EARTHWORKER COOPERATIVE Disclosure Statement for issue of Debentures ( the Statement ) 24/10/2014 Background Earthworker Cooperative Ltd. ( Earthworker, registration number: G0003520T) aims to respond to the challenges of climate change and the need for local job creation by facilitating the establishment of wealth-creating worker-owned cooperatives throughout Australia in sustainability focused industries. Earthworker s first goal is to establish a worker-owned factory in Morwell, where the economy has been considered dependent on the coal industry. This first manufacturing worker-cooperative, Eureka s Future Cooperative Ltd ( Eureka's Future, cooperative registration number: G0003531Y.) will produce and install high-quality Australian-made solar hot water systems, providing renewable energy technology to address climate change, and providing much needed green jobs for the Latrobe Valley community. With support from the State Government, Earthworker undertook a comprehensive feasibility study for Eureka's Future in 2007. This study found there was a strong business case to: establish a viable not-for-profit workers-cooperative to manufacture high quality stainless steel hot water tanks in conjunction with local manufacturer Everlast Hydro Systems Pty Ltd ( Everlast ), with significant demand for these products being generated via bulk-purchase arrangements through union-employer enterprise bargaining agreements (EBAs), as supported by the Victorian trade union membership. A subsequent business plan was developed in 2010. Since then, Earthworker has developed a number of innovative business partnerships to facilitate the establishment of Eureka's Future Cooperative Ltd. via an innovative 'route to Morwell'. The primary of these partnerships is with Everlast, a long-time Dandenong-based manufacturer of high quality hot water storage tanks that has remained committed to supporting and maintaining local manufacturing despite the overwhelming industry trend of sending production offshore. Through this unique partnership, Earthworker is able to start production and distribution of solar hot water systems now, even before the first factory is established in Morwell raising capital and developing capacity for Eureka's Future Cooperative Ltd to manufacture in it's own right. Everlast's premium 'Solar Ready' water tank has now been re-badged as the Eureka's Future tank. Through related partnerships with local companies, Siddons Solarstream and SolarArk, Earthworker has begun raising revenue through selling solar hot water systems that use the Eureka's Future 'Solar Ready' tank, receiving a commission from these companies for each system sold. Importantly, agreements have been made with these companies for Eureka's Future Cooperative Ltd, or other future Earthworker worker-cooperatives, to take on manufacturing components of these solar hot water systems over time providing more and more local, community-based employment opportunities in the manufacturing sector. Page 1 of 6
Updated 2014 Business Plan: a strong business case In line with these partnerships and this exciting updated business strategy, and in light of recent developments and opportunities, Earthworker has produced an updated Eureka's Future Business Plan for the years 2015-2017 (the 2014 Business Plan ). This 2014 Business Plan outlines a detailed business case for Eureka's Future Cooperative Ltd as a viable and sustainable cooperative business, and includes detailed sales, revenue and budget forecasts. The 2014 Business Plan strongly informs this disclosure statement, and is attached as an appendix. Earthworker is highly confident that the innovative, multi-faceted and targeted business approach outlined in the 2014 Business Plan, can generate considerable volumes of new work to support the establishment and expansion of Eureka's Future Cooperative Ltd well into the future. As shown in the Business Plan, Earthworker has already made considerable progress is laying the foundations for the success of Eureka's Future Cooperative Ltd. Until Eureka's Future Cooperative Ltd is established as an operating worker-cooperative through the mutualisation of Everlast, Earthworker will continue this work, and after this point will continue to work in support of Eureka's Future Cooperative Ltd. The next step: Establishing Eureka's Future and rolling out the Business Plan Since being registered as a cooperative by Earthworker board members in late 2012, Eureka's Future Cooperative Ltd has existed primarily as a name only, not yet as an operating business 1. This is about to change however, thanks to the negotiated mutualisation of Everlast Hydro systems, brokered through Earthworker's close working partnership with Everlast. This process will commence in the coming months, and will see Eureka's Future Cooperative Ltd established as an operating manufacturing worker-cooperative as Earthworker's first worker-cooperative. This significant step will secure the ongoing viability of manufacturing operations and associated employment currently undertaken at Everlast's Dandenong factory, whilst providing the means for Eureka's Future Cooperative Ltd to bring manufacturing operations into Morwell. The process will occur as follows: In the coming months, Everlast Hyrdo Systems, including all plant, stock and intellectual property, will be assigned by Everlast's shareholders to new worker-owners of the Eureka's Future Cooperative Ltd. This will take the form of an ongoing lease arrangement, payable through a royalty of $50 per tank sold by the cooperative. This lease arrangement can continue indefinitely, or until such a time that the full shareholding of the business a value mutually agreed as $700,000 is redeemed by Eureka's Future Cooperative Ltd, either via worker-owner buy-in, fund raising, or a combination of both. All current workers at Everlast are keen to become worker-owners of Eureka's Future Cooperative Ltd in this mutualisation, seeing it as a way to secure their employment into the future. Other interested potential worker-owners have already approached Earthworker. As agreed by boards of both entities, once Eureka's Future Cooperative Ltd takes over Everlast's operations and begins earning income, Eureka's Future Cooperative Ltd will repay 1. Eureka's Future is a separate entity that is affiliated to Earthworker. It is currently registered as 'Eureka's Future Cooperative Ltd'; cooperative registration number: G0003531Y. Eureka's Future Cooperative Ltd currently has a functioning board, and currently has one board member in common with Earthworker Dave Kerin. The board supports the implementation of 2014 Business Plan as imitated, and facilitated by Earthworker.. As worker-owners are recruited, new boardmembers will be elected accordingly. Page 2 of 6
to Earthworker the amount raised by Earthworker through debentures and CCUs, allowing Earthworker to repay its investors. As outlined below, this is easily accounted for in the Business Plan sales forecast and budget. The mutualisation of Everlast will allow full implementation of the innovative business model developed by Earthworker in the 2014 Business Plan facilitating strong growth in sales in each of the targeted market segments and will assist the expansion of production into Morwell. Purpose of Money Raised To provide working capital for Earthworker to move along with early stages of the Eureka's Future Business Plan, a two-part capital raising exercise will commence in 2014. This issue of debentures represents stage one in this process, providing vital working capital until the second stage of the capital raising exercise is undertaken, through the issue of Cooperative Capital Units (CCUs). The target amount to be raised by this issue of debentures is $100,000. The total amount to be raised through both of these exercises is $500,000. This statement has been created to seek initial funds from members to enable Earthworker to enact the early stages of the Eureka's Future Business Plan and the preliminary stages of mutualisation, including (but not limited to): wages for an Earthworker Organiser, Dave Kerin, and a Sales Coordinator to move forward with this phase Re-badging of Everlast into 'Eureka's Future Workers' Cooperative' the establishment of a product showroom at the Dandenong factory This initial working capital amount will provide vital means in the immediate term for Earthworker to enact early stages of the Business Plan and build sales in line with the sales forecast. This amount will suffice until the second stage of Earthworker's capital raising process through issuing of Cooperative Capital Units (CCUs) commences in the coming months. Who Can Participate? This offer is only open to Earthworker Cooperative members. Membership of Earthworker can be purchased via the Earthworker Website: www.earthworkercooperative.com.au/membership Rights and Liabilities of Debenture holders Debenture holders will have the right to an annual rate of return of 12%. This amount will be calculated on the original debenture amount, so if for example a member loans $10,000 the 12% annual rate of return will be calculated on $10,000. This amount will be calculated and paid on a 6 monthly basis. Debenture holders are eligible to hold a minimum of $1000, and maximum of $10,000 worth of debentures. The debenture period will be for 4 years. At the end of that period the debenture amount will be repaid in full. Eureka s Future will accumulate a portion of the revenue from the sale of each solar hot water system, which they will use to repay the debenture amount in full to Earthworker at the end of the 4 year period. A detailed breakdown of Eureka s Future s financial projections is presented in the attached Business Plan. Earthworker will have the option to extend the repayment period by 1 further year if repayment cannot be made in full after 4 years. Page 3 of 6
These debentures are an unsecured investment. Earthworker's financial assets are outlined in the attached financial statements. This however is considered more than offset by the high rate of return to debenture holders of 12% per annum. Financial Position of Earthworker For further details of Earthworker, Eureka's Future, and Everlast's financial positions and projected revenues, costs and budget, the following documents are attached: Eureka's Future Business Plan, 2015-2017 This includes financial projections for Everlast and Eureka's Future Cooperative Ltd in line with the up-coming mutualisation, whereby these entities become one and the same. The Earthworker Cooperative's financial statements for 2013-2014 (including balance sheet and profit/loss statement) as accepted at the Earthworker Cooperative AGM on October 6 th, 2014. Earthworker is currently earning income through sales of solar hot water systems (via commission). When Everlast is mutualised, this income will become income to Eureka's Future Cooperative Ltd. When this occurs, in accordance with an existing agreement between Earthworker Cooperative Ltd and Eureka's Future Cooperative Ltd, the $500,000 raised by Earthworker to support start-up will be treated as a loan from Earthworker to Eureka's Future Cooperative Ltd. Eureka's Future Cooperative Ltd will assume responsibility for repaying to Earthworker both the annual 12% interest owed to Earthworker's investors and the principal investment amount of $500,000, allowing Earthworker to repay both interest and principal to its debenture and CCU investors. In line with this agreement, and as accounted for in the Eureka's Future Business Plan, Eureka's Future Cooperative Ltd will meet these obligations in the following way: $50 from each of the first 1200 tanks sold by Eureka's Future each year (totalling $60,000 per year) will be allocated to Earthworker to meet CCU and debenture interest payments until these are fully met (Everlast's current production level is 1400 tanks per annum). This is clearly accounted for in the budget forecast. The principal for both debentures and CCUs (totalling $500,000) will be paid to Earthworker out of the forecasted operating surplus of Eureka's Future Cooperative Ltd, with a portion accumulated over time in a designated accumulation fund. This will allow Earthworker to meet its liabilities to debenture and CCU investors. The Business Plan outlines Eureka's Future's innovative, multi-faceted, and targeted business strategy to achieve the projected operating surplus to 2017: This conservatively projected surplus is calculated after meeting annual interest payments for this issuance of debentures and the soon to be issued CCUs, and from the first year is sufficient to repay the principal for both investment mechanisms. These mechanisms thus represent sensible capital raising vehicles for Earthworker and a strong return of investors willing to support the project. Potential Risks To achieve the operating surplus projected in the Business Plan, out of which the debentures will be repaid, an increase in Eureka's Future Cooperative Ltd solar hot Page 4 of 6
water system and tank sales (above Everlast's current levels) is forecast over the next three years. The Business Plan outlines with confidence how this will be achieved, and outlines the very cautious assumptions used in the sales forecasting. These intentionally conservative forecasts allow room for error, and take into account the current and expected market and policy context. If less than 85% of the conservative forecasted sales increase is achieved, this could impact Eureka's Future's surplus however, and thus impact Earthworker's ability to pay back the principal on debentures. A number of key factors could influence projected sales - these are summarised below (for further information, refer to the Business Plan). The biggest threat to the provided financial projections is the possible removal of the Federal Small Technology Certificate (STC) rebate scheme by the Abbott government, if they decide to abolish the associated Mandatory Renewable Energy Target (RET). Currently this rebate is the only consumer rebate which covers Eureka's Future solar hot water systems. If the RET is abolished or significantly reduced, this could significantly impact demand for units and the potential profitability of Everlast and Eureka's Future. The most recent rhetoric from both the federal government and opposition suggests that the small-scale rebate scheme, which is relevant for solar hot water, will remain in place. If Earthworker is unable to finalise the coverage of 40,000 union members under EBAs by 2017, which may be influenced by changes in Industrial Relations law, or if less than 5% of this number choose to buy Eureka's Future solar hot water through their EBA clause, then sufficient demand in the collective bulk-purchase market may not be created to make operations sustainable. If Bosch Australia chooses not to proceed as expected with Everlast tanks in its hydronic heating project, this may put significant pressure on Eureka's Future's forecasted operating surplus. If Group Dep Pty Ltd does not proceed to purchase at least at least 3% of the 20,000 tanks it projects will be required as part of its heat pump roll out from 2015, this may put considerable pressure on Eureka's Future's forecasted operating surplus. Other Matters of Relevance The Earthworker Cooperative's is a groundbreaking project. The Earthworker mission represents practical action on climate change through the uptake of renewable energy technology, and the provision of dignified wealth-creating employment in the local manufacturing sector, at a time when both are sorely needed. It is the culmination of many years of work, collaboration and careful preparation. This capital-raising exercise is vital for the progress of this project, and offers supporters of the project high returns for their investment. In addition to holding a high-returning investment, debenture holders will be providing invaluable support to this project at an important time in its development, and at an important time for action on the dual challenges of climate change and local manufacturing employment. Directors Interest and Compensation paid to officers or members There has been no compensation or consideration given to any officers or members of the cooperative for the production of this Statement. This Statement was created by Earthworker. The Directors of Earthworker have no personal conflict or interest in this offer. Page 5 of 6
Joe Caygill is currently acting as a board member of the Earthworker Cooperative, and as the Managing Director of Everlast Hydro Systems. Joe has been actively involved in Earthworker for a number of years. Earthworker is currently negotiating the mutualisation of Everlast with the current shareholders of Everlast, and these negotiations have both largely been made possible, and are continuing to happen, primarily through Joe. These negotiations have been open and transparent and Joe has provided all information requested and required by the board to put together this debenture offer for capital raising. Once Everlast is mutualised, it is expected that Joe will become an equal worker-owner of Eureka's Future Cooperative Ltd, alongside other current employees at Everlast, and other members of the Earthworker community. The board believes that Joe's involvement on the board of Earthworker is positive and important, and provides a greater understanding for both fellow board members and the Earthworker Cooperative membership of the complexities of hot water tank manufacturing; the markets Eureka's Future is seeking to engage in; and the recent, current and projected position of Everlast Hydro Systems. The board, and the cooperative that elected Joe, believe that the interest of the cooperative is well served by Joe's expertise, experience and appointment to the board. However, to avoid any perceived conflict of interest, Joe will remove himself from any board discussion or voting regarding the mutualisation of Everlast Hydro Systems. Disclaimer Each member should make his or her own enquiries, and is advised to obtain professional advice if they feel that is necessary, prior to accepting this offer. This offer is intended to be a long term investment option with some level of risk. Page 6 of 6
Earthworker Cooperative Financial Statements 2013 2014 Page 1 of 2 Financial Year 2013/14 2013/12 Assets Current Assets Cash $ 2,377.61 $ 10,679.56 Accounts Receivable $ 69,584.00 $ Share Payments Receivable $ 2,980.00 $ 1,360.00 Forecast Assets $ 3,600.00 $ Accrued Income $ 3,800.00 Total Current Assets $ 82,341.61 $ 12,039.56 Total Assets $ 82,341.61 $ 12,039.56 Liabilities Current Liabilities Accrued Expenses $ 12,600.13 $ Provisions $ 20,000.00 $ Accrued Expenses $ 14,000.00 $ Total Liabilities $ 46,600.13 $ Owners Equity $ 35,741.48 $ 12,039.56 Shares $ 15,700.00 $ 11,460.00 Retained Earnings $ 20,041.48 $ 579.56
Earthworker Cooperative Financial Statements 2013 2014 Page 2 of 2 Financial Year 2013/14 2012/13 Revenue Accrued rebate income Social Justice Systems $ 3,800.00 0 Forecast commission income Downpayments from Crowd Funding $ 3,600.00 0 Commissions $ 1,903.04 $ Crowd Funding Downpayments $ 31,260.00 $ Crowd Funding Social Justice Installations $ 12,450.00 $ Crowd Funding Donations $ 31,812.00 $ Donations $ 19,877.00 $ 51,194.00 Total Revenue $ 104,702.04 $ 51,194.00 Operating Expense Accrued Expenses Crowd Funding Promotional Expenses $ 7,455.10 $ Cost of Sales Social Justice Systems Accrued Expense $ 14,000.00 $ Cost of Sales Downpayment provisions from Crowd Finding $ 20,000.00 $ Bad Debts Written off $ 5,938.00 $ Promotions & Marketing $ 1,370.33 $ 5,991.00 licence $ 4,412.80 $ Total Operating Expense $ 53,176.23 $ 5,991.00 General Expenses Bank Charges $ 240.00 $ Accrued Crowd Funding Costs Platform Costs Eventbrite Fees $ 5,145.03 $ $ 214.81 Contractors $ 25,700.00 $ 24,599.00 Web Design $ $ 279.00 Sundry $ 800.00 $ System Testing $ $ 11,136.00 Total General Expenses $ 32,099.84 $ 36,014.00 Total Expenses $ 85,276.07 $ 42,005.00 Gross Profit $ 19,425.97 $ 9,189.00 Interest Income $ 35.95 $ 34.00 Net Profit $ 19,461.92 $ 9,223.00