Ether Capital Corporation Reports Annual 2022 Financial Results
Ether Capital Corporation ("Ether Capital" or the "Company") (NEO: ETHC) announces the reporting of its audited consolidated financial results for the year ended December 31, 2022. The financial results include a restatement of comparative 2021 consolidated financial statements. There is no cash impact on the financial position of the Company resulting from the restated comparative 2021 financial statements which includes accounting for Deferred Income Taxes on unrealized gains. See "Restatement of Comparative 2021 Financial Statements."
The Company managed to stay financially strong during 2022 despite challenging conditions that impacted the digital assets industry. Financial highlights for the fiscal year include:
"It was a difficult year for many businesses in the sector. The collapse of major crypto companies coupled with a sharp decline in asset prices presented a lot of challenges that we needed to overcome as an industry," said Brian Mosoff, CEO of Ether Capital. "Where the uncertainty would normally cause players to pack it in, we're seeing the community stay resilient and evolve. I'm confident in Ether Capital's ability to grow and look forward to building out new operating businesses that support Ethereum and create enterprise value for the Company."
"We are in the midst of transforming our Company from a passive holder of Ether to one that can generate both yield on our treasury assets and operating earnings. In 2022, we began building the internal infrastructure and team on a financially prudent basis, such that our operating expenses exceeded revenue by only $173,000," said Ian McPherson, CFO of Ether Capital.
Commentary on the 2022 financial results and the impact of the restatement to comparative amounts is discussed below.
During 2022, the price of Ether declined 65% and ended the year at C$1,620 compared to C$4,676 on December 31, 2021. The table below summarizes the volatility and range of Ether prices over 2022.
The Company increased its revenue 149% from $1.5 million in 2021 to $3.7 million in 2022, largely due to a material increase in Staked Ether Rewards.
Total Staked Ether Rewards Revenue, a combination of Consensus Layer Rewards (illiquid) and Execution Layer Rewards (liquid), was $2.45 million in 2022 vs. $0.1 million in 2021. During the year, the Company increased its allocation of Staked Ether to 20,512 in February 2022 from 10,272 on December 31, 2021. The Staked Ether generated an average yield of 5.13% during the year. The Staked Ether Rewards have not been sold and remain as digital assets held by Ether Capital.
Additionally, the Company earns consulting fee revenue from Purpose Investments, a related party, that is linked to the assets under management of Purpose Investment's crypto ETFs ("Crypto AUM"). During the year, the Crypto AUM declined materially (see table below), and this resulted in a 9.6% reduction of consulting fees from $1.38 million in 2021 to $1.24 million in 2022.
Operating Expense Highlights
Operating Expenses before Impairments and Revaluations ("Operating Expenses") increased 94% in 2022 to $3.9 million from $2.0 million in 2021. This was primarily due to staff expansion and the building of internal capabilities. Ether Capital is amid a strategic transition and is assessing the launch of new products and business lines for which key staff were recruited. The Company is also in the process of internalizing certain functions that it has historically outsourced.
The most material expense within the Company during 2022 pertains to staff compensation. Headcount increased from three employees at the start of the year to 10 by December 31, 2022. Compensation expenses, both salaries and share-based compensation of employees and Directors, were $2.28 million in 2022 vs. $0.72 million in 2021, of which $0.81 million is non-cash share-based compensation (2021-$0.33 million).
A significant component of Operating Expenses pertains to professional fees, such as legal counsel, independent external auditor, and other consultants. In 2022, these professional fees totaled $0.77 million compared to $0.58 million in 2021, a 33% increase. The growth is reflective of the expanded activity and increase in professional advice during the Company's transition. A new expense this year pertains to the cost of outsourcing staking services. The 2022 cost of $0.14 million is variable to the revenue generated from staking.
Other Operating Expenses are discussed in some detail in the Company's Management Discussion and Analysis (MD&A) that has been filed on the System for Electronic Document Analysis and Retrieval (SEDAR) and may be viewed under the Company's profile at www.sedar.com.
Revenue less Operating Expenses
One measure of operating performance used by the Company is calculating Revenue less Operating Expenses. In 2022, the Operating Expenses exceeded Revenue by $0.17 million compared to $0.51 million in 2022. This is a non-IFRS measure, and it is calculated by subtracting Operating Expenses from Revenue.
Other Comprehensive Income (Loss) and Net Income (Loss)
The Other Comprehensive Income (Loss) (OCI) incurred a significant loss in 2022. In 2021, the OCI generated additional income for shareholders of $139.9 million (restated). By comparison, the OCI generated a loss of $70.4 million in 2022. This loss comprised reversals related to dispositions and remeasurements due to unrealized losses on digital assets vs. unrealized gains in 2021, the full write down of the non-core portfolio investment in Wyre in 2022, and the recognition of corresponding deferred taxes related to these gains and losses.
The cashflow from operations of the Company are materially different from the financial statement's Net Income, whether before or after OCI, for the following reasons:
During 2022, there were several activities that impacted the cash position of the Company. These included the sale of non-core digital assets for $5.85 million (MKR and Uniswap), a realized trading loss on the purchase and sale of a Purpose Ether ETF (net realized loss $1.86 million), cash proceeds from the issuance of new common shares, the exercise of options and warrants ($0.7 million), and the expenditure of cash on the Normal Course Issuer Bid to acquire shares trading in the market at a cost of $1.31 million.
The Consolidated Statement of Cashflow and the Notes in the Company's annual financial statements will include more detail.
Net Income (Loss) per Share
The Net Loss per Share was ($1.73) compared to Net Income per Share of $0.05 in 2021 (restated). The Net Income (Loss) per Share does not include the impact of OCI (Loss), which is material the components of which are discussed above.
Cash on the balance sheet was $0.44 million on December 31, 2022 compared to $3.4 million on December 31, 2021. However, an incremental $2.45 million is invested in a cash equivalent, marketable security. During the year, the Company invested excess cash in a listed Purpose High Interest Savings ETF ("ETF"). Combined, the cash and ETF total approximately $2.9 million.
During 2022 there was a material change regarding the valuation of the Company's digital assets as discussed above. The digital assets decreased in value by $137.3 million to $73.1 million, primarily due to a 65% decline in the price of Ether during the year. The valuation of the Company's digital assets exceeded the cost base of those assets by $15.5 million as at December 31, 2022. The Company has a cumulative tax loss carryforward of $20.7 million as at December 31, 2022 that can be used to offset possible future capital gains, but is not recognized on the consolidated financial statements as recovery is not probable at year end. As at December 31, 2022, approximately $12 million remains unutilized.
As discussed previously, the Company also owns a minority interest in a private U.S. company, Wyre. The Company has undertaken an assessment of Wyre and estimated the fair market value of its minority stake at $nil.
Shareholders' Equity Highlights
The shareholders' equity as at December 31, 2022 was $75.6 million compared to $204.2 on December 31, 2021. The reduction was primarily due to the revaluation of the Company's digital assets ($137.3 million) and Wyre ($6.2 million). The Net Equity per Share also declined from $6.04 (restated) to $2.24 per share. At year end, the shares outstanding were 33.754 million compared to 33.826 in 2021.
Restatement of Comparative 2021 Financial Statements
The comparative 2021 financial statements are being restated to reflect the inclusion of a Deferred Tax Liability in 2021 due primarily to unrealized capital gain on assets. There has been no cash impact to the Company as a result of these corrections.
The valuation of the digital assets and portfolio company was $216.6 million compared to the cost base of $56.4 million on December 31, 2021. Although the Company does not intend to trade its digital assets and trigger a realized taxable capital gain, accounting standards require that a Deferred Tax Liability be recognized as providing for this possibility. The Company did have tax loss carryforwards that were able to reduce the Deferred Tax Liability on December 31, 2021, but they were insufficient to offset the total amount. As such, the Deferred Tax Liability was $15.63 million as at December 31, 2021. The consequences of this financial restatement are summarized in the tables below:
Consolidated Statement of Financial Position
Consolidated Statement of Net Income (Loss)and Comprehensive Income (Loss)
Ether Capital continues with its three-pronged strategy in 2023: To continue being a net accumulator of ether, stake the majority of ETH on the balance sheet, and build new products and businesses that leverage the Company's intellectual property and market leadership.
Ether Capital will host an investor presentation on Wednesday April 5 at 3:00pm ET. The Company's CEO Brian Mosoff and President & CFO Ian McPherson will be in attendance to discuss the financial highlights of 2022 and answer any investor questions. You can go here to register for the webinar that will be conducted via Zoom.
The Company's audited financial statements, the MD&A, and the annual information form have been filed on SEDAR and may be viewed under the Company's profile at www.sedar.com.
About Ether Capital Corporation
??Ether Capital (NEO: ETHC) is a public technology company with a long-term objective to become a central business and investment hub for the Ethereum ecosystem. The Company has invested most of its balance sheet in Ethereum's native utility token "Ether" as a core strategic asset and yield-generating instrument. The Company is focused on building financial infrastructure that supports the Ethereum blockchain and delivers corporate value. Ether Capital's management team and Board of Directors are comprised of crypto natives, leading venture capitalists and traditional finance experts, which uniquely positions the company to identify and capitalize on opportunities in the digital asset ecosystem. For more information, visit http://ethcap.co.
The content of this document is for informational purposes only and is not being provided in the context of an offering of any securities described herein, nor is it a recommendation or solicitation to buy, hold or sell any security. The information is not investment advice, nor is it tailored to the needs or circumstances of any investor. Information contained in this document is not, and under no circumstances is it to be construed as, an offering memorandum, prospectus, advertisement, or public offering of securities. No securities commission or similar regulatory authority has reviewed this document and any representation to the contrary is an offence. Information in this press release is current only as of the date provided and Ether Capital is under no obligation to update this information, other than in accordance with applicable securities laws.
The Company's condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS"). The Company refers to the Operating Revenue less Operating Expenses before Impairments and Revaluations ("Operating Expenses"), which is a non-GAAP financial measure. This non-GAAP measure is not defined by IFRS, does not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Company has presented such non-GAAP measure as management believes it is a relevant measure of the Company's operating performance independent of asset valuation changes. Non-GAAP measures should not be considered as alternatives to the information set out in the Company's financial statements.
This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. The Company cautions the reader not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. Generally, but not always, forward-looking information can be identified by the use of forward-looking terminology such as "plans," "expects" or "does not expect," "is expected," "budget," "scheduled," "estimates," "forecasts," "intends," "on pace," "anticipates," or "does not anticipate," "believes," and similar expressions or state that certain actions, events or results "may," "could," "would," "should," "might," or "will" be taken, occur or be achieved.
Forward-looking statements are based on information available to management at the time they are made, management's current plans, estimates, assumptions, judgments and expectations. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance, or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. Such risks and uncertainties include, but are not limited to the risk factors discussed in the Company's Annual Information Form dated March 23, 2023, the Risk Factors section in its most recently filed management's discussion and analysis and its other filings available online at www.sedar.com. Although the forward-looking information contained in this press release is based on assumptions that the Company believes to be reasonable at the date such statements are made, there can be no assurance that the forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such forward-looking information. In addition, the Company cautions the reader that information provided in this press release is provided to give context to the nature of some of the Company's future plans and may not be appropriate for other purposes. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update or revise any forward-looking information, except in accordance with applicable securities laws.
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