interests in real estate (which may include affordable housing), make fixed income and/or equity investments, and other types of loans and investments, provided the amount and nature of such activities does not cause Worthy Community Bonds to lose its exemption from regulation as an investment company pursuant to the Investment Company Act.

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Worthy Bonds Offering

The Worthy Bonds sold by Worthy Community Bonds:

● were priced at $10.00 each;

● represent a full and unconditional obligation of Worthy Community Bonds;

● bear interest at 5% per annum, (5.5% effective April 1, 2023), compounded and credited to bondholders’ Worthy accounts;

● are subject to repayment at any time at the demand of the holder;

● are subject to redemption by Worthy Community Bonds at any time;

● are not payment dependent on any underlying small business or other loan; and

● are unsecured.

The Worthy Bonds issued by Worthy Community Bonds are not dependent upon any particular loan and will remain at all times the general obligations of Worthy Community Bonds. Proceeds from the sale of the Worthy Bonds are being used to fund loans and, up to 5% for general corporate purposes.

Since Worthy Community Bonds has completed the foregoing offering, it may no longer offer interest reinvestment in Worthy Community Bonds under the auto-invest program to bondholders who selected this reinvestment feature as Worthy Community Bonds may not issue any more Worthy Community Bonds under the foregoing offering statement. As a result, Worthy Community Bonds pays interest on interest (compounded interest) and credits such interest to such bondholders’ accounts in accordance with the terms of the Worthy Community Bonds that it issued.

Worthy Community Bonds and Worthy Lending III’s Loan and Investment Portfolio

The loans to small businesses, currently including loans to wholesalers and retailers range in size from approximately $150,000 to $5,000,000 and pay interest at varying rates ranging from 1% to 1.5% per month. Some of the loan agreements have customary loan origination fees, which have been netted against loan costs with the net amount recorded as deferred revenue to be recognized as revenue over the term of the loan. The term of the loans range from six months to three years and with no prepayment penalty and generally pay only interest with principal due at maturity. Our loans consist primarily of loans to small businesses, and are secured by the assets of the borrowers, including inventory, equipment, and accounts receivable.

At December 31, 2022, Worthy Community Bonds was invested in real estate related loans. Each loan is secured by a first mortgage in the real estate, and is located in the state of Florida. Each loan has a maturity date of 1 to 3.5 years. These loans pay interest at rates between 9.5% and 10.5% and are serviced by an outside, unrelated party.

Worthy Community Bonds maintains a portfolio of investments on its consolidated balance sheet as investments held at fair value. Fair value includes gross unrealized gains, gross unrealized losses, accrued interest, and amortized cost. Worthy Community Bonds typically invests in public preferred and common equities, private market real estate investments with the primary objective to earn diversified risk-adjusted returns while the corporate bonds, certificates of deposit, asset backed securities, and government securities are intended to mitigate risk and minimize potential risk of principal loss. Worthy Community Bond’s investment policy targets 20% portfolio weight in the more conservative investments.

Worthy Community Bonds II and Worthy Lending IV

Our wholly-owned subsidiary Worthy Community Bonds II was formed on November 2, 2020. It has not yet generated any revenue and has no operating history. Worthy Community Bonds II filed an Offering Statement on Form 1-A under SEC File No. 024-11372, with the SEC, as amended by Amendment No. 1 filed on January 8, 2021, Amendment No. 2 filed on January 29, 2021, and Amendment No. 3 filed on March 5, 2021, for a public offering pursuant to Regulation A of $50,000,000 aggregate principal amount of demand bonds. The offering has not yet been qualified by the Securities and Exchange Commission.

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Worthy Community Bonds II is an early stage company, which, through Worthy Lending IV, plans to implement its business model. Worthy Community Bonds II’s business model is centered primarily around providing loans for small businesses, including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing. To a lesser extent, Worthy Community Bonds II may also provide loans to other borrowers, acquire equity mortgage or interests in real estate (which may include affordable housing), make fixed income and/or equity investments, and other types of loans and investments, provided the amount and nature of such activities does not cause Worthy Community Bonds II to lose its exemption from regulation as an investment company pursuant to the Investment Company Act.

Worthy Bonds Offering

The Worthy Bonds to be sold by Worthy Community Bonds II:

● are priced at $10.00 each;

● represent a full and unconditional obligation of Worthy Community Bonds II;

● bear interest at 5% per annum (5.5% effective April 1, 2023), compounded and credited to bondholders’ Worthy accounts;

● are subject to repayment at any time at the demand of the holder;

● are subject to redemption by Worthy Community Bonds II at any time;

● are not payment dependent on any underlying small business or other loan; and

● are unsecured.

The Worthy Bonds to be issued by Worthy Community Bonds II will not be dependent upon any particular loan and will remain at all times the general obligations of Worthy Community Bonds II. Proceeds from the sale of the Worthy Bonds II will be used to fund loans and for general corporate purposes, including the costs of the offering being conducted by Worthy Community Bonds II.

Worthy Property Bonds and Worthy Lending V

Our wholly-owned subsidiary Worthy Property Bonds was formed in April of 2021. In October of 2022, Worthy Property Bonds commenced a public offering pursuant to Regulation A of $75 million aggregate principal amount of Worthy Community Bonds under its qualified Offering Statement. Worthy Property Bonds has sold approximately $28,000,000 Bonds through April 5, 2023.

Worthy Property Bonds is implementing its business model through Worthy Lending V. Worthy Property Bonds is an early-stage company, which, through Worthy Lending V, is implementing its business model. Worthy Property Bonds’ business model centers primarily around making, purchasing, or otherwise acquiring mortgages and other liens on or interests in real estate provided that such activities do not cause Worthy Property Bonds to lose its exemption from regulation as an investment company pursuant to the Investment Company Act.”

Worthy Bonds Offering

The Worthy Bonds to be sold by Worthy Property Bonds:

● are priced at $10.00 each;

● represent a full and unconditional obligation of Worthy Property Bonds;

● bear interest at 5% per annum (5.5% effective April 1, 2023), compounded and credited to bondholders’ Worthy accounts;

● are subject to repayment at any time at the demand of the holder;

● are subject to redemption by Worthy Property Bonds at any time;

● are not payment dependent on any underlying loan; and

● are unsecured.

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The Worthy Bonds issued by Worthy Property Bonds will not be dependent upon any particular loan and will remain at all times the general obligations of Worthy Property Bonds. Proceeds from the sale of the Worthy Bonds will be used to fund loans and for general corporate purposes, including the costs of the offering being conducted by Worthy Property Bonds.

Worthy Property Bonds and Worthy Lending V’s Loan and Investment Portfolio

At December 31, 2022, Worthy Property Bonds was invested in real estate related loans. Each loan is secured by a first mortgage in the real estate. Each loan has a maturity date of 2 years. These loans pay interest at rates between 10% and 13% and are serviced by an outside, unrelated party.

Competitors and Industry

Industry

The survival and growth of small businesses depends on access to credit. Banks are the most common source of external credit for small businesses but given the current consolidation trend in U.S. banking, and the continued decline in the number of small banks, there have been significant negative effects on the availability of capital for U.S. companies. Fortunately, over the past decade, additional options for small businesses have emerged with the growth of new technology-enabled lenders. These fintech companies identified the gaps in the small business lending market and revolutionized both the loan application experience, as well as evaluation of creditworthiness, for entrepreneurs and real estate developers looking for capital. A recent Federal Reserve survey found that 21 percent of surveyed employer businesses and 28 percent of non-employer businesses applied for financing from an online alternative lender. Leveling up their growth was the most common reason business owners applied for a loan.

According to a survey by the Small Business Administration, small business non-equity financing of all types amounted to over a trillion dollars. Worthy Financials’ lending subsidiaries are a part of this growing market.

Competitors

We compete with other companies that lend to small businesses and real estate developers. These companies include traditional banks, a number of specialized financial providers (such as wholesalers who may offer supply financing/trade credit), and newer, technology-enabled lenders. In addition, other technology companies that lend primarily to individuals have already begun to pursue expanding their services to business lending and real estate lending.

Many of these competitors have significantly more resources and greater brand recognition than we do and may be able to attract customers more effectively than we do.

When new competitors look to enter our market, or when existing industry participants look to increase their market share, they sometimes reduce the pricing and credit terms common in that market, which could adversely affect our business. Our pricing and credit terms could decline if we make an effort to meet these competitive challenges. Further, to the extent that the fees we pay to our partners and borrower referral sources are not competitive with those paid by others, these partners and sources may move their business elsewhere, resulting in us originating less loans. The consequence of these competitive pressures could also cause us to reduce the interest rates we charge to our customers. All of the foregoing could adversely affect our business, results of operations, financial condition, and future growth.

Competitive Strengths

We believe we benefit from the following competitive strengths compared to our competitors:

We are part of the Worthy Community. The Worthy App and websites are targeted to the millennials who are part of the fastest growing segment of our population. We believe that they have a basic distrust of traditional banking institutions, yet they have a need to accumulate assets for retirement or otherwise. We believe that the Worthy Fintech Platform provides for a savings and investing alternative for millennials as well as potential access to other services, which may appeal to millennials, such as personal loans (often used to reduce or pay off higher interest rate loans such as credit cards), small business loans, auto loans, student loan refinancing and debt counseling.

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We focus on an underserved banking sector. Due to higher costs, we believe that banks cannot profitably serve the small business and real estate development lending market for commercial loans below $500,000. Indeed, traditional banks have been exiting the small business loan market for over a decade. We believe our small business and real estate developer loan program enables us to profitably participate in loans at these levels.

Marketing

Worthy Financial promotes its platform and mobile app through its own monthly newsletter (“Noteworthy”) where financial tips and articles are shared as well as highlights of Worthy employees and technology features. Worthy’s mobile app is also promoted via the Apple and Android app stores. Before COVID-19 restrictions, Worthy Financial also built product awareness through its representatives speaking at national events such as financial and technology conferences; Worthy Financial still participates in industry events but to a lesser extent as these are now conducted remotely. Our Worthy community members also refer others in their networks, such as friends and family members, to join the platform. Marketing for direct loans and participations through the Worthy Lending subsidiaries is conducting primarily by the management of the Company with professional and business advisers to growing companies. To a lesser extent marketing is done through the worthy lending website www.worthylending.com, Mailchimp emails and LinkedIn. The information available on, or accessible through, the foregoing website is not a part of this Annual Report and is not incorporated herein. Our operating subsidiaries market the Worthy Bonds primarily through digital media channels such as Facebook ads, publishers of financial blogs and through marketing partnerships with other financial service firms.

Strategy

Our strategy is to expand our network of online information, social networking, and institutional, (colleges and universities, charities, trade organizations, and employer) sources of introductions and referrals to our targeted users.

Subject to the successful completion of our intended Regulation A Offering, one of our primary goals at Worthy Financial for 2023 and beyond is to find additional ways to grow and bring value to our Worthy community members. We will do this through building out a community section on the Worthy Website and the Worthy App where we will offer financial educational resources, more opportunities for our members to be highlighted, as well as offer additional products and services of interest to them. This will also provide Worthy Financial an additional revenue stream as we can earn marketing fees as part of these product offerings.

Ultimately, our objective is to bring our members attractive deals on products and services that will complement their lifestyle, save as well as earn them money, and help them achieve their personal and financial goals.

Governmental Regulation

The regulatory framework for nonbank lenders such as the Company is evolving and uncertain. We are affected by laws and regulations, and judicial interpretations of those laws and regulations, that apply to businesses in general, as well as to commercial lending. This includes a range of laws, regulations and standards that address information security, privacy, fair lending and anti-discrimination, fair sales/marketing practices, transparency, credit bureau reporting, anti-money laundering and sanctions screening, commercial lending, licensing and interest rates, among other things. Because we are not a bank and are engaged in commercial lending, we are not subject to certain of the laws and rules that only apply to banks and that has federal preemption over certain state laws and regulations.

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 fully cooperating with the SEC’s request.

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State Interest Rate Regulations

Although the federal government does not regulate the maximum interest rates that may be charged on commercial loan transactions, many states have enacted laws specifying the maximum legal interest rate at which loans can be made in their state. The loan agreements relating to loans that we originate are by their terms governed by Delaware law. Delaware does not have rate limitations on commercial loans of $100,000 or more or licensing requirements for commercial lenders making such loans. Our underwriting team and senior members of our credit risk team are headquartered in Boca Raton, Florida. Our direct commercial loan contracts are made in New York state. With respect to loans where we work with a partner, our partner may utilize the law of the jurisdiction applicable to the partner in connection with its commercial loans.

State Issuer-dealer Regulation

In order to conduct their Regulation A offerings of bonds, each of Worthy Peer Capital, Worthy Peer Capital II and Worthy Community Bonds has registered, as an issuer-dealer in the states of Florida, Texas, Arizona and North Dakota. The state of Florida requires issuer-dealers registered in the state to maintain a minimum net capital of $5,000, defined as total assets of an issuer, less total liabilities. Texas regulations require that issuer-dealers be solvent. The states may deny an issuer registration if they find a net capital deficiency, in the case of Florida, or that the issuer is not solvent, in the case of Texas.

Intellectual Property

The Company holds 2 registered trademarks, Worthy™, and I am Worthy™.

Legal Proceedings

From time to time, we may become party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, nor are we aware of any threatened or pending legal proceedings, other than the below mentioned, that we believe to be material or which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to us.

On September 3, 2021, the Company had an action filed against Worthy Lending, LLC in the Superior Court of Delaware (the “Delaware Action”). The claims in the complaint include one count of breach of the participation agreement entered into between the participant and Worthy, as lender to non-party borrower, one count of fraudulent inducement as to the Participation Agreement and one count of fraudulent inducement as to an amendment to the Participation Agreement (the “First Amendment”). The Participation Agreement, as amended, allocates the loan 50/50 between Worthy and the participant. The participant seeks damages in an unstated amount, plus punitive damages and attorney’s fees, and demands that Worthy repurchase the participation interest for $1,737,031, as of July 1, 2021. The claims in the Delaware Action arise primarily from allegations that Worthy should have adhered to a non-industry standard of care, which was not contained in the Participation Agreement or the First Amendment, for managing the credit and collecting accounts pledged as collateral for the underlying loan.

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On October 15, 2021, Worthy filed an answer to the complaint, which included three counterclaims for breach of the Participation Agreement, and fraudulent inducement of the Participation Agreement and the First Amendment. After Worthy filed its answer and counterclaims and before the participant filed a reply to the counterclaims, the parties agreed to extend time to reply while they pursued mediation.

On January 24, 2022, the parties met remotely with a mediator, and agreed to stay the Delaware Action (assuming approval of the Delaware Court) until after a decision from the New York State Court of Appeals in a collection action brought by Worthy against one of the borrower’s account debtors.

The purpose of the stay was to allow Worthy time to pursue collection of accounts from all the borrower’s account debtors, and thereby reduce the amounts outstanding on the loan, for the benefit of both Worthy and the participant.

The mediation agreement also provided that all rights, claims, and defenses are preserved during the stay. The stay was approved by the Delaware Court.

Worthy believes that the claims asserted in the participant’s complaint are without merit, and that Worthy’s counterclaims are valid, but that it is in both parties’ best interest to resolve their dispute outside of litigation and demonstrate a united front in pursuing collection of accounts from the borrower’s account debtors. At this time, we do not believe it is probable that there will be an unfavorable outcome of this suit and the Company has been continuing its efforts towards a resolution with Lender’s Funding.

On November 22, 2022, the New York Court of Appeals subsequently rendered a favorable decision permitting Worthy to pursue collections from the borrower’s account debtors. The outstanding balance is approximately $1,800,000 and the reserve balance is approximately $1,800,000.

The Company is suing the aforementioned borrower for breach of promissory note and security agreement. The outstanding balance is approximately $1,800,000 and the reserve balance is approximately $1,615,000.

The Company’s Property

We do not own real property and are currently leasing our offices in Boca Raton, Florida.

Employees

We have 19 full-time employees, together with one independent contractor who provides a substantial portion of his time to us. For the fiscal year ended December 31, 2022, the Company compensated our three highest-paid executive officers as follows:

Name	Capacities in which compensation was received	Cash Compensation		Other Compensation			Total Compensation
Sally Outlaw	Chief Executive Officer	$	275,000	$	8,536	(1)	$	283,536
Alan Jacobs	Chief Operating Officer	$	339,000	$			$	339,000
James Eichmann	Chief Technology Officer	$	250,000	$			$	250,000

(1) Represents vehicle lease payments made on behalf of Ms. Outlaw.

The Company’s directors did not receive any compensation in connection with their directorships.

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THE TEAM

The executive officers and directors of the Company as of April 28, 2023 are listed below.

Name	Positions	Age	Term of Office	Approximate Hours per Week
Executive Officers
Sally Outlaw	Chief Executive Officer, President, Co-Founder	60	February 2016	40
Alan Jacobs	Executive Vice President, Chief Operating Officer	81	February 2016	40
Jungkun “Jang” Centofanti	Senior Vice President, Chief Administrative Officer, Secretary	54	January 2018	40
James Eichman	Chief Technology Officer	56	December 2019	40
Directors
Sally Outlaw	Director	60	February 2016	N/A
Alan Jacobs	Director	81	February 2016	N/A
Dara Albright	Director	51	February 2016	N/A
Todd Lazenby	Director	55	April 2019	N/A

Sally Outlaw. Ms. Outlaw, a life-long entrepreneur who is passionate about opening up economic opportunity for all, has served as an officer and director of our Company since founding it in 2016. Ms. Outlaw is also an officer and/or director of WFI and all of its subsidiaries. From October 2010 to December 2015 she was the president of Peerbackers LLC, which engaged in all aspects of crowd funding and provides services to help clients navigate the world of crowd finance including the capital and investment opportunities offered through the JOBS Act. Ms. Outlaw received her B.A. in Communications and Media Studies from the University of Minnesota in 1984. Outlaw brings knowledge and experience in the financial industry, which we believe is of great value to our Company.

Alan Jacobs. Mr. Jacobs, who has more than 40 years of experience as a corporate and securities attorney, investment banker, business and financial advisor and entrepreneur/senior executive of both private and public companies, has been an officer and director of our Company since 2016. Mr. Jacobs is also an officer and/or director of WFI and all of its subsidiaries. For more than the past five years he has been engaged as a business consultant for various early stage companies. From 2016 to 2018 Mr. Jacobs was the Founder and President of CorpFin Management Group where he was focused on business development, strategic planning and corporate management. From September 2014 to December 2015, Mr. Jacobs was associated with ViewTrade Securities, a FINRA registered broker-dealer where he was focused on advisory and corporate services. Prior to that time and for more than 30 years, Mr. Jacobs was associated with several FINRA registered broker-dealers including Ladenburg Thalman, Josephthal & Company, and Capital Growth Securities. Mr. Jacobs received his bachelor’s degree from Franklin and Marshall College in 1963 and law degree from Columbia University in 1966. He was also president of Wheelchair Fitness Inc. and director of business development of SSTI, Inc. from 2015 to 2018. Mr. Jacobs brings knowledge and experience in the financial industry, which we believe is of great value to our Company.

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Jungkun (“Jang”) Centofanti. Ms. Centofanti, who has more than 25 years of operational and management experience in a variety of consumer services industries including hospitality, banking and education, has been an officer of our Company since 2017. Ms. Centofanti has served as chief administrative officer and corporate secretary of WFI and all its subsidiaries. From September 2016 to July 2018 she was Senior Vice President of CorpFin Management Group, a South Florida-based business development and strategic planning company where she handled all aspects of administration, and from January 2017 to July 2018 she served as Vice President of Wheelchair Fitness Solution Inc. Prior to joining CorpFin Management Group, from 2011 to June 2015 she was Administrative and Customer Service Manager for DU20 Holistic Oasis, and from 2004 until 2010 she was Preschool Director for Hazel Crawford School, both South Florida-based companies. Ms. Centofanti received an Associate of Science in Fashion Marketing and Business from the Art Institute of Fort Lauderdale in 1989.

James Eichman. Mr. Eichmann joined Worthy in December 2019 and is responsible for all aspects of product development, IT and security. Prior to joining Worthy, he was with a fintech company, Billtrust, for 18 years where he held positions as CTO, Chief Data Officer and oversaw revenue-generating product lines. At Billtrust, he helped grow the billing and payments company to over 500 employees and $100 million in revenue while managing a team of 150 engineers across multiple product lines. He also built the security and compliance teams to focus on payment industry and ACH audits and requirements. Prior to Billtrust, Jim held a position as Executive VP of Research and Development at PayTrust, managing a 24 x 7 data center operation and a $20 million budget. Jim is a New Jersey CIO of the Year honoree and technology speaker at multiple New Jersey conferences. He has published articles addressing digital transformation and is a former board member for several technology organizations.

Dara Albright. Ms. Albright has been a director of our Company since 2016. A recognized speaker, writer and influencer on topics covering financial disruption, FinTech, RegTech, Digital/Crowd-Finance, she has been Chief Executive Officer of Dara Albright Media since 2011. Ms. Albright possesses a distinguished 28-year career in financial services encompassing IPO execution, investment banking, trading, corporate communications, financial conference production as well as institutional and retail sales. Ms. Albright presently serves on the board of Entoro Wealth, a boutique investment firm that provides customized risk-mitigated strategies for digital currencies. Ms. Albright received her B.A. in psychology from George Washington University in 1991.

Todd Lazenby. Mr. Lazenby has been a director of our Company since April 2019. Mr. Lazenby is the founder of Victory Partners, which he established in 2008, bringing over 25 years of private equity, investment banking, and corporate finance experience to the firm, having held increasing senior level positions in start-ups, mid-sized and Fortune 500 companies. He has built an investment and advisory firm catering to wealthy families and family offices that has made control investments in companies comprising over $300 million in enterprise value and has arranged and overseen in excess of $3.0 billion in capital markets and mergers and acquisitions transactions. Prior to founding Victory Partners, Mr. Lazenby was the Managing Partner of Summit Capital Partners, LLC based in Los Angeles, CA, then the managing partner of WP Capital Partners, L.P. based in Dallas, TX, both merchant banking firms representing middle market companies on a national basis. He holds a MS in Finance from Stanford University Graduate School of Business, a MBA and a BS in Communications from Florida State University, and a BSBA from Barry University.

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Related Party Transactions

Due from related parties of $200,000 includes, $100,000 due from our Chief Executive Officer and $100,000 due from our Chief Operating Officer. The $100,000 due from each of the CEO and COO are Notes Receivable accruing interest at 10% per annum. The notes are due August 26, 2023. The notes are secured by 203,544 and 203,542 of the common stock of Worthy Financial, Inc., secured by certificate number 24 and 25, evidencing ownership of such shares by the officers. The shares are being held by Worthy Lending, LLC to the extent of the obligation. As of December 31, 2022 and 2021, the accrued interest on these loans totals $24,540 and $46,697, respectively.

In March of 2020, the Company entered into a loan receivable agreement with a small business of which our then Chief Financial Officer is a minority shareholder and a secured guarantor. The loan commitment is up to $550,000, as of December 31, 2022, the Company has loaned $499,650. The loan receivable pays interest at 18% per annum and has a 3 year term. The loan was amended in January of 2021. The loan agreement was amended to say Borrower shall pay to Lender interest at a rate per month equal to 1.25% per month from January 1, 2021 to March 31, 2021 and at a rate equal to 1.0% per month thereafter. The Company also received a 17.5% equity interest in the small business as a condition of the loan commitment. This was accounted for as a cost method investment with a zero cost basis. In October of 2020, the Company sold its 17.5% equity interest back to this small business borrower in consideration of payment of $25,000 and the agreement of the borrower to pay to Worthy Lending II, LLC and amount equal to 5% of the net available cash flow of the borrower on or about the first day of each calendar quarter based on the net available cash flow for the prior quarter. The $25,000 is reflected as a gain on sale of cost method investment in other income (expense) on the consolidated statements of operations and comprehensive loss.

The Company had a verbal agreement with its subsidiaries, whereby WPC, WPC II, WCB and WPB each paid a license fee in the amount of $10 per active user per year. On September 30, 2021, the Company entered into a written agreement with its subsidiaries, which agreement changed the payment terms to $4.00 per registered user per year. All amounts are eliminated in consolidation.

Worthy Management provides certain management services and personnel to WPC, WPC II, WCB and WPB pursuant to a management services agreement. Worthy Management passes through the expenses paid without charging any additional amounts. All amounts are eliminated in consolidation.

OWNERSHIP AND CAPITAL STRUCTURES; RIGHTS OF THE SECURITIES

The following table sets forth the voting securities of the Company that are beneficially owned by the executive officers and directors, and other persons holding more than 10% of any class of the Company’s voting securities, or having the right to acquire those securities as of April 27, 2023. As of April 27, 2023, there are 2,801,309 shares of our common stock issued and outstanding. Unless specified below, the business address of each of the persons in the table below is c/o the Company at One Boca Commerce Center, 551 NW 77^th Street, Suite 212, Boca Raton, Florida 33487. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of the Company’s Common stock outstanding on that date and all shares of its common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

	Common Stock
Name and Address of Beneficial Owner	Shares		%
Sally Outlaw		1,073,196		38.3	%
Alan Jacobs		544,742		19.4	%
Jungkun (“Jang”) Centofanti (1)		140,202		5.0	%
Todd Lazenby (2)(4)		25,000		*
Dara Albright (2)		20,000		*
All WFI officers and directors as a group (seven persons) (1)(2)		1,803,140		64.4	%
Pohlman Living Trust (3)		200,000		7.2	%
Jack W. Richards and Susan Richards		380,712		13.7	%

(1)	Includes 98,602 shares issuable upon the exercise of vested stock options.
(2)	Non-executive member of WFI’s Board of Directors.
(3)	Dr. Randolph H. Pohlman holds voting and dispositive control over securities held of record by the trust.
(4)	Includes 5,000 issuable upon exercise of vested stock options

*Equal to or less than 1%.

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Capital Stock

At the date of this Annual Report, Worthy Financials’ authorized capital stock consists of

● 10,000,000 shares of Common Stock, $0.0001 par value per share, and

● 2,000,000 shares of Preferred Stock, $0.0001 par value per share.

On December 22, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State to implement a 2-for-1 forward stock split (the “Forward Stock Split”) of the Company’s issued and outstanding common stock, which became effective on December 22, 2020. Each one (1) share owned by a stockholder became two (2) shares of common stock, and the number of shares of the Company’s common stock issued and outstanding was increased proportionately based on the Forward Stock Split. The number of authorized shares was not adjusted.

All issued and outstanding share and per share amounts in the accompanying historical consolidated financial statements have been retroactively adjusted to reflect the effects of the Forward Stock Split.

No shares of Preferred Stock are issued and outstanding.

Common Stock

Voting rights

The holders of shares of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of our shareholders.

Dividend rights

Subject to preferences that may be granted to any then outstanding shares of Preferred Stock, holder of shares of our Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefore, as well as any distribution to the shareholders. The payment of dividends on our common stock will be a business decision to be made by our Board of Directors from time to time based upon the results of our operations, our financial condition and any other factors that our Board of Directors considers relevant. Payment of dividends on our Common Stock may be restricted by law and by loan agreements, indentures and other transactions entered into by us from time to time. We have never paid a dividend on our Common Stock and we do not intend to pay dividends in the foreseeable future, which means that holders of Common Stock may not receive any return on their investment from dividends.

Rights to Receive Liquidation Distributions

In the event of our liquidation, dissolution, or winding up, holders of our Common Stock are entitled to share ratably in all of our assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. The rights, preferences and privileges of the holders of our Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of our Preferred Stock and any additional classes of Preferred Stock that we may designate in the future.

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Rights and Preferences

Holders of the Company’s Common Stock have no preemptive, conversion, or other rights, and there are no redemptive or sinking fund provisions applicable to the Company’s Common Stock.

Preferred Stock

Our Board of Directors, without further shareholder approval, may issue Preferred Stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series. The rights, preferences, limitations and restrictions of different series of Preferred Stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and other matters. Our Board of Directors may authorize the issuance of Preferred Stock, which ranks senior to our Common Stock for the payment of dividends and the distribution of assets on liquidation. In addition, our Board of Directors can fix limitations and restrictions, if any, upon the payment of dividends on classes of our Common Stock to be effective while any shares of Preferred Stock are outstanding.

Stock Option Plans

The 2018 Key Employee and Advisor Stock Option Plan allows for a maximum of 400,000 of shares of stock to be issued, subject to adjustment as set forth in the plan of a cumulative increase each January 1st through January 1, 2028 by a number of shares equal to the smaller of 3% of the number of shares issued and outstanding on the preceding December 31st, or an amount determined by the Board. As of December 31, 2022, 223,166 shares of our common stock remaining available for future stock option grants.

In February of 2020, the Company established the 2020 Key Employee and Advisor Stock Option Plan. The maximum number of shares of stock that may be issued under the plan is 400,000, subject to adjustment as set forth in the plan of a cumulative increase on January 1, 2021 and on each subsequent January 1st through January 1, 2030, by a number of shares equal to the smaller of 3% of the number of shares of stock issued and outstanding on the preceding December 31, or an amount determined by the Board. As of December 31, 2022, 330,735 shares of our common stock remain available for future stock option grants.

Each plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to the Company’s employees and any subsidiary’s employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, or restricted stock units to the Company’s employees, directors and consultants. Both plans are administered by the Stock Option Committee of our Board of Directors. The exercise price of options granted under the plans must be at least equal to the fair market value of our Common Stock at the time of grant. The term of an option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term of an incentive stock option granted to such participant must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. Options vest over a 3-year period subject to continued employment. The Stock Option Committee will determine the methods of payment for the exercise price of an option, which may include cash, shares or other property acceptable to the committee, as well as other types of consideration permitted by applicable law. If an individual’s service terminates other than due to the participant’s death or disability, the participant may exercise his or her option within 30 days of termination or such longer period of time as provided in his or her award agreement. If an individual’s service terminates due to the participant’s death or disability, the option may be exercised within six months of termination, or such longer period of time as provided in his or her award agreement. However, in no event may an option be exercised after the expiration of its term. The Stock Option Committee does not use published criteria concerning number of options granted or formal performance formulas. Options are granted based on overall contribution as recommended by the Stock Option Committee and approved by the Board of Directors.

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Convertible Notes

In January of 2017, the Company issued a convertible note payable to a shareholder in the amount of $25,000. The note bears interest at 9% and matured on January 17, 2019. In January of 2019, the Company issued 12,500 shares of common stock for the conversion of the $25,000 convertible note payable and 2,250 shares for the conversion of $4,500 in related accrued interest.

During the year ended December 31, 2018, the Company issued eight convertible notes payable in the aggregate amount of $400,000. The notes bear interest at 9% and mature in three years from the issuance date. Interest accrues and is due at maturity. The occurrence of any one of the following events shall constitute an Event of Default upon notice thereof (a) The non-payment, when due, of any principal or interest pursuant to this Note, and such failure continues unremedied for a period of ten (10) days after written or facsimile notice from Lender to the Borrower of such failure; (b) The commencement against the Borrower of any proceeding relating to the Borrower under any bankruptcy, insolvency, adjustment of debt, receivership or liquidation law or statute or any jurisdiction, whether now or hereafter in effect, provided, however, that the commencement of such a proceeding shall not constitute an Event of Default unless the Borrower consents to the same or admits in writing the material allegations of same, or said proceeding shall remain undismissed for thirty (30) days; or the issuance of any order, judgment or decree for the appointment of a receiver or trustee for the Borrower or for all or a substantial part of the property of the Borrower, which order, judgment or decree remains undismissed for thirty (30) days; or a warrant of attachment, execution, or similar process shall be issued against any substantial part of the property of the Borrower. At any time prior to the maturity date that the Company shall have completed a Qualified Financing, the principal amount outstanding and all accrued but unpaid interest due shall be automatically converted into conversion shares at a discount of 25% to the qualified offering financing valuation with conversion valuation cap of $5,000,000 without any further action of the lender. A qualified offering is defined as an offering of the Company’s equity securities or convertible notes with net proceeds of not less than $3,000,000, either in a single transaction or in a series of transactions which close within six months of each other. In the event the Company does not have a qualified offering prior to the maturity date, holder shall have the option, at the maturity date to convert the principal amount of the note, plus accrued interest, into common shares at a pre-conversion valuation of $5,000,000.

During the year ended December 31, 2019, the Company issued six convertible notes payable in the amount of $310,000. The notes bear interest at 9% and mature in three years from the issuance date. Interest accrues and is due at maturity. The default provisions for these notes are the same as those for 2018 discussed above. At any time prior to the maturity date that the Company shall have completed a Qualified Financing, the principal amount outstanding and all accrued but unpaid interest due shall be automatically converted into conversion shares at a discount of 25% to the qualified offering financing valuation with conversion cap of $5,000,000 without any further action of the lender. A qualified offering is defined as an offering of the Company’s equity securities or convertible notes with net proceeds of not less than $3,000,000, either in a single transaction or in a series of transactions which close within six months of each other. In the event the Company does not have a qualified offering prior to the maturity date, holder shall have the option, at the maturity date to convert the principal amount of the note, plus accrued interest, into common shares at a pre-conversion valuation of $5,000,000.

During the year ended December 31, 2022, the Company paid back 2 convertible notes in the amount of $75,000 plus accrued interest of approximately $23,000. The Company has extended the maturity date to December 31, 2023 for the remaining convertible notes, subject to the noteholders right to demand payment any time after their original maturity date, and will continue to accrue interest until then.

The convertible notes payable balance was $635,000 and $710,000 at December 31, 2022 and 2021, respectively. Accrued interest on convertible notes was approximately $233,000 and $198,000 as of December 31, 2022 and 2021.

What It Means to be a Minority Holder

A minority stockholder of shares of our common stock has a limited ability, if at all, to influence our policies and any other corporate matter, including the election of directors, changes to our corporate governance documents, additional issuances of securities, company repurchases of securities, a sale of the Company or the assets of the Company, or transactions with related parties.

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Dilution

Investors should understand the potential for dilution. Each investor’s stake in the Company could be diluted due to the Company issuing additional shares of capital stock. In other words, when the Company issues more shares, the percentage of the Company that an investor owns will decrease, even though the value of the Company may increase. An investor will own a smaller piece of a larger company. The increases in the number of shares outstanding could result from a stock offering (such as an initial public offering, another crowdfunding round, a venture capital round or angel investment), employees exercising stock options, or by conversion of certain instruments (e.g., convertible notes, preferred shares or warrants) into common stock.

If we decide to issue more shares, an investor could experience value dilution, with each share being worth less than before, and control dilution, with the total percentage an investor owns being less than before. There may also be earnings dilution with a reduction in the amount earned per share (although this typically occurs only if we offer dividend and most companies at our stage are unlikely to offer any dividends, preferring to invest any earnings into the Company).

The type of dilution that hurts early-stage investors most likely occurs when a company sells more shares in a “down round,” meaning at a lower valuation than in earlier offerings.

If an investor is making an investment expecting to own a certain percentage of the Company or expecting each share to hold a certain amount of value, it is important to realize how the value of those shares can decrease by actions taken by the Company. Dilution can make drastic changes to the value of each share, ownership percentage, voting control and earnings per share.

Restrictions on Transfer

For the one-year period following issuance of shares of the Company’s common stock in our Planned Regulation A offering, such shares may not be transferred, unless such securities are transferred:

● to the Company;

● to an accredited investor;

● as part of an offering registered with the SEC; or

● to a member of the original purchaser’s family or the equivalent, to a trust controlled by the purchaser, to a trust created for the benefit of a member of the family of the purchaser or the equivalent, or in connection it the death or divorce of the purchaser or similar circumstance.

The term “accredited investor” means any person who becomes within any of the categories set forth in Rule 501(a) of Regulation D, or who the seller reasonably believes comes within any of such categories, at the time of the sale of securities to that person.

The term “member of the family of the investor or equivalent” includes a child, stepchild, grandchild, parent, stepparent, grandparent, spouse or spousal equivalent, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the purchaser, and includes adoptive relationships. the term “spousal equivalent” means a cohabitant occupying a relationship generally equivalent to that of a spouse.

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FINANCIAL STATEMENTS AND FINANCIAL CONDITION; MATERIAL INDEBTEDNESS

You should read the following discussion and analysis of our financial condition and results of our operations together with our consolidated financial statements and related notes included in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” and elsewhere in this Annual Report. Unless otherwise indicated, the latest results discussed below are as of December 31, 2022.

Overview

The Company was founded February 24, 2016 in Delaware. Through our lending subsidiaries, the Company loans primarily to small business borrowers. We have offered and continue to offer Worthy Bonds in $10.00 increments directly through our website and app.

Our subsidiaries’ revenues and other income included revenue from interest and dividend income, as well as loan fees, which reflects the deployment of a portion of the net proceeds from the sale of Worthy Bonds to make loans and other permissible investments. Interest and dividends on investments represents interest the subsidiaries earn on investments and cash on deposit.

The Company does not receive any of its subsidiaries’ revenues, other than the monthly license fee paid by subsidiaries. All revenues received by subsidiaries are retained by the subsidiaries to fund their operations including bond redemptions. Monthly license fees paid by subsidiaries to the Company do not appear as revenues on the Company’s consolidated financial statements as they are eliminated in consolidation. Our subsidiaries do not pay dividends to Worthy Financial, nor do we anticipate that they will pay dividends for the foreseeable future.

A summary of the Company’s loan portfolio as of December 31, 2022, disaggregated by class of financing receivable, are as follows:

	Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Inventory and Equipment			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Accounts Receivable			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Purchase Order / Trade Financing			Total		Loans to Real Estate Developers Secured by First Mortgages
Outstanding December 31, 2022
Loans	$	5,021,588		$	21,050,131		$	139,110		$	26,210,829	$	20,956,999
Allowance for loan losses	$	3,132,250		$	7,486,173		$	5,564		$	10,623,987	$	200,520
Total Loans, net	$	1,889,338		$	13,563,958		$	133,546		$	15,586,842	$	20,756,479
Percentage of total outstanding loans receivable		19	%		80	%		1	%				-
Percentage of total outstanding Mortgage loans receivable		-			-			-					100	%

A summary of the Company’s loan portfolio at December 31, 2021, disaggregated by class of financing receivable, are as follows:

	Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Inventory and Equipment			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Accounts Receivable			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Purchase Order / Trade Financing		Total		Loans to Real Estate Developers Secured by First Mortgages
Outstanding December 31, 2021
Loans	$	13,141,574		$	9,959,758		$	-	$	23,101,332	$	7,305,192
Allowance for loan losses	$	3,210,136		$	3,834,604		$	-	$	7,044,740	$	72,870
Total Loans, net	$	9,931,438		$	6,125,154		$	-	$	16,056,592	$	7,232,322
Percentage of total outstanding loans receivable		57	%		43	%		-				N/A
Percentage of total outstanding Mortgage loans receivable		-			-			-				100	%

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Results of Operations

Year ended December 31, 2022 Compared to Year ended December 31, 2021

Operating Revenue

Interest on loans receivable

Total interest on loans receivable received by subsidiaries for the year ended December 31, 2022 (“Fiscal 2022”) was $2,870,028 and for the year ended December 31, 2021 (“Fiscal 2021”) was $5,549,801, a decrease of $2,679,773 from Fiscal 2021. This decrease was the direct result of our subsidiaries’ decreased loan activity in the first 3 quarters of fiscal 2022.

Loan fee income

For the year ended December 31, 2022, loan fee income totaled $59,646 as compared to $214,225 for the year ended December 31, 2021, this $154,579 decrease was due to decreased loans earning fees in the fiscal year ended December 31, 2022 as compared to fiscal year ended December 31, 2021.

Cost of Revenue

Interest expense on bonds

Interest expense on bonds for the year ended December 31, 2022 was $3,390,762, a decrease of $845,248 from the year ended December 31, 2021. Interest expense on bonds for the year ended December 31, 2021 was $4,236,010. The decrease was the direct result of the decreased amount of bonds outstanding during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Provision for loan losses

The provision for loan losses for the year ended December 31, 2022 was $4,584,230 as compared to $3,733,392 for the year ended December 31, 2021, an increase of $850,838.

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Operating Expenses

Our operating expenses for the year ended December 31, 2022 is $3,874,996 as compared to $4,563,441 for the year ended December 31, 2021, a decrease of $688,445 during 2022.

This net decrease is primarily attributable to the following; a decrease of approximately $123,000 in sales and marketing expenses, approximately $359,000 decrease in compensation and related expenses, approximately $207,000 decrease in general and administrative expenses. The decreases noted above are due to the Company not selling Worthy Bonds for the period from January 1, 2022 through October 31, 2022. Worthy Property Bonds 1-A registration statement became qualified on October 30, 2022 and the Company began selling Bonds again and making new loans with the net proceeds of the Worthy Property Bonds.

Other Income (Expenses)

Realized and Unrealized gains (losses) on investments, net

For the years ended December 31, 2022 and December 31, 2021 our net unrealized gains (losses), net on marketable securities net of gains were $274,344 and ($124,300), respectively. This was primarily due to general market conditions. Realized gains (losses) on investments, net was ($1,691,425) for the year ended December 31, 2022 as compared to $88,067 for the year ended December 31, 2021. This was due to the Company’s collection of loans and investments to honor maturities and voluntary redemptions of bonds.

Interest expense

Interest accrued on notes payable and convertible notes issued by Worthy Financial increased to $232,923 for Fiscal 2022 from $80,603 for Fiscal 2021.

Interest and Dividends on Investments

Interest and Dividends on Investments for the year ended December 31, 2022 is $427,419 as compared to $444,915 for the year ended December 31, 2021, a $17,496 decrease.

As a result of the foregoing, our net loss was $9,948,743 in Fiscal 2022 and $6,406,019 in Fiscal 2021. Until such time as we begin generating sufficient revenues, if ever, we expect to continue to report net losses.

If we expand we will need to hire more people to support additional administration and marketing needs. However, we are unable at this time to quantify these expected increases.

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Liquidity and Capital Resources

On August 22, 2022, Worthy Peer Capital, Inc. advised all bondholders that due to a number of domestic and global economic factors, some of its loans to small businesses, including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing, have defaulted in their payment obligations. The foregoing defaults in small business loans has caused current illiquidity of Worthy Peer Capital, Inc.’s overall loan portfolio. As a result, Worthy Peer Capital, Inc. temporarily delayed the redemption of outstanding bonds while continuing to accrue interest. (5% until March 31, 2023 and 5.5% effective April 1, 2023). $8,634,513 of Worthy Peer Capital Bonds at December 31, 2022 are subject to the suspension of redemptions. Prior to the suspension in redemptions Worthy Peer Capital, Inc. had redeemed $41,114,337 of Worthy Peer Capital Bonds, as of December 31, 2022 Worthy Peer Capital has redeemed $41,365,466 of Worthy Peer Capital Bonds. Worthy Peer Capital, Inc. continues to pursue outstanding loan collections and will redeem outstanding bonds with accrued interest as loan collections and other asset liquidation permits and will do so automatically in the order of bond maturity and redemption requests. To the extent that Worthy Peer Capital, Inc.’s asset liquidity does not provide sufficient funds for full bond redemption, it is the intention of WFI, the parent company of Worthy Peer Capital, Inc., to provide capital contributions to Worthy Peer Capital, Inc. from a pending equity financing

At December 31, 2022, we had total shareholder’s deficit of approximately $23,549,000 as compared to a total shareholder’s deficit of approximately $13,422,000 at December 31, 2021. Our total assets decreased at December 31, 2022 as compared to December 31, 2021 from $60,575,012 to $47,381,734. Our total liabilities also decreased at December 31, 2022 as compared to December 31, 2021, from $73,997,029 to $70,931,109, respectively. We do not have any commitments for capital expenditures.

Our consolidated shareholders’ deficit and working capital deficiency are the result of initial and early-stage operating subsidiary sales of bonds (a liability) at a more rapid pace than the proceeds from the sale of bonds could be effectively invested in income generating loans and investments. The combination of interest payable on the bonds and operating expenses initially generate a working capital deficit.

To date, the working capital deficit has been funded by capital infusions to the Company through funds raised in a variety of equity, debt, and convertible debt financings.

Net cash used in operating activities for Fiscal 2022 was approximately $4,401,000, as compared to net cash provided by operating activities of approximately $176,000 for Fiscal 2021. In both periods cash was used primarily to fund our losses, offset by the increase in the provision for loan losses and the increase in accrued interest. Net cash used in investing activities was approximately $4,893,000 in Fiscal 2022, which represented primarily loans and mortgage loans made, offset by loan and mortgage loan principal pay downs and net purchases and sales of investments, as compared to net cash provided by investing activities of approximately $6,297,000 in Fiscal 2021, representing similar uses as 2022. Net cash used in financing activities in Fiscal 2022 was approximately $4,478,000, which primarily represented bonds sold less redemptions as compared to approximately $10,475,000 of cash used in financing activities in Fiscal 2021, which represented similar uses as 2022.

Going Concern and Management’s Plans

The Company is dependent upon proceeds from sales of convertible debt and equity for working capital, and has incurred operating losses since inception. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Throughout the next 12 months, the Company intends to fund its operations, including the payment of interest on the Worthy Bonds, with funding from sales of convertible debt and/or equity, as well as net profits generated from our subsidiaries’ loan portfolio. The Company, however, is not a party to any binding agreement for the sale of convertible debt and/or equity. If the Company cannot raise any additional short-term capital, the Company may consume all of its cash reserved for operations. There are no assurances that management will be able to raise capital on terms acceptable to the Company. If the Company is unable to obtain sufficient amounts of additional capital, it may be required to reduce the scope of the Company’s planned development, which could harm its business, financial condition and operating results. The consolidated balance sheet does not include any adjustment that may result from these uncertainties.

Indebtedness

Since inception, the Company has funded a portion of its operations through capital received from the issuance of convertible promissory notes and from the sale of Worthy Bonds.

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Convertible Notes Payable

In January of 2017, the Company issued a convertible note payable to a shareholder in the amount of $25,000. The note bears interest at 9% and matured on January 17, 2019. In January of 2019, the Company issued 12,500 shares of common stock for the conversion of the $25,000 convertible note payable and 2,250 shares for the conversion of $4,500 in related accrued interest.

During the year ended December 31, 2018, the Company issued eight convertible notes payable in the aggregate amount of $400,000. The notes bear interest at 9% and mature in three years from the issuance date. Interest accrues and is due at maturity. The occurrence of any one of the following events shall constitute an Event of Default upon notice thereof (a) The non-payment, when due, of any principal or interest pursuant to this Note, and such failure continues unremedied for a period of ten (10) days after written or facsimile notice from Lender to the Borrower of such failure; (b) The commencement against the Borrower of any proceeding relating to the Borrower under any bankruptcy, insolvency, adjustment of debt, receivership or liquidation law or statute or any jurisdiction, whether now or hereafter in effect, provided, however, that the commencement of such a proceeding shall not constitute an Event of Default unless the Borrower consents to the same or admits in writing the material allegations of same, or said proceeding shall remain undismissed for thirty (30) days; or the issuance of any order, judgment or decree for the appointment of a receiver or trustee for the Borrower or for all or a substantial part of the property of the Borrower, which order, judgment or decree remains undismissed for thirty (30) days; or a warrant of attachment, execution, or similar process shall be issued against any substantial part of the property of the Borrower. At any time prior to the maturity date that the Company shall have completed a Qualified Financing, the principal amount outstanding and all accrued but unpaid interest due shall be automatically converted into conversion shares at a discount of 25% to the qualified offering financing valuation with conversion valuation cap of $5,000,000 without any further action of the lender. A qualified offering is defined as an offering of the Company’s equity securities or convertible notes with net proceeds of not less than $3,000,000, either in a single transaction or in a series of transactions which close within six months of each other. In the event the Company does not have a qualified offering prior to the maturity date, holder shall have the option, at the maturity date to convert the principal amount of the note, plus accrued interest, into common shares at a pre-conversion valuation of $5,000,000.

During the year ended December 31, 2019, the Company issued six convertible notes payable in the amount of $310,000. The notes bear interest at 9% and mature in three years from the issuance date. Interest accrues and is due at maturity. The default provisions for these notes are the same as those for 2018 discussed above. At any time prior to the maturity date that the Company shall have completed a Qualified Financing, the principal amount outstanding and all accrued but unpaid interest due shall be automatically converted into conversion shares at a discount of 25% to the qualified offering financing valuation with conversion cap of $5,000,000 without any further action of the lender. A qualified offering is defined as an offering of the Company’s equity securities or convertible notes with net proceeds of not less than $3,000,000, either in a single transaction or in a series of transactions which close within six months of each other. In the event the Company does not have a qualified offering prior to the maturity date, holder shall have the option, at the maturity date to convert the principal amount of the note, plus accrued interest, into common shares at a pre-conversion valuation of $5,000,000.

During the year ended December 31, 2022, the Company paid back 2 convertible notes in the amount of $75,000 plus accrued interest of approximately $23,000. The Company has extended the maturity date to December 31, 2023 for the remaining convertible notes, subject to the noteholders right to demand payment any time after their original maturity date, and will continue to accrue interest until then. Per historical precedence, these loans were extended by notifying the borrowers that their loans were maturing a year later.

The convertible notes payable balance was $635,000 and $710,000 at December 31, 2022 and 2021, respectively. Accrued interest on convertible notes was approximately $233,000 and $198,000 as of December 31, 2022 and 2021.

Notes Payable

In August of 2020, the Company sold $387,530 of debt and equity in a private placement to accredited investors pursuant to Regulation D. The equity was sold at $2.50 per common share and proceeds were $312,530 for 125,000 common shares. Total debt sold was $75,000. The debt in the form of a promissory note has a one year term with no prepayment penalty, bears interest at 9% and no payments are due until maturity. The debt also contains a provision allowing the debt holder to purchase 2,000 common shares for every $25,000 of debt for $.005 per share. Six thousand common shares were sold with the promissory note as part of this offering for $30. This was accounted for in accordance with ASC 470-20-25-2 “Debt with conversion and other options” due to the debt being issued with common stock sold at a discount, which required a debt discount to be recorded of $12,500 at August 14, 2020. This debt discount is being amortized as interest expense over 12 months, which is the term of the notes. For the year ended December 31, 2020, the Company amortized $4,167 of interest expense against this debt discount, leaving a discount balance of $8,333 and a note balance, net of discount of $66,667 at December 31, 2020.

For the year ended December 31, 2021, the Company amortized the remaining $8,333 of debt discount, leaving a discount balance of $0 and a note balance of $75,000 at December 31, 2021. The debt of $75,000 plus accrued interest of approximately $10,000 was paid in full in January of 2022. The original maturity date of the notes was August 2021, both parties agreed to extend the note and their final payment included interest through January 2022.

Worthy Bonds

Through March 17, 2020, Worthy Peer Capital sold $49,999,980 principal amount of Worthy Bonds. As of December 31, 2022, the WPC had approximately $41,365,000 of redemptions. As of October 1, 2020, Worthy Peer Capital II sold a principal amount of $49,999,620 in Worthy Bonds. As of December 31, 2022, WPC II had approximately $33,897,000 of redemptions. Through February 26, 2021, Worthy Community Bonds sold a principal amount of $49,951,573 in Worthy Bonds. As of December 31, 2022, WCB had approximately $27,940,000 of redemptions. Through March 17, 2020, Worthy Property Bonds sold approximately $17,761,000 principal amount of Worthy Bonds. As of December 31, 2022, WPB had approximately $919,000 of redemptions. The bonds pay interest at 5% per annum (5.5% effective April 1 2023), subject to our subsidiaries’ option to increase the interest rate up to an additional 1% per annum, and mature 3 years from the date of issuance, except for the Worthy Community Bonds and Worthy Property Bonds which do not have a maturity date. The bonds are renewable at the option of the bond holder and, in the case of bonds issued by Worthy Peer Capital, may be redeemed by the holder subject, at the option of Worthy Peer Capital, to a 1% redemption fee if redeemed within the first year after issuance. Worthy Financial does not directly or indirectly guarantee the indebtedness of any of its subsidiaries, nor do any of its subsidiaries guarantee Worthy Financials’ or other subsidiaries’ obligations.

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Paycheck Protection Program Loan

The Company applied for loans being administered by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Recovery Act of 2020 (“CARES Act”) to assist in maintaining payroll and operations through the period impacted by the COVID-19 pandemic. In May 2020, the Company entered into a loan under the Paycheck Protection Program (“PPP”) for $97,250 in principal amount, which may be forgivable as specified in the CARES Act. The loan will mature 50 months from the date it was issued and will accrue interest at a rate of 1% per year. The Company applied for loan forgiveness which was denied and the loan will be paid back subsequently.

Common Stock Issuance

In April of 2020, 47,700 common shares were issued upon the cashless exercise of 106,000 stock options.

In August of 2020, the Company sold $312,530 of equity in a private placement to accredited investors pursuant to Regulation D. The equity was sold at $2.50 per share and proceeds were $312,500 for 125,000 common shares and 6,000 shares were issued for a nominal cash payment at $0.005 per share or $30 as part of the debt offering. The relative fair value of the 6,000 common shares was $12,500 which was recorded as equity resulting in a total of $12,530 recorded to equity for the 6,000 shares (see also Note 10, “Notes payable”).

In March of 2022, 25,421 common shares were issued upon the cashless exercise of 61,200 stock options.

Trend Information

Our business model continues to include loans to borrowers in secured business loans. As our lending capacity increases with the sale of Worthy Bonds and as our affiliates become better known to more established lenders, we anticipate our allocation of loan funds will include an increasing percentage of origination of loans by other lenders.

Although we are currently in a national period of economic distress, we believe the Company is in a relatively good position to withstand potential downward pressure on the economy.

Some temporary accommodations are being made in recognition of certain borrowers’ cash flow issues caused by the slow down or temporary interruption in business

● In accordance with our asset-based loan business model, our loans are secured by assets of the borrowers including inventory, accounts receivable, purchase orders, equipment, and real estate.

● The inventory, equipment, and real estate assets securing our loans are appraised by independent third parties at a net orderly liquidation value of more than the amount of our loans.

● The accounts receivable securing our loans are verified with the account debtor and our loans against such accounts receivable are at a discount to the amount of such accounts receivable.

● Our loans issued directly to borrowers are personally guaranteed by holders of 20% or more of the equity of the corporate borrower.

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● Our loans are to borrowers in diverse industries and geographic locations, which avoids concentration to specific business segments and locations that might experience unusually high economic stress.

● Of the approximately 40 loans in our portfolio as of the date of this Annual Report, 4 are in collection status.

The Company also has investments in debt and equity securities. Our investment policy requires liquidity and all investments are to be investment grade securities, unless pre-approved by the Company.

COVID-19

The Company’s operations have been, and may continue to be, affected by the ongoing outbreak of COVID-19 which in March 2020, was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by future variants of the virus or waves of outbreaks is still uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows.

Possible areas that may be affected include, but are not limited to, higher redemption rate of holders of the Worthy Bonds, a decline in the demand for loans by potential borrowers or higher default rates by borrowers, and unavailability of professional services and other resources. In addition, the employees of affiliated companies that provide services to us could be medically or mentally affected by the pandemic and may be required to work remotely. This situation could cause a reduction in productivity or the inability to complete critical tasks for the Company.

Several borrowers, especially companies in the retail sector and others manufacturing for or distributing to the retail industry, experienced reductions in revenue and cash flow. We have worked constructively with such borrowers to reschedule interest and/or principal payments to accommodate such COVID-19 related cases.

The entire actual effects of the ongoing pandemic are difficult to assess at this time as the actual effects will depend on many factors beyond the control and knowledge of the Company. However, new waves or variants may cause an overall decline in the economy as a whole and therefore may materially harm our business, results of operations and financial condition.

Exempt Offerings

The Company, including its Worthy Peer, Worthy Peer II, Worthy Community Bonds and Worthy Property Bonds subsidiaries, has conducted/is conducting the following exempt offerings within the past three years:

Date of offering	Exemption Relied Upon	Securities Offered	Amount Sold		Use of Proceeds
January 2018 through April 15, 2019	Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act	9% convertible notes	$	710,000	working capital
July 2018 through February 2019	Regulation Crowdfunding	common stock	$	271,790	working capital
January 2018 through March 17, 2020	Regulation A of the Securities Act	Worthy Bonds issued by Worthy Peer	$	50,000,000	loans, other permissible investments and working capital
July 2020 through August 2020	Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act	Common stock	$	312,500	Expenses associated with WFI offering
March 17, 2020 through October 1, 2020	Regulation A of the Securities Act	Worthy II Bonds issued by Worthy Peer II	$	50,000,000	loans, other permissible investments and working capital
September 29, 2020 through February 26, 2021	Regulation A of the Securities Act	Worthy Community Bonds	$	50,000,000	loans, other permissible investments and working capital
October 30, 2022 through Present	Regulation A of the Securities Act	Worthy Property Bonds	$	28,000,000	loans, other permissible investments and working capital

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Valuation

We have not received an independent third-party valuation of the Company. Our Board of Directors previously established a valuation of $5,920,530 for the Regulation CF Offering referred to above, based upon a reasonable increase from a June 2017 equity financing by an accredited investor at a valuation of approximately $3,730,000 before our Worthy App was developed, before Worthy Peer’s Regulation A offering of Worthy Bonds was qualified by the SEC and prior to the sale of any Worthy Bonds or the qualification by the SEC of Worthy Peer II’s Regulation A offering of Worthy II Bonds and Worthy Property Bonds or the sale of Worthy Community Bonds in the offering conducted by Worthy Community Bonds. We expect that our valuation will increase as our Worthy user base increases, more Worthy Bonds are sold in conjunction with our Worthy Fintech Platform and more loans and investments are made. Our value will be based primarily on the increase of our user base and on the “spread” between the interest costs on the Worthy Bonds, Worthy II Bonds, Worthy Community Bonds and Worthy Property Bonds, and our anticipated income on the loans we make using a portion of the bond proceeds. However, there can be no assurance that our valuation can increase as we expect, or at all.

REGULATORY INFORMATION

The Company is:

● organized under, and subject to, the laws of a state or territory of the United States or of the District of Columbia;

● not subject to the requirements to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”);

● not an investment company registered or required to register under the Investment Company Act of 1940;

● not ineligible to rely on this exemption under Section 4(a)(6) of the Securities Act as a result of a disqualification specified in Rule 503(a) of Regulation Crowdfunding; and

● not a development stage company that (a) has no specific business plan or (b) has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies.

The Company has not previously failed to comply with the ongoing reporting requirements of Rule 202 of Regulation Crowdfunding.

Disqualification

Neither the Company nor any of its officers or directors is disqualified from relying on Regulation Crowdfunding.

Annual Report

The Company will file a report electronically with the SEC annually and post the report on its website no later than April 30 each year (or the following business day if April 30 falls on a Saturday, Sunday or holiday). Once posted, the Annual Report may be found on the Company’s website at www.worthy.us. The Company has not previously failed to comply with any ongoing reporting requirements of the SEC.

The Company must continue to comply with the ongoing reporting requirements until:

● it is required to file reports under Section 13(a) or Section 15(d) of the Exchange Act;

● it has filed at least one annual report pursuant to Regulation Crowdfunding and has fewer than 300 holders of record and has total assets that do not exceed $10,000,000;

● it has filed at least three annual report pursuant to Regulation Crowdfunding;

● it or another party repurchases all of the securities issued in reliance on Section 4(a)(6) of the Securities Act, including any payment in full of debt securities or any complete redemption of redeemable securities; or

● it liquidates or dissolves its business in accordance with state law.

Compliance Failure

The Company has not previously failed to comply with the requirements of Regulation Crowdfunding.

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Worthy Financial, Inc. and Subsidiaries

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-6
Consolidated Statements of Operations and Comprehensive Loss	F-7
Consolidated Statements of Changes in Shareholder’s Deficit	F-8
Consolidated Statements of Cash Flows	F-9
Notes to the Consolidated Financial Statements	F-10

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of
Worthy Financial, Inc. and Subsidiaries

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Worthy Financial, Inc. and Subsidiaries (the “Company”) as of December 31, 2022, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ deficit, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and the consolidated results of its operations and comprehensive loss and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, to the consolidated financial statements, the Company had a net loss of approximately $9,948,743 for the year ended December 31, 2022. The Company also had a shareholders’ deficit and an accumulated deficit of approximately $23,549,375 and $25,459,309, respectively, at December 31, 2022. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan regarding these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

ASSURANCE DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS & ASSOCIATES

also d/b/a McNAMARA and ASSOCIATES, PLLC

TAMPA BAY: 4920 W Cypress Street, Suite 102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053

JACKSONVILLE: 4720 Salisbury Road, Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053

ORLANDO:  1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053

SOUTH FLORIDA:  2000 Banks Road, Suite 218 | Margate, FL 33063 | Office: 754.800.3400 | Fax: 813.443.5053

www.assurancedimensions.com

F-2

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of reserves for loans, mortgage loans, and related accrued interest receivables

As described within Note 3 in the header section entitled “Allowance for Loan Losses” and in Note 6 “Loans Receivable and Mortgage Loans Held for Investment”, to the consolidated financial statements, loans and mortgage loans held for investment and related interest receivable balances are evaluated by management for collectability periodically and at year-end using various data inputs. The determination of the valuation of these balances requires management to make significant estimates and assumptions related to the intent and ability of the borrowers to pay the amounts owed to the Company.

We identified the valuation of the allowance of loan losses for the loans, mortgage loans, and related interest receivables as a critical audit matter. Auditing management’s judgments regarding the intent and ability of the borrowers to pay the amounts due to the Company involved a high degree of complexity and subjectivity.

The primary procedures we performed to address this critical audit matter included (a) reviewing management’s process for developing an estimate of the allowance for loan losses to be recorded including management’s use of internal risk ratings and credit quality indicators and the information management uses to develop these ratings and indicators, (b) sending audit confirmation letters to a sample of borrowers, (c) reviewing the promissory notes and related legal documents including any collateral related documents for our sample of borrowers, (d) testing compliance with terms of the borrower’s agreements; and (e) reviewing and verifying the historical and subsequent collection history through the date of our procedures for our sample of borrowers and correlating this history to management’s process of developing the allowance for loan losses. Based on our procedures, we were in agreement with the Company’s ending allowance for loan losses as of December 31, 2022.

We have served as the Company’s auditor since 2022.

Margate, Florida

April 27, 2023

ASSURANCE DIMENSIONS CERTIFIED PUBLIC ACCOUNTANTS & ASSOCIATES

also d/b/a McNAMARA and ASSOCIATES, PLLC

TAMPA BAY: 4920 W Cypress Street, Suite 102 | Tampa, FL 33607 | Office: 813.443.5048 | Fax: 813.443.5053

JACKSONVILLE: 4720 Salisbury Road, Suite 223 | Jacksonville, FL 32256 | Office: 888.410.2323 | Fax: 813.443.5053

ORLANDO:  1800 Pembrook Drive, Suite 300 | Orlando, FL 32810 | Office: 888.410.2323 | Fax: 813.443.5053

SOUTH FLORIDA:  2000 Banks Road, Suite 218 | Margate, FL 33063 | Office: 754.800.3400 | Fax: 813.443.5053

www.assurancedimensions.com

F-3

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of:

Worthy Financial, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Worthy Financial, Inc. and Subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of operations, changes in shareholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, to the consolidated financial statements, the Company had a net loss and had net cash provided by operations of approximately $6,400,000 and $176,000, respectively, for the year ended December 31, 2021. The Company also had a shareholders’ deficit and an accumulated deficit of approximately $13,400,000 and $15,511,000, respectively, and total liabilities exceeded total assets by approximately $13,400,000 at December 31, 2021. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s Plan regarding these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

2295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431-7328

Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920

www.salbergco.com ● info@salbergco.com

Member National Association of Certified Valuation Analysts ● Registered with the PCAOB

Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality

F-4

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the year ended December 31, 2021 audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of loans and mortgage loans and related accrued interest receivable

As described in Footnote 3 “Allowance for Loan Losses” and in Footnote 6 “Loans Receivable and Mortgage Loans Held for Investment”, to the consolidated financial statements, the Company’s consolidated loans and mortgage loans receivable and accrued interest receivable balances, net of the related $7,601,821 allowance for loan losses, was $23,932,516 at December 31, 2021. Loans and mortgage loans held for investment and related accrued interest receivable balances are evaluated by management for collectability periodically and at year-end. The determination of the valuation of these balances requires management to make significant estimates and assumptions related to the intent and ability of the borrowers to pay the amounts due to the Company.

We identified the valuation of loans and mortgage loans and related accrued interest receivable as a critical audit matter. Auditing management’s judgments regarding the intent and ability of the borrowers to pay the amounts due to the Company involved a high degree of complexity and subjectivity.

The primary procedures we performed to address this critical audit matter included (a) reviewed management’s process for developing an estimate of the loan loss allowance to be recorded including management’s use of internal risk ratings and credit quality indicators and the information management uses to develop these ratings and indicators, (b) sent audit confirmation letters to a sample of borrowers, (c) reviewed the promissory notes and related legal documents including any collateral related documents for our sample of borrowers, and (d) reviewed and verified the historical and subsequent collection history through the date of our procedures for our sample of borrowers and correlating this history to management’s process of developing the loan loss allowance.

/S/ Salberg & Company, P.A.

SALBERG & COMPANY, P.A.

We have served as the Company’s auditor since 2020.

Boca Raton, Florida

April 27, 2022

2295 NW Corporate Blvd., Suite 240 ● Boca Raton, FL 33431

Phone: (561) 995-8270 ● Toll Free: (866) CPA-8500 ● Fax: (561) 995-1920

www.salbergco.com ● info@salbergco.com

Member National Association of Certified Valuation Analysts ● Registered with the PCAOB

Member CPAConnect with Affiliated Offices Worldwide ● Member AICPA Center for Audit Quality

F-5

Worthy Financial, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,			December 31,
	2022			2021
ASSETS
Assets
Cash	$	5,661,298		$	19,434,445
Loans receivable held for investment, net of $10,623,987 and $7,044,740 reserve at December 31, 2022 and December 31, 2021		15,586,842			16,056,592
Mortgages loans held for investment, net of $200,520 and $72,870 reserve at December 31, 2022 and December 31, 2021		20,756,479			7,232,322
Investments		4,640,659			16,773,716
Due from related parties		200,000			200,000
Interest and fees receivable, net of $726,653 and $484,211 reserve at December 31, 2022 and 2021		357,413			643,602
Interest receivable - related parties		66,667			46,667
Prepaid expenses		15,782			36,192
Right to use asset		74,219			125,399
Property and equipment, net		9,932			12,703
Security deposit		11,618			11,618
Intangible assets, net		825			1,756
TOTAL ASSETS	$	47,381,734		$	60,575,012
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Liabilities
Bond liabilities, net	$	63,590,899		$	67,916,824
Loans payable, related parties		17,500			-
Accounts payable		191,404			114,589
Accrued expenses		231,377			206,837
Deferred revenue		463			6,153
Accrued interest		6,092,997			4,744,977
Lease liability		74,219			125,399
Forgivable loan		97,250			97,250
Notes payable, net of discount		-			75,000
Convertible notes payable		635,000			710,000
Total Liabilities		70,931,109			73,997,029
Commitments and contingencies (Note 12)
Shareholders’ Deficit
Preferred Stock, par value $0.0001, 2,000,000 shares authorized, and 0 shares issued and outstanding at December 31, 2022 and 2021		-			-
Common Stock, par value $0.0001, 10,000,000 shares authorized, 2,801,309 and 2,775,888 shares issued and outstanding at December 31, 2022 and 2021, respectively		279			276
Additional paid-in capital		2,251,155			2,092,022
Accumulated other comprehensive loss		(341,500	)		(3,749	)
Accumulated deficit		(25,459,309	)		(15,510,566	)
Total Shareholders’ Deficit		(23,549,375	)		(13,422,017	)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	47,381,734		$	60,575,012

The accompanying notes are an integral part of these consolidated financial statements

F-6

Worthy Financial, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

	Year Ended December 31, 2022			Year Ended December 31, 2021
Operating Revenue
Interest on loans receivable	$	2,870,028		$	5,549,801
Loan fee income		59,646			214,225
Total operating revenue		2,929,674			5,764,026
Cost of Revenue
Interest expense on bonds		3,390,763			4,236,010
Provision for loan losses		4,584,230			3,733,392
Total cost of revenue		7,974,993			7,969,402
Gross profit (loss)		(5,045,319	)		(2,205,376	)
Operating expenses
General and administrative expenses		1,742,465			1,949,312
Compensation and related expenses		2,086,430			2,445,148
Sales and marketing		46,101			168,981
Total operating expenses		3,874,996			4,563,441
Other Income (Expense)
Other income (expense)		-			4,567
Interest income - related party		20,000			20,000
Interest expense		(58,766	)		(80,603	)
Interest and dividends on investments		427,419			444,915
Interest on cash		-			10,152
Realized gains (losses) on investments, net		(1,691,425	)		88,067
Unrealized gains (losses) on investments, net		274,344			(124,300	)
Total other income (expenses)		(1,028,428	)		362,798
Net Loss		(9,948,743	)		(6,406,019	)
Other comprehensive income:
Unrealized gains (loss) on available for sale debt securities		(337,751	)	$	(3,749	)
Comprehensive loss	$	(10,286,494	)	$	(6,409,768	)
Net loss per common share	$	(3.57	)	$	(2.31	)
Weighted average number of shares outstanding		2,787,045			2,775,888

The accompanying notes are an integral part of these consolidated financial statements

F-7

Worthy Financial, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Deficit

For the Years Ended December 31, 2022 and 2021

	Common Shares		Common Stock, Par Value		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
Balance at December 31, 2020		2,775,888	$	276	$	1,760,128			-		$	(9,104,547	)	$	(7,344,143	)
Vesting of stock options		-		-		331,894			-			-			331,894
Unrealized loss on available for sale debt securities		-		-		-			(3,749	)		-			(3,749	)
Net loss		-		-		-			-			(6,406,019	)		(6,406,019	)
Balance at December 31, 2021		2,775,888	$	276	$	2,092,022		$	(3,749	)	$	(15,510,566	)	$	(13,422,017	)
Unrealized loss on available for sale debt securities		-		-		-			(337,751	)		-			(337,751	)
Vesting of stock options		-		-		159,136			-			-			159,136
Common shares issued for cashless stock option exercise		25,421		3		(3	)		-			-			(0	)
Net loss		-		-		-			-			(9,948,743	)		(9,948,743	)
Balance at December 31, 2022		2,801,309	$	279	$	2,251,155		$	(341,500	)	$	(25,459,309	)	$	(23,549,375	)

The accompanying notes are an integral part of these consolidated financial statements

F-8

Worthy Financial, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Year Ended December 31, 2022			Year Ended December 31, 2021
Cash flows from operating activities:
Net loss	$	(9,948,743	)	$	(6,406,019	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Provision for loan loss		4,584,230			3,733,392
Unrealized losses (gains) on investments, net		(274,344	)		124,300
Vesting of stock options		159,136			331,893
Bonds issued for marketing services		-			46,909
Amortization of debt discount		-			8,333
Depreciation and amortization expense		6,075			6,619
Changes in working capital items:
Prepaid expense		20,412			(35,867	)
Interest and fees receivable		(391,724	)		(313,633	)
Accrued interest		1,348,020			2,806,228
Accrued expenses		24,540			46,697
Deferred revenue		(5,690	)		(58,234	)
Accounts payable		76,817			(115,085	)
Net cash (used in) provided by operating activities		(4,401,272	)		175,533
Cash flows from investing activities:
Purchase of investments		(9,542,124	)		(8,880,483	)
Sale of investments		21,611,773			4,025,199
Loans receivable disbursements		(64,957,009	)		(58,718,327	)
Loans receivable pay downs		47,996,284			69,881,008
Purchase of property and equipment		(2,373	)		(10,196	)
Net cash (used in) provided by investing activities		(4,893,449	)		6,297,201
Cash flows from financing activities:
Payments of notes payable		(75,000	)		-
Payments of convertible notes payable		(75,000	)		-
Loans from related parties		17,500			-
Interest receivable - related parties		(20,000	)		(20,000	)
Proceeds from bonds		17,761,450			24,498,381
Redemption of bonds		(22,087,376	)		(34,953,283	)
Net cash used in financing activities		(4,478,426	)		(10,474,902	)
Net change in cash		(13,773,146	)		(4,002,168	)
Beginning cash		19,434,445			23,436,613
Ending cash	$	5,661,298		$	19,434,445
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	1,926,974		$	1,499,981
Cash paid for taxes	$	-		$	-
Supplemental Non-Cash Investing and Financing Information
Unrealized losses on available for sale debt securities	$	(337,751	)	$	(3,749	)

The accompanying notes are an integral part of these consolidated financial statements

F-9

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

Worthy Financial, Inc., a Delaware corporation, (the “Company,” “WFI”, “we,” or “us”) was founded February 24, 2016. Through our lending subsidiaries, the Company loans or participates in primarily secured loans mainly to small business and real estate developer borrowers. Our subsidiaries sell Worthy Bonds in $10.00 increments on a continuous basis directly through our Worthy website via computer or the Worthy App., to fund our loans to small business and real estate developer borrowers. We own a mobile app (the “Worthy App”) that allows its users to round up their debit card and checking account linked credit card purchases and other checking account transactions and thereafter use the “round up” dollars in increments of $10.00 to purchase Worthy Bonds. The “users” may also use additional funds to purchase Worthy Bonds.

The Company’s year-end is December 31^st.

On August 27, 2018, the Company through its wholly owned subsidiary Worthy Peer Capital, Inc., (“WPC”) organized Worthy Lending, LLC, (“WL”) a Delaware limited liability company, as a wholly owned subsidiary.

On October 28, 2019, the Company incorporated Worthy Management, Inc., (‘WM”) a Florida corporation, as a wholly owned subsidiary.

On October 28, 2019, the Company incorporated Worthy Peer Capital II, Inc., (“WPC II”) a Florida corporation, as a wholly owned subsidiary. Also, on October 28, 2019, the Company through its subsidiary WPC II organized Worthy Lending II, LLC, (“WL II”) a Delaware limited liability company, as a wholly owned subsidiary.

On June 30, 2020, the Company incorporated Worthy Community Bonds, Inc., (“WCB”) a Florida corporation, as a wholly owned subsidiary. Also, on June 30, 2020, the Company through its subsidiary WCB organized Worthy Lending III, LLC, (“WL III”) a Delaware limited liability company, as a wholly owned subsidiary.

On November 2, 2020, the Company incorporated Worthy Community Bonds II, Inc., (“WCB II”) a Florida corporation, as a wholly owned subsidiary. Also, on November 2, 2020, the Company through its subsidiary WCB II organized Worthy Lending IV, LLC, (“WL IV”) a Delaware limited liability company, as a wholly owned subsidiary.

On April 9, 2021, the Company incorporated a new wholly owned subsidiary, Worthy Property Bonds, Inc., (“WPB”) as a Florida corporation and its wholly owned subsidiary, Worthy Lending V, LLC as a Delaware limited liability company.

On February 3, 2023, the Company incorporated a new wholly owned subsidiary, Worthy Property Bonds 2, Inc., (“WPB2”) as a Florida corporation and its wholly-owned subsidiary, Worthy Lending VI, LLC, a Delaware limited liability company.

On December 22, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State to implement a 2-for-1 forward stock split (the “Forward Stock Split”) of the Company’s issued and outstanding common stock, which became effective on December 22, 2020. Each one (1) share owned by a stockholder was exchanged for two shares of common stock, and the number of shares of the Company’s common stock issued and outstanding was increased proportionately based on the Forward Stock Split. The number of authorized shares was not adjusted. All issued and outstanding shares and per share amounts in the accompanying historical consolidated financial statements have been retroactively adjusted to reflect the Forward Stock Split.

NOTE 2. GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company generated net losses of approximately $9,949,000 and $6,406,000, and had cash provided by and (used in) operations of approximately ($4,401,000) and $176,000 for the years ended December 31, 2022 and 2021, respectively. The net losses incurred from inception have resulted in an accumulated deficit of approximately $25,459,309 at December 31, 2022. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the issuance date of these consolidated financial statements. During 2023, the Company continues to incur losses.

F-10

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

In response to the losses incurred from inception, the Company continues to constantly evaluate and monitor its cash needs and existing cash burn rate, in order to make adjustments to its operating expenses. Cash on hand was approximately $5,661,000 at December 31, 2022. This cash was obtained primarily through the sale of common stock and convertible promissory notes, through the sale of our Worthy Bonds and from collections of interest and dividends on our outstanding loans and investments.

On August 22, 2022, Worthy Peer Capital, Inc. advised all bondholders that due to a number of domestic and global economic factors, some of its loans to small businesses, including loans to manufacturers, wholesalers, and retailers secured by inventory, accounts receivable and/or equipment and purchase order financing, have defaulted in their payment obligations. The foregoing defaults in small business loans has caused current illiquidity of Worthy Peer Capital, Inc.’s overall loan portfolio. As a result, Worthy Peer Capital, Inc. temporarily delayed the redemption of outstanding bonds while continuing to accrue the 5% interest. $8,634,513 of Worthy Peer Capital Bonds at December 31, 2022 are subject to the suspension of redemptions. Prior to the suspension in redemptions, Worthy Peer Capital, Inc. had redeemed $41,114,337 of Worthy Peer Capital Bonds, as of December 31, 2022 Worthy Peer Capital has redeemed $41,365,466 of Worthy Peer Capital Bonds. Worthy Peer Capital, Inc. continues to pursue outstanding loan collections and will redeem outstanding bonds with accrued interest as loan collections and other asset liquidation permits and will do so automatically in the order of bond maturity and redemption requests. To the extent that Worthy Peer Capital, Inc.’s asset liquidity does not provide sufficient funds for full bond redemption, it is the intention of WFI, the parent company of Worthy Peer Capital, Inc., to provide capital contributions to Worthy Peer Capital, Inc. from a pending equity financing.

No assurances can be given that the Company will achieve success without seeking additional financing. There is no assurance additional financing or that any additional financing if required, can be obtained, or obtained on reasonable terms acceptable to the Company. These consolidated financial statements do not include adjustments related to the recoverability and classifications of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the operations of the Company and its wholly-owned subsidiaries, Worthy Management, Inc., Worthy Peer Capital, Inc. and its wholly owned subsidiary Worthy Lending, LLC, Worthy Peer Capital II, Inc. and its wholly owned subsidiary Worthy Lending II, LLC., Worthy Community Bonds, Inc. and its wholly owned subsidiary Worthy Lending III, LLC, Worthy Community Bonds II, Inc. and its wholly owned subsidiary Worthy Lending IV, LLC, Worthy Property Bonds, Inc. and its wholly owned subsidiary Worthy Lending V, LLC.

All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“US-GAAP) requires management 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 consolidated financial statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates. Estimates which are particularly significant to the consolidated financial statements include, but are not limited to, assessing the collectability of loans and interest receivable, other receivables, due from related parties, valuation of investments held, the estimate of the fair value of the lease liability and related right of use assets, estimate of our internal labor based loan origination costs, valuation of share based payments and estimates of the valuation allowance on deferred tax assets.

F-11

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Cash and cash equivalents

Cash and cash equivalents include checking, savings, unrestricted deposits with investment-grade financial institutions, institutional money market funds, certificates of deposit and other short-term interest-bearing products. We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

COVID-19 Pandemic Impact

Many of our small business borrowers have been directly or indirectly affected by the COVID-19 pandemic due to the closures and reduced customer demand. The COVID-19 pandemic continues to negatively impact many of our small business borrowers. In March and April of 2020 due to the events surrounding the Coronavirus pandemic, the Company experienced much higher than usual bond redemptions. We have included the COVID-19 impacts as part of our calculation of the allowance for credit losses.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, loans and mortgage loans receivable, interest receivable, investments, other receivables, due from related parties, accounts payable, notes payable, accrued expenses, accrued interest payable and bond liabilities. The carrying amount of these financial instruments approximates fair value due to the short-term maturity of these instruments.

Fair Value Measurement

In accordance with ASC 820, Fair Value Measurement, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price), we use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a nonrecurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value.

The three tiers are defined as follows:

Level 1: Quoted prices in active markets or liabilities in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for assets or liabilities for which there is little or no market data, which require us to develop our own assumptions. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flows, or similar techniques, which incorporate our own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.

F-12

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Fair value measurements at the end of the reporting period using

	December 31, 2021		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Description
Recurring fair value measurements
Equity Securities
Common stock	$	856,383	$	856,383	$	-	$	-
Mutual funds		459,449		459,449		-		-
Exchange traded closed-end funds		522,462		522,462		-		-
Reit		331,560		-		331,560		-
Public preferred stock		743,498		743,498		-		-
Total equity securities		2,913,352		2,581,792		331,560		-
Available for sale debt securities
Corporate bonds		1,295,594		1,295,594		-		-
Corporate Structured Notes		1,714,030		1,714,030		-		-
Alternative Investment		200,000		200,000		-		-
Asset Backed Securities		9,749,240		9,749,240		-		-
Total available for sale securities		12,958,864		12,958,864		-		-
Total recurring fair value measurements	$	15,872,216	$	15,540,656	$	331,560	$	-

Fair value measurements at the end of the reporting period using

	December 31, 2022		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Description
Recurring fair value measurements
Available for sale debt securities
Corporate bonds	$	41,760	$	41,760	$	-	$	-
Treasury Bills		249,598		249,598		-		-
Corporate Structured Notes		595,396		595,396		-		-
Certificates of Deposits		96,955		96,955		-		-
Asset Backed Securities		3,399,410		3,399,410		-		-
Total available for sale securities		4,383,119		4,383,119		-		-
Total recurring fair value measurements	$	4,383,119	$	4,383,119	$	-	$	-

F-13

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Investments

On January 1, 2018, the Company adopted ASU 2016-01 “Financial Instruments – Overall” which requires unrealized gains and losses from marketable equity securities to be recognized in operations.

Investments consist of various debt and equity investments. Management determines the appropriate classification of the securities at the time they are acquired and evaluates the appropriateness of such classifications at each balance sheet date. Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at that fair value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. Equity securities where the fair market value or net asset value are not available are carried at cost, subject to impairment valuation. The Company classifies certain of its debt instruments as available-for-sale pursuant to ASC 320, Investments – Debt and Equity Securities. Debt securities are classified as held to maturity, at unamortized cost on the consolidated balance sheet if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year. Debt securities held to maturity are carried at amortized cost and unrealized gains and losses are not recognized. Realized gains and losses are included in other income or expense in the consolidated statements of operations and and comprehensive loss on a specific-identification basis.

The Company reviews securities that are not measured at fair value for other-than-temporary impairment whenever the fair value of a security is less than the amortized cost and evidence indicates that a security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the security, or if it is more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.

Loans Receivable Held for Investment

Loans held for investment consist of term loans that require monthly or weekly interest payments. We have both the ability and intent to hold these loans to maturity. When we originate a term loan, the borrower grants us a security interest in its assets which we may perfect by publicly filing a financing statement. Loans held for investment are carried at amortized cost, reduced by a valuation allowance for loan losses estimated as of the consolidated balance sheet dates.

Included in loans held for investment are loans that we participate in with other asset based lenders. Also included in loans held for investment is the netting of a borrower loan balance when we participate out a portion of a loan receivable, as the participant becomes responsible for the portion of the balance that they agree to participant in.

Mortgage Loans Held for Investment

Mortgage loans held for investment consist of loans secured by a mortgage in the real estate, which is located in the state of Florida. These loans typically have a maturity date of 1 to 2 years, pay interest at rates between 8.5% and 10.5% and are serviced by an outside, unrelated party. These loans require monthly interest payments to us. We have both the ability and intent to hold these loans to maturity. These loans are carried at amortized cost, reduced by a valuation allowance for loan losses, if deemed necessary, estimated as of the consolidated balance sheet dates.

Accrued Interest Receivable

In accordance with ASC 326-20-30-5A, the Company includes, in the allowance for loan losses an amount attributed to accrued interest receivable.

In accordance with ASC 326-20-35-8A, the Company has an accounting policy election, at the class of financing receivable, to write off accrued interest receivables by recognizing credit loss expense.

F-14

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Loan Origination Fees and Cost

Loan fees when applicable are charged to the borrowers during loan originations. These fees are offset against loan costs and then deferred as deferred revenue to be recognized as loan fee revenue over the term of the loan. Direct loan origination costs include but are not limited to costs directly related to evaluating the financial performance of the prospective borrower, preparing and processing loan documentation, collateral management and employees’ compensation directly related to the loan.

Allowance for Loan Losses

In 2016, the allowance for loan losses (“ALLL”) was established with respect to our loans through charges to the provision for loan losses in compliance with ASC 326 “Financial Instruments – Credit Losses.” Loan losses are charged against the ALLL when we believe that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. We evaluate the credit worthiness of our portfolio on an individual loan basis and on a portfolio basis. The allowance is subjective as it requires material estimates, including such factors as historical trends, known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. Other qualitative factors considered may include items such as uncertainties in forecasting and modeling techniques, changes in portfolio composition, business conditions and emerging trends. Recovery of the carrying value of loans is dependent to a great extent on conditions that may be beyond our control. Any combination of the aforementioned factors may adversely affect our loan portfolio resulting in increased delinquencies and loan losses and could require additional provisions for loan losses, which could impact future periods.

Past Due and Non-Accrual Loans Receivable

Loans receivable are considered past due when a borrower hasn’t made a principal or interest payment for 90 days. The Company considers a loan to be non-performing and put on non-accrual status when management believes collectability is not probable. Management predicts probability of collectability through qualitative and quantitative criteria, including whether the loan is in past due status, borrower financial condition, including net collateral to loan balance, personal or corporate validity or other guarantees, our experience with the borrower, quality of borrower internal credit review system, quality of borrower management, and external operating environment. When a loan is placed on non-accrual status, we cease accruing interest and a reserve on interest receivable is established.

Property and equipment

Property and equipment and leasehold improvements are recorded at its historical cost. The cost of property and equipment is depreciated over the estimated useful lives, when placed in service, (ranging from 3 -5 years) of the related assets utilizing the straight-line method of depreciation. The cost of leasehold improvements is depreciated (amortized) over the lesser of the length of the related leases or the estimated useful lives of the assets. Ordinary repairs and maintenance are expensed when incurred and major repairs will be capitalized and expensed if it benefits future periods.

Leases

In February of 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02-Leases (Topic 842), which significantly amended the way companies are required to account for leases. Under the updated leasing guidance, some leases that did not have to be reported previously are now required to be presented as an asset and liability on the balance sheet. In addition, for certain leases, what was previously classified as an operating expense must now be allocated between amortization expense and interest expense. The Company adopted this update as of January 1, 2019 using the modified retrospective transition method and prior periods have not been restated.

Revenue Recognition

We recognize revenue in accordance with the guidance in FASB ASC 942 “Financial Services – Depository Lending”.

F-15

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

We generate revenue primarily through loan interest earned, loan origination fees and collateral management fees for monitoring the underlying collateral related to the loan.

For term loans, we recognize interest income, loan origination fee income and collateral management fee income over the terms of the underlying loans. Loan origination fees and collateral management fees are reflected as loan fee income in our statements of operations and comprehensive loss.

Loan origination fees typically include due diligence, appraisal and legal fees. Associated costs primarily include costs directly related to evaluating the financial performance of the prospective borrower, preparing and processing loan documentation, employees’ compensation directly related to the loan and costs paid to third parties for legal and appraisal services. The fees and the costs are netted as deferred revenue and amortized into revenue over the life of the loan.

We also generate revenue through interest and dividends on investments and realized and unrealized gains on investments, which is all included in other income (expense) in the statements of operations and comprehensive loss.

Impairment of long-lived assets

The Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less that the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. No impairments were noted during the years-ended December 31, 2022 or 2021.

Intangible Assets

Software Costs

We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use when both the preliminary project stage is completed and it is probable that the software will be used as intended. Capitalized software costs include only (i) external direct costs of materials and services utilized in developing or obtaining computer software, (ii) compensation and related benefits for employees who are directly associated with the software project and (iii) interest costs incurred while developing internal-use computer software. Capitalized software costs are included in intangible assets on our consolidated balance sheet and amortized on a straight-line basis when placed into service over the estimated useful lives of the software, which is 5 years.

Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Indefinite life assets not subject to amortization are tested for impairment at least annually.

Income taxes

Income taxes - The Company accounts for income taxes in accordance with ASC Topic 740, Accounting for Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws.

Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which they operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax- planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of Topic 740.

F-16

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

The Company accounts for uncertain tax positions in accordance with ASC 740-10, Accounting for Uncertainty in Income Taxes. As required by the relevant guidance, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would, more likely than not, sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company has applied the guidance to all tax positions for which the statute of limitations remained open.

The Company is subject to income taxes in the United States Federal jurisdiction and Florida. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in its income tax expense. No interest or penalties have been accrued for all periods presented.

The Company’s tax returns for the years in 2019 through 2022 remain subject to potential examination by taxing authorities.

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the Company’s net loss by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income (loss) available to common shareholders by the diluted weighted average number of shares outstanding during the period. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. The Company has $635,000 of convertible notes payable that are convertible into approximately 387,000 common shares at December 31, 2022 and approximately $233,000 of accrued interest related to the convertible notes payable that are convertible into approximately 142,000 common shares at December 31, 2022 and $710,000 of convertible notes that are convertible into approximately 394,000 shares at December 31, 2021 and approximately $198,000 of accrued interest related to the convertible notes payable that are convertible into approximately 110,000 common shares at December 31, 2021. The Company also has 546,238 and 701,340 stock options outstanding at December 31, 2022 and 2021, respectively. These are not presented in the consolidated statements of operations as the effect of these shares is anti- dilutive.

Stock-based compensation

The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock awards, and employee stock purchases based on estimated fair values.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718). This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation-Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied in a retrospective approach for each period presented. Management adopted this standard on January 1, 2019.

Determining Fair Value Under ASC 718-10

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Company’s determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.

F-17

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 4. RECENTLY ISSUED ACCOUNTING STANDARDS AND DEVELOPMENTS

Accounting standards promulgated by the FASB are subject to change. Changes in such standards may have an impact on the Company’s future financial statements.

The Company periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the Company, the Company has not identified any other new standards that it believes merit further discussion, and the Company expects that none would have a significant impact on its consolidated financial statements.

NOTE 5. INVESTMENTS

The Company maintains a portfolio of investments on its consolidated balance sheets which consist of securities held at fair value or at original cost basis. Fair value includes gross unrealized gains, gross unrealized losses, accrued interest, and amortized cost. The Company typically invests in a portfolio of private market real estate investments with the primary objective to earn diversified risk-adjusted returns while the corporate bonds, public preferred and common stock and certificates of deposit, asset backed securities, and U.S. treasury securities are intended to mitigate risk and minimize potential risk of principal loss. The Company’s investment policy aims to limit the amount of credit exposure to any one issuer and targets 20% portfolio weight in the more conservative investments.

The Company holds certain non-marketable investments accounted for at cost. The eREIT investment in the below table is a public, non-traded equity REIT that invests in small-cap commercial real estate projects. The Company owns shares in the limited liability companies that hold the real estate projects, and the investments target different mandates including, growth, income, and geographic strategies. The REIT investment in the below table is in a multi-housing equity REIT, formed to originate, invest in, and manage a diversified portfolio primarily consisting of investments in multi-housing within the continental U.S. in the areas of student housing, multi-housing, conventional apartments, and senior living (both existing and new development projects). The Company also through another company platform fractionally invests in unsecured limited recourse obligations, which are used by the issuer of these obligations to make secured real estate loans.

The following is a summary of the investments as of December 31, 2021:

	Cost		Unrealized Gain (Loss)			Fair Value		Percentage of Total
Equity Securities
REIT	$	278,800	$	52,760		$	331,560		2	%
eREIT		100,000		-			100,000		1	%
Investment Partnership - Finance Yield Fund		500,000		-			500,000		3	%
Public Preferred Stock		738,692		4,806			743,498		4	%
Common Stock		673,473		182,910			856,383		5	%
Exchange-traded and closed-end funds		575,000		(52,538	)		522,462		3	%
Mutual Funds		427,689		31,760			459,449		3	%
Available for Sale - Debt Securities
Corporate Bonds		1,308,807		(13,213	)		1,295,594		8	%
Asset backed Securities		9,713,263		35,977			9,749,240		58	%
Corporate Structured Notes		1,822,562		(108,532	)		1,714,030		10	%
Alternative Investment		200,000					200,000		1	%
Held to Maturity - Debt Securities
Real Estate Limited Recourse Obligations		301,500		-			301,500		2	%
Total Investments	$	16,639,786	$	133,930		$	16,773,716		100	%

The following is a summary of the investments as of December 31, 2022:

	Cost		Unrealized Gain (Loss)			Fair Value		Percentage of Total
Equity Securities
REIT	$	46,312	$	5,628		$	51,940		1	%
eREIT		100,000		-			100,000		2	%
Available for Sale - Debt Securities
Treasury Bills		247,712		1,886			249,598
Corporate Bonds		81,476		(39,716	)		41,760		5	%
Asset backed Securities		3,580,265		(180,856	)		3,399,409		73	%
Corporate Structured Notes		620,309		(24,913	)		595,396		13	%
Certificates of Deposit		96,836		120			96,956		2	%
Held to Maturity - Debt Securities
Real Estate Limited Recourse Obligations		105,600		-			105,600		2	%
Total Investments	$	4,878,510	$	(237,851	)	$	4,640,659		100	%

F-18

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 6. LOANS AND MORTGAGE LOANS HELD FOR INVESTMENT

The Company, through its wholly owned lending subsidiaries loans funds directly to borrowers and through originators under loan agreements, with small business borrowers based in the United States. The loans pay interest at varying rates ranging from approximately 9.5% and 18% annually and collateral management fees ranging from 0.5% to 1% per month. The loan agreements have customary loan origination fees, which have been netted against our loan costs with the net amount recorded as deferred revenue to be recognized as loan fee income over the term of the loan. The term of the loans generally range from six months to three years, with no prepayment penalty and generally pay interest only until maturity. The Company has 9 loans that are past their maturity date and are included in the past due loans noted below. The loans are secured by the assets of the borrowers. These loans were funded by our bond sales. The Company entered into an amendment and forbearance agreement with one of its borrowers, as of December 31, 2021. This borrower’s loan balance was $4,200,952 and $4,858,493 at December 31, 2022 and Dec 31,2021, respectively. The allowance on this loan was $4,200,952 and $1,214,723, at December 31, 2022 and December 31, 2021, respectively. The amendment and forbearance agreement provides for the Company to not declare an event of default, as the borrower missed payments, prior to the amended agreement. The agreement also provides that the Company receives principal pay downs of approximately $29,000 per week, on a scheduled basis, that we receive interest payments that we were originally entitled to and we will also receive penalty interest at the end of the term of the agreement. As of December 31, 2021 the borrower was in compliance with the terms of this amendment and forbearance agreement, including being current on all weekly principal payments. As of December 31, 2022, the borrower is not in compliance with the terms of the amendment and forbearance agreement and the Company is in litigation with this borrower. In November of 2022, the Company filed for action pursuant to confession of judgement of the guarantor. In December of 2022, the Company filed a proof of claim pursuant to Chapter 7 bankruptcy filed by the borrower. The Company has accounted for this loan as past due at December 31, 2022, see additional disclosure below.

One of our loans receivable has a gross balance at December 31, 2022 and 2021 of approximately $3,270,000, approximately $1,476,000 of that loan has been participated out leaving a net gross balance of approximately $1,800,000.

Each mortgage loan is secured by a mortgage in the real estate, which is located in the State of Florida. Each loan has a maturity date ranging from 2 to 4 years and matures on various dates ranging between February of 2023 and June of 2024. These loans pay interest at rates between 8.5% and 10.5% and are serviced by an outside, unrelated party. There were no mortgage loans past due or on non-accrual status at December 31, 2022 and 2021.

The accrued interest receivable had a gross balance of $1,084,000 and $1,128,000 at December 31, 2022 and December 31, 2021, respectively.

F-19

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

A summary of the Company’s loan portfolio as of December 31, 2022, disaggregated by class of financing receivable, are as follows:

	Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Inventory and Equipment			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Accounts Receivable			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Purchase Order / Trade Financing			Total		Loans to Real Estate Developers Secured by First Mortgages
Outstanding December 31, 2022
Loans	$	5,021,588		$	21,050,131		$	139,110		$	26,210,829	$	20,956,999
Allowance for loan losses	$	3,132,250		$	7,486,173		$	5,564		$	10,623,987	$	200,520
Total Loans, net	$	1,889,338		$	13,563,958		$	133,546		$	15,586,842	$	20,756,479
Percentage of total outstanding loans receivable		19	%		80	%		1	%				-
Percentage of total outstanding Mortgage loans receivable		-			-			-					100	%

A summary of the Company’s loan portfolio as of December 31, 2021, disaggregated by class of financing receivable, are as follows:

	Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Inventory and Equipment			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Accounts Receivable			Loans to U.S Wholesalers, Retailers and Manufacturers - secured by Purchase Order / Trade Financing		Total		Loans to Real Estate Developers Secured by First Mortgages
Outstanding December 31, 2021
Loans	$	13,141,574		$	9,959,758		$	-	$	23,101,332	$	7,305,192
Allowance for loan losses	$	3,210,136		$	3,834,604		$	-	$	7,044,740	$	72,870
Total Loans, net	$	9,931,438		$	6,125,154		$	-	$	16,056,592	$	7,232,322
Percentage of total outstanding loans receivable		57	%		43	%		-				-
Percentage of total outstanding Mortgage loans receivable		-			-			-				100	%

F-20

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

The beginning balance of our loan loss reserve at December 31, 2021 was $7,601,821, which includes $484,211 of reserve on interest receivable, the current period provision for expected losses is $4,584,230, which includes $196,722 of direct write-off, due to a loan receivable write-off, and $432,273 of interest receivable directly written off, making the ending balance at December 31, 2022 is $11,551,160, which includes $726,653 of reserve on interest receivable.

Our past due loans receivable totaled $9,700,836 at December 31, 2022 and consisted of 9 loans and the Company has reserved $9,283,806 for these loans in the loan loss provision.

Our past due loans receivable totaled $6,136,060 at December 31, 2021 and consisted of 8 loans and the Company has reserved $4,632,417 for these loans in the loan loss provision.

At December 31, 2022, the Company had 5 loans receivable past due and on non-accrual status, which were past due by more than 90 days. These loans have a principal balance of $7,945,762 and accrued interest receivable balance of $361,522 at December 31, 2022. We received approximately $6,600 of interest income and recorded approximately $251,000 of interest income on these loans during the year ended December 31, 2022. The reserve for loan loss on these loans is $6,801,904 and $335,599 for the accrued interest receivable at December 31, 2022.

At December 31, 2021, the Company had 2 loans receivable past due and on non-accrual status, which were past due by more than 90 days. These loans have a principal balance of $2,393,526 and accrued interest receivable balance of $209,963 at December 31, 2021. We received approximately $57,000 of interest income and recorded approximately $74,000 of interest income on these loans during the year ended December 31, 2021. The reserve for loan loss on these loans was $2,214,040 and $157,472 for the accrued interest receivable at December 31, 2021.

As of December 31, 2022, future annual maturities of gross loans receivable held for investment and mortgage loans held for investment consists of the following:

Period ended December 31,	Amount
2023	$	30,376,704
2024		16,578,000
2025		6,000
2026		6,000
2027		6,000
thereafter		195,125
	$	47,167,829

As of December 31, 2022, there were 39 loans and mortgage loans in total, of which 36 had a balance of $46,341,102 are currently paying interest only.

The following is an aging analysis of past due loans receivable at December 31, 2022:

	0 to 30 Days		31 to 60 Days		61 to 90 Days		Greater than 90 Days		Total		Loan Loss Allowance		Unearned Income
Loans to U.S wholesalers, retailers and manufacturers secured by inventory and equipment	$	-	$	-	$	-	$	5,499,884	$	5,499,884	$	5,082,854	$	-
Loans to U.S wholesalers, retailers and manufacturers secured by accounts receivable	$	-	$	-	$	-	$	4,200,952	$	4,200,952	$	2,195,869	$	-
Total	$	-	$	-	$	-	$	9,700,836	$	9,700,836	$	9,283,806	$	-

F-21

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

The following is an aging analysis of past due loans receivable at December 31, 2021:

	0 to 30 Days		31 to 60 Days		61 to 90 Days		Greater than 90 Days		Total		Loan Loss Allowance		Unearned Income
Loans to U.S wholesalers, retailers and manufacturers secured by accounts receivable	$	-	$	-	$	-	$	2,195,869	$	2,195,869	$	1,936,183	$	-
Loans to U.S wholesalers, retailers and manufacturers secured by inventory and equipment	$	-	$	-	$	-	$	3,940,191	$	3,940,191	$	2,696,234	$	-
Total	$	-	$	-	$	-	$	6,136,060	$	6,136,060	$	4,632,417	$	-

NOTE 7. PROPERTY AND EQUIPMENT

The following is a summary of property and equipment—at cost, less accumulated depreciation:

	December 31, 2022
Leasehold improvements		3,711
Property and equipment	$	18,184
Total cost		21,895
Less accumulated depreciation		(11,963	)
Net, property and equipment	$	9,932

	December 31, 2021
Leasehold improvements	$	3,711
Property and equipment		15,567
Total cost		19,278
Less accumulated depreciation		(6,575	)
Net, property and equipment	$	12,703

Depreciation expense for the years ended December 31, 2022 and 2021 was $5,144 and $3,859, respectively.

F-22

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 8. BOND LIABILITIES

On January 4, 2018, the Regulation A+ Registration Statement of WPC was declared Qualified by the Securities and Exchange Commission allowing for the sale by the Company, within 12 months, of up to $50,000,000 of $10.00, Three Year, 5% Bonds. This offering was completed on March 17, 2020.

On March 17, 2020, our Regulation A+ Offering Statement for WPC II was qualified by the Securities and Exchange Commission allowing for the sale by the Company, within 12 months, of up to $50,000,000 of $10.00, Three Year, 5% Worthy Peer Capital II Bonds. This offering was completed on October 1, 2020.

On September 29, 2020, our Regulation A+ Offering Statement for WCB was declared Qualified by the Securities and Exchange Commission allowing for the sale by the Company, within 12 months, of up to $50,000,000 of $10.00, Demand, 5% Bonds. This offering was completed on February 26, 2021.

During the years ended December 31, 2022 and 2021, the Company sold and redeemed Worthy Bonds, noted in the table below. The Bonds are renewable at the option of the bond holder, accrue interest at 5%, subject to a put by the holder (a discount of 1% may be charged but only if exercised during the first year and chargeable only against accrued interest), and the Company may redeem the bonds at any time. The Company has up to 30 days to make payment on any redemption of $50,000 or greater. The Company has approximately $5,860,000 and $4,537,000 of accrued interest related to these outstanding bonds at December 31, 2022 and 2021, respectively. The Bond liabilities balance at December 31, 2022 and 2021 was $63,590,899 and $67,916,824, respectively.

A summary of the Company’s bond liabilities activity for the years ended December 31, 2022 and 2021 is as follows:

	Worthy			Worthy			Worthy			Worthy
	Peer			Peer			Community			Property
	Capital			Capital II			Bonds			Bonds			Total
Outstanding, December 31, 2021	$	13,859,630		$	23,031,119		$	31,026,075			-		$	67,916,824
Bond Issuances		-			-			-		$	17,761,450		$	17,761,450
Bond Redemptions	$	(5,225,118	)	$	(6,928,477	)	$	(9,014,285	)	$	(919,495	)	$	(22,087,375	)
Outstanding, December 31, 2022	$	8,634,511		$	16,102,642		$	22,011,790		$	16,841,955		$	63,590,899
Interest expense on bonds	$	611,319		$	1,092,435		$	1,445,711		$	241,298		$	3,390,763

	Worthy Peer Capital			Worthy Peer Capital II			Worthy Community Bonds			Total
Outstanding at December 31, 2020	$	19,772,160		$	35,481,742		$	23,070,915		$	78,324,817
Bond issuances	$	-		$	-		$	24,545,291		$	24,545,291
Bond redemptions	$	(5,912,530	)	$	(12,450,623	)	$	(16,590,131	)	$	(34,953,284	)
Outstanding at December 31, 2021	$	13,859,630		$	23,031,119		$	31,026,075		$	67,916,824
Interest expense on bonds	$	901,026		$	1,494,408		$	1,840,576		$	4,236,010

F-23

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 9. INTANGIBLE ASSETS

The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of December 31, 2022:

	December 31, 2022
				Accumulated			Net Carrying
	Useful Life	Cost		Amortization			Value
Capitalized software	5 years	$	13,807	$	(13,807	)	$	-
Trademark	Indefinite		825		-			825
		$	14,632	$	(13,807	)	$	825

The following table sets forth the intangible assets, both acquired and developed, including accumulated amortization as of December 31, 2021:

	December 31, 2021
				Accumulated			Net Carrying
	Useful Life	Cost		Amortization			Value
Capitalized software	5 years	$	13,807	$	(12,876	)	$	931
Trademark	Indefinite		825		-			825
		$	14,632	$	(12,876	)	$	1,756

Amortization expense, amounted to approximately $900 and $2,800 for the years ended December 31, 2022 and 2021, respectively.

NOTE 10. CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE

Convertible Notes Payable

F-24

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

During the year ended December 31, 2018, the Company issued eight convertible notes payable in the aggregate amount of $400,000. The notes bear interest at 9% and mature in three years from the issuance date. Interest accrues and is due at maturity. The occurrence of any one of the following events shall constitute an Event of Default upon notice thereof (a) The non-payment, when due, of any principal or interest pursuant to this Note, and such failure continues unremedied for a period of ten (10) days after written or facsimile notice from Lender to the Borrower of such failure; (b) The commencement against the Borrower of any proceeding relating to the Borrower under any bankruptcy, insolvency, adjustment of debt, receivership or liquidation law or statute or any jurisdiction, whether now or hereafter in effect, provided, however, that the commencement of such a proceeding shall not constitute an Event of Default unless the Borrower consents to the same or admits in writing the material allegations of same, or said proceeding shall remain undismissed for thirty (30) days; or the issuance of any order, judgment or decree for the appointment of a receiver or trustee for the Borrower or for all or a substantial part of the property of the Borrower, which order, judgment or decree remains undismissed for thirty (30) days; or a warrant of attachment, execution, or similar process shall be issued against any substantial part of the property of the Borrower. At any time prior to the maturity date that the Company shall have completed a Qualified Financing, the principal amount outstanding and all accrued but unpaid interest due shall be automatically converted into conversion shares at a discount of 25% to the qualified offering financing valuation with conversion valuation cap of $5,000,000 without any further action of the lender. A qualified offering is defined as an offering of the Company’s equity securities or convertible notes with net proceeds of not less than $3,000,000, either in a single transaction or in a series of transactions which close within six months of each other. In the event the Company does not have a qualified offering prior to the maturity date, holder shall have the option, at the maturity date to convert the principal amount of the note, plus accrued interest, into common shares at a pre-conversion valuation of $5,000,000.

During the year ended December 31, 2019, the Company issued six convertible notes payable in the amount of $310,000. The notes bear interest at 9% and mature in three years from the issuance date. Interest accrues and is due at maturity. The default provisions for these notes are the same as those for 2018 discussed above. At any time prior to the maturity date that the Company shall have completed a Qualified Financing, the principal amount outstanding and all accrued but unpaid interest due shall be automatically converted into conversion shares at a discount of 25% to the qualified offering financing valuation with conversion cap of $5,000,000 without any further action of the lender. A qualified offering is defined as an offering of the Company’s equity securities or convertible notes with net proceeds of not less than $3,000,000, either in a single transaction or in a series of transactions which close within six months of each other. In the event the Company does not have a qualified offering prior to the maturity date, holder shall have the option, at the maturity date to convert the principal amount of the note, plus accrued interest, into common shares at a pre-conversion valuation of $5,000,000.

During the year ended December 31, 2022, the Company paid back 2 convertible notes in the amount of $75,000 plus accrued interest of approximately $23,000. The Company modified these convertible notes by extending the maturity date to December 31, 2023 for the remaining convertible notes, subject to the noteholders right to demand payment any time after their original maturity date, and will continue to accrue interest until then. Per historical precedence, these loans were extended by notifying the borrowers that their loans were maturing a year later.

The convertible notes payable balance was $635,000 and $710,000 at December 31, 2022 and 2021, respectively. Accrued interest on convertible notes was approximately $233,000 and $198,000 as of December 31, 2022 and 2021.

Notes Payable

In August of 2020, the Company sold $387,530 of debt and equity in a private placement to accredited investors pursuant to Regulation D. The equity was sold at $2.50 per common share and proceeds were $312,530 for 125,000 common shares. Total debt sold was $75,000. The debt in the form of a promissory note has a one year term with no prepayment penalty, bears interest at 9% and no payments are due until maturity. The debt also contains a provision allowing the debt holder to purchase 2,000 common shares for every $25,000 of debt for $.005 per share. Six thousand common shares were sold with the promissory note as part of this offering for $30. This was accounted for in accordance with ASC 470-20-25-2 “Debt with conversion and other options” due to the debt being issued with common stock sold at a discount, which required a debt discount to be recorded of $12,500 at August 14, 2020. This debt discount is being amortized as interest expense over 12 months, which is the term of the notes.

For the year ended December 31, 2021, the Company amortized the remaining $8,333 of debt discount, leaving a discount balance of $0 and a note balance of $75,000 at December 31, 2021. The debt of $75,000 plus accrued interest of approximately $10,000 was paid in full in January of 2022. The original maturity date of the notes was August 2021, both parties agreed to extend the note and their final payment included interest through January 2022.

NOTE 11. FORGIVABLE LOAN

Paycheck Protection Program Loan

The Company applied for loans being administered by the Small Business Administration under the Coronavirus Aid, Relief, and Economic Recovery Act of 2020 (“CARES Act”) to assist in maintaining payroll and operations through the period impacted by the COVID-19 pandemic. In May 2020, the Company entered into a loan under the Paycheck Protection Program (“PPP”) for $97,250 in principal amount, which may be forgivable as specified in the CARES Act. The loan will mature 50 months from the date it was issued and will accrue interest at a rate of 1% per year. The Company applied for loan forgiveness which was denied and the loan will be paid back subsequently.

F-25

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 12. COMMITMENTS AND CONTINGENCIES

Following the qualification by the SEC of WPC’s offering statement (the “Offering Statement”) on Form 1-A under SEC File No. 024-10766, in January 2018 we began offering our Worthy Bonds (the “Worthy Bonds”) in a Regulation A exempt offering (the “Offering”) of $50 million aggregate principal amount (“Maximum Offering Amount”). On March 17, 2020, we completed the Offering. From January 2018 through March 17, 2020, we sold approximately $50 million aggregate principal amount of Worthy Bonds to 12,285 investors in the Offering. Notwithstanding the completion of the Offering, we inadvertently sold after March 17, 2020, $594,240 more (the “Oversubscribed Bonds”) than the Maximum Offering Amount allowable under the Offering Statement due to a coding error as to redemption transactions in our software (the “Oversubscription”). As a result of the Oversubscription, on March 25, 2020, we 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.

Legal contingencies

From time to time, the Company may be a defendant in pending or threatened legal proceeding arising in the normal course of its business.

On September 3, 2021, the Company had an action filed against Worthy Lending, LLC in the Superior Court of Delaware (the “Delaware Action”). The claims in the complaint include one count of breach of the participation agreement entered into between the participant and Worthy, as lender to non-party borrower, one count of fraudulent inducement as to the Participation Agreement and one count of fraudulent inducement as to an amendment to the Participation Agreement (the “First Amendment”). The Participation Agreement, as amended, allocates the loan 50/50 between Worthy and the participant. The participant seeks damages in an unstated amount, plus punitive damages and attorney’s fees, and demands that Worthy repurchase the participation interest for $1,737,031, as of July 1, 2021.

The claims in the Delaware Action arise primarily from allegations that Worthy should have adhered to a non-industry standard of care, which was not contained in the Participation Agreement or the First Amendment, for managing the credit and collecting accounts pledged as collateral for the underlying loan.

On October 15, 2021, Worthy filed an answer to the complaint, which included three counterclaims for breach of the Participation Agreement, and fraudulent inducement of the Participation Agreement and the First Amendment. After Worthy filed its answer and counterclaims and before the participant filed a reply to the counterclaims, the parties agreed to extend time to reply while they pursued mediation.

On January 24, 2022, the parties met remotely with a mediator, and agreed to stay the Delaware Action (assuming approval of the Delaware Court) until after a decision from the New York State Court of Appeals in a collection action brought by Worthy against one of the borrower’s account debtors. The purpose of the stay was to allow Worthy time to pursue collection of accounts from all the borrower’s account debtors, and thereby reduce the amounts outstanding on the loan, for the benefit of both Worthy and the participant. The mediation agreement also provided that all rights, claims, and defenses are preserved during the stay. The stay was approved by the Delaware Court.

Worthy believes that the claims asserted in the participant’s complaint are without merit, and that Worthy’s counterclaims are valid, but that it is in both parties’ best interest to resolve their dispute outside of litigation and demonstrate a united front in pursuing collection of accounts from the borrower’s account debtors. At this time, we do not believe it is probable that there will be an unfavorable outcome of this suit and the Company has been continuing its efforts towards a resolution with Lender’s Funding.

F-26

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

On November 22, 2022, the New York Court of Appeals subsequently rendered a favorable decision permitting Worthy to pursue collections from the borrower’s account debtors. The outstanding balance is approximately $1,800,000 and the reserve balance is approximately $1,800,000.

Management is not aware of any other pending, threatened or asserted claims.

Regulatory

The sale of the Worthy Bonds is subject to federal securities law and the Bonds are Qualified under Regulation A+. The distribution of the Worthy Bonds is also subject to regulations of several states and the Company is registered as an Issuer Dealer in the State of Florida. The loans made by the Company may be subject to state usury laws.

Lease Commitment and Operating Lease Obligation and Right of Use Asset

The Company follow ASC 842, Leases, With the adoption of Topic 842, the Company’s consolidated balance sheet now contains the following line items: Operating lease right-of-use assets, and Operating lease liabilities.

On August 1, 2019 the Company commenced a 5-year lease for its corporate headquarters located in Boca Raton, Florida. As part of the lease the Company was required to make a security deposit of $11,618. Monthly rent is $5,296 inclusive of sales tax and the lease contains an annual escalation clause of 4%.

As all the existing leases subject to the new lease standard were previously classified as operating leases by the Company, they were similarly classified as operating leases under the new standard. The Company has determined that the identified operating leases did not contain non-lease components and require no further allocation of the total lease cost. Additionally, the agreements in place did not contain information to determine the rate implicit in the leases, so we used our incremental borrowing rate as the discount rate. Our weighted average discount rate is 10% and the weighted average remaining lease term as of December 31, 2022 is 19 months.

The Company recognized an initial operating lease right-of-use asset of $264,314 and operating lease liability of $259,018.

As of December 31, 2022, operating lease right-of-use assets and liabilities arising from operating leases was $74,619 and $74,619, respectively. As of December 31, 2021, operating lease right-of-use assets and liabilities arising from operating leases was $125,399 and $125,399, respectively. During the year ended December 31, 2022, cash paid for amounts included for the measurement of lease liabilities was approximately $51,000 and the Company recorded operating lease expense of $51,000. During the year ended December 31, 2021, cash paid for amounts included for the measurement of lease liabilities was approximately $67,000 and the Company recorded operating lease expense of approximately $54,700.

The following is a schedule showing the future minimum lease payments under operating leases by years and the present value of the minimum payments as of December 31, 2022.

2023	$	72,705
2024	$	43,388
Total Operating Lease Obligations	$	116,093
Less: Amount representing interest	$	(41,874	)
Present Value of minimum lease payments	$	74,219

F-27

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 13. EQUITY

The Company has authorized 10 million shares of common stock and 2 million shares of preferred stock.

On December 22, 2020, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Delaware Secretary of State to implement a 2-for-1 forward stock-split (the “Forward Stock-Split”) of the Company’s issued and outstanding common stock, which became effective on December 22, 2020. Each one (1) share owned by a stockholder was exchanged for two (2) shares of common stock, and the number of shares of the Company’s common stock issued and outstanding was increased proportionately based on the Forward Stock-Split. The number of authorized shares was not adjusted. All issued and outstanding share and per share amounts in the accompanying historical consolidated financial statements have been retroactively adjusted to reflect the effects of the Forward Stock-Split.

No preferred shares have been issued.

Common Stock

In March of 2022, 25,421 common shares were issued upon the cashless exercise of 35,779 stock options.

Stock Options

The 2018 Key Employee and Advisor Stock Option Plan allows for a maximum of 400,000 of shares of stock to be issued, subject to adjustment as set forth in the plan of a cumulative increase each January 1st through January 1, 2028 by a number of shares equal to the smaller of 3% of the number of shares issued and outstanding on the preceding December 31st, or an amount determined by the Board. As of December 31, 2022, 223,166 shares of our common stock remaining available for future stock option grants.

In February of 2020, the Company established the 2020 Key Employee and Advisor Stock Option Plan. The maximum number of shares of stock that may be issued under the plan is 400,000, subject to adjustment as set forth in the plan of a cumulative increase on January 1, 2021 and on each subsequent January 1st through January 1, 2030, by a number of shares equal to the smaller of 3% of the number of shares of stock issued and outstanding on the preceding December 31, or an amount determined by the Board. As of December 31, 2022, 330,735 shares of our common stock remain available for future stock option grants.

A summary of the Company’s stock options as of and for the years ended December 31, 2021 and 2022 are as follows:

	Number of Shares Underlying Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life		Intrinsic Value
Outstanding at December 31, 2020		743,940	$	2.42	$	1.38		9.14	$	-
For the year ended December 31, 2021:
Exercised		-								-
Forfeited		48,600		2.50						-
Granted		6,000		5.00	$	2.91				-
Outstanding at December 31, 2021		701,340	$	2.61	$	1.39		8.71	$	-
Outstanding and Exercisable at December 31, 2021		355,071	$	2.61	$	1.39		8.71	$	-

F-28

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

	Number of Shares Underlying Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life		Intrinsic Value
Outstanding at December 31, 2021		701,340	$	2.61	$	1.39		8.71	$	-
For the year ended December 31, 2022:
Granted		88,000	$	5.00	$	4.12				-
Exercised		25,421		2.50		1.47				-
Forfeited		217,681		2.50		1.42				-
Outstanding at December 31, 2022		546,238	$	2.82	$	1.82		7.59	$	-
Outstanding and Exercisable at December 31, 2022		349,716	$	2.34	$	1.34		6.5	$	-

The following information applies to options outstanding at December 31, 2022:

Options Outstanding						Options Exercisable
Exercise Price		Number of Shares Underlying Options		Weighted Average Remaining Contractual Life		Number Exercisable		Weighted Average Remaining Contractual Life
$	1.38		53,200		5.01		53,200		5.0
$	2.50		399,038		7.57		294,516		6.8
$	5.00		94,000		8.50		2,000		8.5
			546,238		7.59		349,716		6.5

At December 31, 2022 there was $370,379 of unrecognized compensation cost related to stock options, with expense expected to be recognized ratably over the next 3 years.

During the years ended December 31, 2022 and 2021, the Company granted 88,000 and 6,000, respectively, of stock options to employees.

The fair value of the options granted was estimated on the date of the grant using the Black-Scholes option-pricing model based on the following assumptions for the year ended December 31, 2022 and 2021: expected volatility: 48% - 79%, based on comparative volatility, risk-free interest rates: ranging from 0.68% to 3.77%, expected life in years: 6 - 10, and assumed dividend yield: 0%.

The Company recorded stock based compensation of $159,136 and $331,893, at December 31, 2022 and December 31, 2021, respectively.

F-29

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

NOTE 14. INCOME TAXES

For the year ended December 31, 2022 and 2021, the income tax provisions for current taxes were $0.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The components of the net deferred tax assets for the years ended December 31, 2022 and 2021 are as follows:

	Year ended December 31, 2022			Year ended December 31, 2021
Net Operating Loss Carryforward	$	3,262,000		$	1,796,000
Loan loss reserve		2,841,000			1,870,000
Less: Valuation allowance		(6,103,000	)		(3,666,000	)
Net deferred tax assets	$	-		$	-

The Company has recorded a valuation allowance against the entire net deferred tax asset, as management believes it is more likely than not that the Company will not be able to benefit from the net deferred tax asset. The valuation allowance increased approximately $2,437,000 from December 31, 2021 to December 31, 2022.

The table below summarizes the reconciliation of our income tax provision computed at the federal statutory rate of 21% and the actual tax provisions for the years ended December 31, 2022 and 2021.

	2022			2021
Expected provision (benefit) at statutory rate		(21.0	)%		(21.0	)%
State taxes		(3.6	)%		(3.6	)%
Increase in valuation allowance		24.6	%		24.6	%
Total provision (benefit) for income taxes		0.0	%		0.0	%

At December 31, 2022 and 2021, the Company had Federal net operating loss carryforwards of approximately $13,259,000 and $7,300,000, respectively. The net operating loss balance can be carried forward indefinitely subject to annual usage limitations.

NOTE 15. RELATED PARTIES

Due from related parties of $200,000, which is included on it’s consolidated balance sheet, includes $100,000 due from our Chief Executive Officer and $100,000 due from our Chief Operating Officer. The $100,000 due from each of the CEO and COO are Notes Receivable accruing interest at 10% per annum. The notes are due August 26, 2023. The notes are secured by 203,544 and 203,542 of the common stock of Worthy Financial, Inc., secured by certificate number 24 and 25, evidencing ownership of such shares by the officers. The shares are being held by Worthy Lending, LLC to the extent of the obligation. As of December 31, 2022 and 2021, the accrued interest on these loans totals $66,667 and $46,667, respectively.

In March of 2020, the Company entered into a loan receivable agreement with a small business of which our former Chief Financial Officer, who resigned as of January 28, 2022, is a minority shareholder and a secured guarantor. The loan commitment is up to $550,000, as of December 31, 2022 and 2021, and the Company has loaned $499,650 and $547,000, respectively. The loan receivable paid interest at 18% per annum and has a 3-year term. The loan was amended in January of 2021. The loan agreement was amended to say Borrower shall pay to Lender interest at a rate per month equal to 1.25% per month from January 1, 2021 to March 31, 2021 and at a rate equal to 1.0% per month thereafter. The Company also received a 17.5% equity interest in the small business as a condition of the loan commitment. This was accounted for as a cost method investment with a zero cost basis. In October of 2020, the Company sold its 17.5% equity interest back to this small business borrower in consideration of payment of $25,000 and the agreement of the borrower to pay to Worthy Lending II, LLC and amount equal to 5% of the net available cash flow of the borrower on or about the first day of each calendar quarter based on the net available cash flow for the prior quarter. This net available cash flow participation is limited to the 5 year period from October 30, 2020 through October 29, 2025. The $25,000 is reflected as a gain on sale of cost method investment in other income (expense) on the consolidated statements of operations and comprehensive loss, for the year ended December 31, 2020.

At December 31, 2022, the Company had a loan payable of $17,500 to 2 of its officers, which accrued interest at 5% annually.

F-30

WORTHY FINANCIAL, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

The Company had a verbal agreement with its subsidiaries, whereas WPC, WPC II and WCB each paid a license fee in the amount of $10.00 per active user per year. On September 30, 2021, the Company entered into a written agreement with its subsidiaries, the agreement changed the payment terms to $4.00 per registered user per year. This written agreement replaced the verbal agreement. All amounts are eliminated in consolidation.

Worthy Management provides certain management services and personnel to WPC, WPC II, WCB and WPB pursuant to a management services agreement. Worthy Management passes through the expenses paid without charging any additional amounts. All amounts are eliminated in consolidation.

NOTE 16. CONCENTRATIONS

The loans receivable gross balance of $26,210,829 at December 31, 2022 is due from 21 small business borrowers. Of this gross receivable, 1 borrower’s balance due is approximately 26% of the total balance due, 1 borrower’s balance due is approximately 21% of the total balance due, 1 borrower’s balance due is approximately 16% of the total balance due and 1 borrower’s balance due is approximately 12% of the total balance due.

The loans receivable gross balance of $23,101,332 at December 31, 2021 is due from 21 small business borrowers. Of this gross receivable, 2 borrowers each constituting approximately 21% of the total balance.

The mortgage loans held for investment gross balance at December 31, 2022 of $20,957,000 is due from 18 borrowers. Of this gross receivable, 1 borrower’s balance due is approximately 10% of the total balance due and 1 borrower’s balance due is approximately 10% of the total balance due. The mortgage loans held for investment balance at December 31, 2021 of $7,305,192 is due from 17 borrowers. Of this gross balance, 1 borrower’s balance due is approximately 27% of the total balance and 1 represents approximately 14% of the total balance due.

Concentration of Credit Risk - The Company is subject to potential concentrations of credit risk in its cash and investments accounts. Noninterest-bearing deposits in financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) were insured up to a maximum of $250,000 at December 31, 2021 and 2020. Investments at other financial institutions were insured by the Securities Investor Protection Corporation (SIPC) up to $500,000, which includes a $250,000 limit for cash. At December 31, 2022 and 2021, the aggregate balances were in excess of the insurance limits and therefore, pose some risk since they are not collateralized. The Company has historically not experienced any losses on its cash and cash equivalents and investments in relation to FDIC and SIPC insurance limits.

NOTE 17. SUBSEQUENT EVENTS

Worthy Bond sales subsequent to December 31, 2022 were approximately $12,173,000, while bond redemptions were approximately $9,942,000 during the same period. These sales have been recorded as an increase in cash and an increase in a corresponding liability and the bond redemptions have been recorded as a decrease in cash and a decrease in bond liabilities.

Effective April 1,2023, Worthy Bonds made a modification to the interest rate from 5% to 5.5%.

On February 1, 2023, the Company incorporated a new wholly owned subsidiary, Worthy Property Bonds 2, Inc. as a Florida corporation and its wholly owned subsidiary, Worthy Lending VI, LLC as a Delaware limited liability company.

The Company has evaluated these consolidated financial statements for subsequent events through April 27, 2023, the date these consolidated financial statements were available to be issued. Other than those noted above, management is not aware of any events that have occurred subsequent to the consolidated balance sheet date that would require adjustment to, or disclosure in the consolidated financial statements.

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