Mr. Brian Mosoff reports

ETHER CAPITAL CORPORATION REPORTS 2023 Q1 FINANCIAL RESULTS

Ether Capital Corp. has released its unaudited interim consolidated financial results for the three-month period ended March 31, 2023.

The company experienced a strong rebound in portfolio value during Q1 2023, compared with Dec. 31, 2022. Financial highlights for Q1 2023 include:

• The company recorded revenue of $1.18-million in Q1 2023, versus $1.20-million in Q1 2022, a decrease of 1 per cent.
• The company incurred operating expenses of $1.26-million in Q1 2023, versus $800,000 in Q1 2022, a 59-per-cent increase.
• The total value of digital assets held by the company was $105.5-million as at March 31, 2023, versus $73.1-million on Dec. 31, 2022, a 44-per-cent increase over the three-month period.
• Cash and cash equivalents were equal to $2.44-million on March 31, 2023, versus $2.89-million on Dec. 31, 2022.
• The company had no debt in Q1 2023.
• Basic net income per share for Q1 2023 was 55 cents, compared with a net loss per share of 20 cents in Q1 2022.
• The net income after other comprehensive income (OCI) in Q1 2023 was $30.5-million, versus a net loss after OCI of $22.9-million in Q1 2022.
• The total shareholders' equity of the company was $106.7-million on March 31, 2023, versus $75.6-million on Dec. 31, 2022.

During Q1 2023, the price of ether increased 53 per cent and ended the period at $2,471, compared with $1,620 on Dec. 31, 2022.

The comparative unaudited interim financial statements for Q1 2022 were restated to recognize a deferred tax expense and liability and facilitate comparison with Q1 2023.

Management commentary

"We had a strong start to the year and it was a very productive quarter for the company," said Brian Mosoff, chief executive officer of Ether Capital. "In Q1, we doubled down on our commitment to staking and launched an analytics tool that provides users with more transparency when it comes to their assets. We also witnessed an overwhelmingly positive response to ethereum's recent Shanghai upgrade and now have liquidity on our Ether due to staked ETH withdrawals being enabled. This puts us in a financially sound position to explore new business opportunities and additional revenue pipelines in the coming months.

"Positive price action for ETH and the decision to stake more of our treasury has reflected well on our balance sheet. To date, we are staking 36,000 ETH (79 per cent of our portfolio) and generated yield at approximately 5.6 per cent in Q1," said Ian McPherson, president and chief financial officer of Ether Capital.

Revenue highlights

The company's revenue decreased 1 per cent from $1.2-million in Q1 2022 to $1.18-million in Q1 2023.

Total staked ether rewards revenue, a combination of consensus layer rewards (illiquid) and execution layer rewards (liquid), was $932,000 in Q1 2023, versus $722,000 in Q1 2022, of which 69 per cent was consensus layer rewards and 31 per cent was execution layer rewards. The amount of staked ether was much higher at the end of Q1 2023 (36,000 ether), compared with the end of Q1 2022 (20,512 ether), as was the amount of staked ether rewards. The staking yield for the company averaged 5.64 per cent for Q1 2023, versus 5.04 per cent in Q1 2022. The average dollar price for staked ether rewards was lower in Q1 2023 ($2,141), compared with Q1 2022 ($3,726), thus offsetting the higher staked ether rewards earned during Q1 2023.

Additionally, the company earns consulting fee revenue from Purpose Investments, which is linked to the assets under management (AUM) of Purpose Investment's crypto ETFs (exchange-traded funds). During Q1 2023, the average value of Purpose's crypto AUM was much lower than Q1 2022. This resulted in a 51-per-cent reduction of consulting fees from $450,000 in Q1 2022 to $220,000 in Q1 2023.

Operating expense highlights

Operating expenses increased 59 per cent in the quarter to $1.26-million, versus $790,000 in Q1 2022, primarily due to staff expansion and the building of internal capabilities. Ether Capital is assessing the launch of new products and business lines for which key staff was recruited. Additionally, the company is in the process of internalizing some functions that it has outsourced historically, such as accounting.

The most material operating expense incurred by the company during the three months was staff compensation. As at March 31, 2023, there were 10 full-time employees or contractors, compared with five on March 31, 2022, and 10 on Dec. 31, 2022. Compensation expenses, both salaries and share-based compensation of employees, were $730,000 for the quarter, versus $290,000 in Q1 2022.

Revenue less operating expenses

One measure of operating performance is revenue less operating expenses. For Q1 2023, it was negative $80,000, compared with $410,000 in Q1 2022. The primary reason for the operating loss in Q1 2023 is due to unexpected professional fees pertaining to a restatement of 2021 audited consolidated financial statements. See the attached table for a reconciliation for this non-IFRS (international financial reporting standards) measure.

Other comprehensive income (loss) and net income (loss)

The other comprehensive income (loss) incurred a significant reversal in Q1 2023. In Q1 2022, the OCI incurred a loss for shareholders of $16.2-million (restated) due to the fair market value adjustment to the company's digital assets. During the period, the price of ether declined 12 per cent and it triggered losses on the value of those assets.

By comparison, the OCI generated a gain of $11.8-million for the three months ended March 31, 2023. This reversal was due primarily to unrealized gains on digital assets of $13.6-million, offset by the recognition of a deferred tax expense of $1.8-million. As previously mentioned, the price of ether increased 53 per cent during Q1 2023 and this was the major factor driving the gain in fair market value.

Cash flow

In general, the cash flows from operations of the company in Q1 2023 are materially different from the financial statement earnings, whether before or after other comprehensive income, for the following reasons:

• Seventy-nine per cent of the revenue in Q1 2023 is non-cash.
• Operating expenses include a material amount for the amortization of share option expense, a non-cash expense (17 per cent of operating expenses).
• The unrealized gains for the company's digital assets total $17.9-million.
• The exercise of share options generated $420,000 of cash.

The consolidated statement of cash flow and the notes in the company's Q1 2023 financial statements, and the management discussion and analysis (MD&A), include more detail.

Net income (loss) per share

The net income per share was 55 cents in Q1 2023, compared with a net loss per share of 20 cents in Q1 2022 (restated). The net income (loss) per share does not include the impact of OCI (loss), which is material.

Assets

Cash on the balance sheet was $245,000 on March 31, 2023, compared with $440,000 on Dec. 31, 2022. The company invested excess cash in a listed Purpose High Interest Savings ETF and the balance was $2.20-million on March 31, 2023, versus $2.45-million on Dec. 31, 2022. This ETF can be sold easily in the normal course and the company deems it liquid and comparable with a cash equivalent. Combined, the cash and ETF totalled approximately $2.44-million on March 31, 2023.

During the three months ended March 31, 2023, there was a material change regarding the valuation of digital assets as discussed above. The company's digital assets increased in value by $31.4-million to $105.5-million from Dec. 31, 2022, primarily due a 53-per-cent increase in the price of ether during the period. The valuation of the company's digital assets exceeded the cost base of those assets by $47.1-million as at March 31, 2023. After taking into account tax loss carryforwards, the deferred tax liability of those unrealized gains is approximately $910,000 on March 31, 2023 ($12.1-million on March 31, 2022) and this is recognized on the consolidated interim statements of financial position. Any potential future increase in the valuation of the digital assets will result in an increase in the deferred tax liability of approximately 13.25 per cent of the unrealized gains.

Shareholders' equity highlights

The shareholders' equity as at March 31, 2023, was $106.7-million, compared with $75.6-million on Dec. 31, 2022. The increase was primarily due to the revaluation of the company's digital assets given the 53-per-cent increase in the ether price during the quarter. The net equity value per share also increased to $3.13 per share on March 31, 2023, from $2.24 on Dec. 31, 2022. The number of shares outstanding increased to 34,103,000 from 33.75 million over the quarter.

The company's unaudited interim financial statements and the MD&A have been filed on SEDAR and may be viewed under the company's profile on SEDAR. Capitalized terms used and not defined in this news release have the meanings given to them in the company's quarterly financial statements and/or MD&A for the period ended March 31, 2023.

About Ether Capital Corp.

Ether Capital 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 comprise crypto natives, leading venture capitalists and traditional finance experts, uniquely positioning the company to identify and capitalize on opportunities in the digital asset ecosystem.

We seek Safe Harbor.