CryptoGlobal (TSXV: CPTO) Trading to Resume June 7, 2018 Merger to Create Diversified North American Leader Complete Crypto Ecosystem
TORONTO, June 5, 2018 /CNW/ - As the proposed merger of CryptoGlobal (TSXV: CPTO) with HyperBlock Technologies Corp. ("HyperBlock") moves ahead, both companies are pleased to provide an operational update.
On May 31, CryptoGlobal and HyperBlock mailed a Joint Management Information Circular (the "Circular") to shareholders. As described in the Circular, both companies are holding special shareholder meetings on June 22, 2018 where shareholders of both HyperBlock and CryptoGlobal will vote on a resolution in support of the HyperBlock's proposed merger with CryptoGlobal by way of plan of arrangement under the Business Corporations Act (Ontario), (the "Plan of Arrangement"). As part of the Plan of Arrangement, the resulting combined company will also acquire Project Northwest from Project Spokane, LLC (a third-party vendor). The Circular contains important instructions on how shareholders may cast their vote in person or by proxy. As the Circular has been distributed to CryptoGlobal shareholders, the TSXV is expected to resume trading of CryptoGlobal's shares on June 7, 2018.
Under the proposed merger, CryptoGlobal shareholders will receive 0.4229 of a common share of HyperBlock for each CryptoGlobal common share, valuing each CryptoGlobal common share at $0.74. HyperBlock has secured irrevocable hard lock-up agreements to vote in favour of the merger from CryptoGlobal shareholders representing approximately 58% of the currently issued and outstanding CryptoGlobal common shares. CryptoGlobal has secured irrevocable hard lock-up agreements to vote in favour of the Transaction from HyperBlock shareholders representing approximately 50% of the currently issued outstanding HyperBlock common shares.
Following the acquisition, the newly combined company is expected to have approximately CDN$9 million of cash and cryptocurrency on-hand. HyperBlock has generated significant positive annual EBITDA (US$20.8 million on a historical run-rate basis), which the company believes will fuel outsized growth and strategic expansion going forward. See additional details below.
Operational Updates at HyperBlock and CryptoGlobal
According to HyperBlock CEO Sean Walsh: "CryptoGlobal and HyperBlock have been making important operational updates to further diversify, expand and strengthen the company while instituting a cost structure that positions the combined company to be one of the most competitive crypto businesses in North America." Walsh says the operational changes reflect the newly combined company's mission to build a complete "crypto" ecosystem to create, safeguard, manage and grow crypto — and promote consumer adoption and usage.
CryptoGlobal Scales and Streamlines Operations / Closes Hamilton Mine / Discontinues BitCity
To take advantage of combined synergies offered by merging the two companies, CryptoGlobal has decommissioned its Hamilton, Ontario mine and relocated 3,787 mining servers to strategic partner locations in Eastern Canada. CryptoGlobal continues to operate 2,847 servers at its Quebec mine — and, as a first step in combining the two companies, plans to move 770 mining servers to HyperBlock's 13,000 server crypocurrency datacenter in the USA.
Due to new globally-competitive power opportunities in Quebec and Alberta (representing a potential 200MW+ power capacity) and expanded power capacity at Project NorthWest — CryptoGlobal has announced it will not complete the proposed acquisition of BitCity Group.
Hash Rate Sales
Despite difficult market conditions, HyperBlock continues to successfully sell hash rate throughout 2018. As of April 2018 (2018 sales are not included in the financial results described below under "Financial Highlights"), HyperBlock (including Project Northwest) received over US$9 million in up-front fees from hash rate sales through a strategic partner. In addition to the up-front fees, these hash rate sales are expected to deliver approximately US$5.5 million of annual recurring revenue in the form of hosting fees.
Project Northwest Power Capacity Expands – From 20MW to 60MW
In addition to new Canadian power opportunities in Alberta and Quebec (representing up to 200 MW in potential power capacity), power authority approval has been granted to expand capacity at the Project Northwest cryptocurrency datacenter in the Pacific Northwest of the USA – from 20 MW to 60 MW. Upgrades are already underway to build out the first incremental 20 MW of power. These upgrades are fully-funded, based on existing cash-on-hand and expected internally generated free cash flow.
Custodial Vault and Trading
Following its successful acquisition of Blockchain Dynamics, CryptoGlobal is continuing to develop a proprietary crypto custodial storage vault offering – and expects to launch a proprietary crypto trading desk later in the year. CryptoGlobal CEO Rob Segal and Blockchain Dynamics CEO Chris McGarrigle confirm that beta testing of its custodial vault product is advancing and more details will be shared post-acquisition.
The combined company at a glance:
Diversified business model and vision for an integrated crypto ecosystem that includes:
Mining-as-a-Service hash rate sales
Crypto custodial storage, and trading
AI-based crypto Insights platform
Experienced management team with significant vested interest
21,000+ combined operational mining servers
28 MW of existing utilization with ability to grow to over 200 MW due to new power opportunities in Canada and the USA
As described in the Circular, for the FY2017 period, Project Northwest reported revenue of US$22.8 million and EBITDA of US$10.4 million. Adjusted EBITDA for the quarter ending Dec 31, 2017 was US$3.5 million, or US$13.9 million on an annualized run-rate basis.
HyperBlock Technologies Corp. reported US$1.4 million of revenue and US$0.8 million of EBITDA for the period from October 10, 2017 (date of incorporation) to February 28, 2018 (period in which does not include any hash rate sales as described above). Adjusted EBITDA for the corresponding period was US$1.0 million, excluding hosting fees paid to Project Northwest, which will not be paid following completion of the transaction. 723 of HyperBlock's servers came online on December 19, 2017, with an additional 723 servers coming online February 2nd, 2018. On a run-rate basis, monthly EBITDA with all machines running, would have generated approximately US$0.6 million, or US$6.9 million — on an annualized historical basis.
For the year ended December 2017, CryptoGlobal did not generate material results, as it was still in the process of building-out the required infrastructure for its crypto mining operations. More details are available in the Circular.
Figures in US$ millions
Figures in US$ millions
HyperBlock Technologies Corp.
Less: Gain on Hardware Sold to HyperBlock
Add: Hosting Fees Paid to Spokane
Less: 9 Months Ended Sept 30, 2017 EBITDA
Monthly EBITDA Run Rate - Adjusted For Machine Installation Timing
Q4 FY2017 EBITDA
Annualized Historical EBITDA
Annualized Historical EBITDA
Combined Historical EBITDA
HyperCharged for Strategic and Organic Growth
"The new HyperBlock is one of North America's largest and most efficient cryptocurrency mining businesses, which means we have the scale and flexibility to pursue strategic acquisitions and continue building our innovative Mining-as-Service offerings," explains HyperBlock CEO Sean Walsh.
"What's even more exciting is that the new HyperBlock will offer a complete crypto product suite, including direct-to-consumer offerings and multiple revenue streams. In addition to hash rate sales, server hosting, custodial vault services and AI-based crypto insights and trading, the company plans to incorporate mobile applications and invest in crypto adoption initiatives," says Walsh. "This approach helps insulate shareholders from market volatility — facilitates our desired rapid acquisition of complementary businesses — and will act as a catalyst to encourage crypto adoption by making it easier for consumers and businesses to manage and grow their crypto assets," he says.
Under the Arrangement Agreement, HyperBlock will acquire all the issued and outstanding shares of CryptoGlobal and the two companies will amalgamate to form a new corporation under the Plan of Arrangement, pending shareholder, court and regulatory approval.
CryptoGlobal obtained an interim order on May 17, 2018 from the Ontario Superior Court of Justice (Commercial List) in respect of the merger of CryptoGlobal by HyperBlock under the Plan of Arrangement (the "Interim Order"). The Interim Order authorizes CryptoGlobal to call and hold a special shareholders meeting on June 22, 2018 to approve the proposed merger and the Plan of Arrangement.
The Circular containing information about the merger, the Plan of Arrangement, CryptoGlobal, HyperBlock, Project Northwest and the combined company formed as a result of the transactions set out in the Plan of Arrangement, was mailed to HyperBlock and CryptoGlobal shareholders on May 31, 2018 (21 days prior to the June 22, 2018 meetings). The Circular also contains information on the annual matters for consideration by CryptoGlobal shareholders. The Circular is also available on CryptoGlobal's issuer profile on SEDAR at www.sedar.com and at www.cryptoglobal.io and www.hyperblock.co. A copy of the Arrangement Agreement and the Plan of Arrangement can be viewed on CryptoGlobal's issuer profile on SEDAR at www.sedar.com.
There are measures included in this news release that do not have a standardized meaning under generally accepted accounting principles ("GAAP") and therefore may not be comparable to similarly titled measures and metrics presented by other publicly traded companies. The company includes these measures because it believes certain investors use these measures and metrics as a means of assessing financial performance. EBITDA (earnings before interest, taxes, depreciation and amortization is calculated as net earnings before finance costs (net of finance income), income tax expense, and depreciation and amortization of intangibles) is a non-GAAP financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.
About HyperBlock Technologies Corp. and CryptoGlobal
HyperBlock is a leading North American diversified crypto-asset company which operates one of North America's largest and most efficient cryptocurrency datacenters. HyperBlock operates four profit centers including Mining-as-a Service (MAAS), self-mining, server hosting, and server hardware sales. Learn more at www.hyperblock.co
CryptoGlobal is a leading Canadian blockchain and financial technology company built on a strong core of diversified cryptocurrency mining. Currently, CryptoGlobal focuses on mining Bitcoin, DASH, Ether and Litecoin — using a mix of custom-tuned mining technologies. Learn more at www.cryptoglobal.io
Cautionary Note Regarding Forward Looking Information
Certain information in this news release constitutes forward-looking statements under applicable securities laws. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward looking statements are often identified by terms such as "may", "should", "anticipate", "expect", "potential", "believe", "intend" or the negative of these terms and similar expressions. Forward-looking statements in this news release include, but are not limited to, statements with respect to accretive earnings, anticipated revenue and costs synergies associated with the merger of CryptoGlobal with HyperBlock, statements with respect to internal expectations, estimated margins, expectations for future capacity, costs and opportunities, the effect of the transaction on the resulting combined company and its strategy going forward, the completion of any capital project or expansions, the timing for the completion of the Transaction and expectations with respect to future mining or production costs, the anticipated timing for the special meetings of CryptoGlobal and HyperBlock shareholders and closing of the transaction; the consideration to be received by shareholders of CryptoGlobal, which may fluctuate in value due to HyperBlock common shares forming the consideration; the satisfaction of closing conditions including, without limitation: (i) required CryptoGlobal and HyperBlock shareholder approvals; (ii) necessary court approval in connection with the Plan of Arrangement; (iii) certain termination rights available to the parties under the Arrangement Agreement; (iv) HyperBlock obtaining the necessary approvals from the Canadian Securities Exchange for the listing of its common shares in connection with the Transaction; and (vi) other closing conditions, including, without limitation, the operation and performance of the CryptoGlobal business in the ordinary course until closing of the Transaction and compliance by CryptoGlobal and HyperBlock with various covenants contained in the Arrangement Agreement. In particular, there can be no assurance that the Transaction will be completed. Forward looking statements are based on certain assumptions regarding CryptoGlobal, HyperBlock and the resulting combined company, including expected growth, results of operations, performance, industry trends and growth opportunities. While CryptoGlobal considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. Readers are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements also necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; future legislative and regulatory developments involving cryptocurrency; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; the cryptocurrency industry in Canada generally, income tax and regulatory matters; the ability of HyperBlock to implement its business strategies; competition; currency and interest rate fluctuations and other risks. Any forward-looking statements or facts (including financial information) related to CryptoGlobal discussed or disclosed herein are derived from information obtained directly from CryptoGlobal and publicly available sources and has not been independently verified by CryptoGlobal.
Readers are cautioned that the foregoing list is not exhaustive. Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated.
Forward-looking statements contained in this news release are expressly qualified by this cautionary statement and reflect our expectations as of the date hereof, and thus are subject to change thereafter.
CryptoGlobal and HyperBlock disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. This news release has been approved by the Board of Directors of each of HyperBlock and CryptoGlobal. Factors that could cause anticipated opportunities and actual results to differ materially include, but are not limited to, matters referred to above and elsewhere in CryptoGlobal's fiscal 2017 annual MD&A, the Circular and the material change report filed that will be filed in respect of this Transaction, which are, or will be, available on CryptoGlobal's profile on www.sedar.com.
Neither the TSXV nor its Regulation Services Provider (as that term is defined in the policies of the TSXV) accepts responsibility for the adequacy or accuracy of this news release.
No stock exchange, securities commission or other regulatory authority has approved or disapproved of the information contained herein. This news release is not an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.