Q: I just looked at the insider report. Brian Beetie did a private buy of 36 million warrants on July 12th. Also EGLX had just secured a 20 million term loan. Are these strong hints things may be turning around. I cant see why an insider would, out of the blue, take such an extreme position.
5i Research Answer:
The warrants came with the loan, so there was no additional capital provided to the company from the warrants. With a five-year term and priced at 13.5 cents, they could be quite profitable if the company survives. The $20M loan allows interest to be paid in-kind (with shares) which underscores how tight things are. The rate of interest is 14%, setting up a significant obligation for the company. Debt is already high, and will now be close to critical levels if things don't turn around. Insiders are, essentially, trying to save the company, but still getting paid a lot to do so. We would consider it very unattractive currently.