Erech Finance: The Funding Bridge, the Convertible Loan, and the Dilution Layer Between the Public Float and the Deal
In July 2025, shareholders rejected a NIS 10 million rights issue, and by year-end the company was relying on NIS 15.925 million of short-term loans and NIS 3.806 million of payables, including NIS 4.325 million tied to related parties. In February 2026, a new NIS 500 thousand bridge arrived, but so did 512,436 warrants, which means the price of time is no longer just interest expense but direct dilution on a 100% public float.
The Bridge the Public Sits Behind
The main article already established that Erech Finance is no longer a live lending story. It is a public shell trying to buy time until it can bring in a new operating business. This continuation isolates the question that comes one step earlier, and therefore one step ahead of shareholders: who is funding the interim period, and on what economic terms.
That is the key point. Before any future transaction can matter, there is already an active funding layer sitting between the public float and whatever future value investors hope to capture. At year-end 2025, the company was carrying NIS 15.925 million of short-term loans and NIS 3.806 million of payables and accrued expenses. Inside that stack sat NIS 2.353 million of related-party loans and another NIS 1.972 million of payables to related parties. In other words, roughly NIS 4.325 million, about 22% of the short-term stack, was already sitting with insiders and related parties.
This matters for more than one reason. It means public shareholders did not arrive at the next-deal stage with a clean bridge or a clean cap table. They arrived there after a NIS 10 million rights issue failed, after deferred compensation balances kept accumulating with interest, and after a February 2026 convertible bridge came with a warrant package large enough to reshape the shareholder base.
The Public Did Not Approve the Equity Bridge
On June 11, 2025, the company convened a special meeting to instruct the board to advance a NIS 10 million rights issue for the examination and development of new activities. On July 6, 2025, shareholders voted not to approve that step.
That was not a procedural footnote. It was the moment the public equity bridge fell away. From that point on, any reading of Erech Finance as a shell financed by its own shareholder base had to change. If the public was not willing to underwrite a NIS 10 million rights issue, the period between the old runoff book and any new deal would have to be financed through private money, deferrals, or dilution-linked tools.
That point matters even more because the proposed rights issue was not framed as a rescue of old liabilities. It was meant to fund the search for and development of new activities. So by the time February 2026 arrived, the company was not choosing between a public bridge and a private bridge on equal footing. The public route had already failed.
What the Funding Stack Actually Looks Like
Note 12 says the NIS 13.572 million owed to outside lenders and the NIS 2.353 million owed to related parties are short-term loans, with maturities of up to one year. The same note adds that the agreements include a possibility of immediate repayment. It also states that some of the company’s obligations to outside lenders are backed by personal guarantees from some controlling shareholders.
That is the detail that is easy to miss. Even money that does not come directly from related parties still leans, at least in part, on insider support. So the external debt is not sitting on a self-funding balance sheet with room to maneuver. It sits on a shell that continues to roll short-term private credit while relying on internal support as part of the package.
The chart says more than the headline does. The biggest layer is still outside private lending, but even that layer carries insider guarantees. On top of it sits a more direct insider layer: NIS 2.353 million of related-party loans and NIS 1.972 million of related-party payables. That is not equity support. Those are economic claims that stand ahead of common shareholders.
| Layer | Amount | Key terms | What it means for the public |
|---|---|---|---|
| Loans from others | NIS 13.572 million | 5% to 12% interest, up to one year, immediate repayment possible | External money is short-dated and can pressure the company quickly |
| Related-party loans | NIS 2.353 million | 5% to 13% interest, direct insider funding | Insiders are not only backing the company, they are also lenders to it |
| Related-party payables | NIS 1.972 million | Includes accrued obligations to insiders and related parties | Deferred payment does not erase the claim, it only pushes it forward |
| Other payables | NIS 1.834 million | Accrued expenses, suppliers, and other balances | There is still a non-insider current-claims layer ahead of equity |
This stack did not really clean up versus year-end 2024. Related-party loans rose from NIS 2.144 million to NIS 2.353 million. Related-party payables rose from NIS 1.777 million to NIS 1.972 million. Together, the insider-related layer increased by about 10.3%. So this is not a move from emergency funding toward a more stable structure. It is a period in which the support from inside the circle became more important.
Unpaid Compensation Is Not Equity
Note 22 adds a layer that matters more than the headline number. In March 2023, the controlling shareholders unilaterally agreed to reduce by 50% the compensation they were entitled to receive. At the same time, they explicitly preserved the right to step compensation back up to 75% if the company’s market value reached NIS 30 million over five consecutive trading days, and back to 100% if it reached NIS 50 million.
In August 2023, they also committed not to withdraw their compensation, or to return it if withdrawn, to the extent the company’s cash flow could not support it. The balance would then be treated as a loan to be repaid in the future, bearing interest at the tax-authority rate.
That means insider support here is a cash-flow bridge, not a clean equity injection. The claim changes form, but it does not disappear. At year-end 2024, the accrued balance tied to controlling-shareholder compensation was about NIS 1.7 million. During 2025, they still did not collect because of the company’s financial condition. By December 31, 2025, the related-party payable balance disclosed in Note 22 had risen to NIS 1.972 million.
There is another important clue in the same note. In March 2024, the company approved the repayment of NIS 272 thousand owed to its CFO and external legal counsel through a private allotment of 63,648 shares at NIS 5.00 per share. In other words, equity was already used once as a payment tool instead of cash. February 2026 did not introduce a new habit. It thickened an existing one.
February 2026 Bought Time and Added Dilution
The immediate report dated February 22, 2026 described a NIS 500 thousand convertible loan, carrying 7% annual interest for 12 months, with a right to convert principal into shares at NIS 0.956 per share. Then both section 2.36 in Part B and Note 24(b)-(c) add the equity layer that sits on top of that bridge: the company allotted 512,436 warrants to the lender, exercisable for 12 months at the same NIS 0.956 exercise price, and those warrants were issued on March 11, 2026.
What matters most is that the annual note sharpens the picture relative to the initial headline. It frames the equity-linked piece as roughly NIS 490 thousand of the NIS 500 thousand principal. So this is no longer a plain reading of a “7% bridge loan.” It is a funding package in which time is being bought partly through a path into equity.
The chart assumes the current issued share count of 2,614,470 shares increases only by the 512,436 warrants granted in February 2026. On that basis, the lender, who already held 127,779 shares or about 4.89% of the company, could reach roughly 20.47% after full exercise. Even without deciding what any later transaction may look like, that already says something sharp: a NIS 500 thousand bridge can turn into a meaningful influence layer inside the capital structure.
That point is even sharper here because the company’s entire existing share base is effectively float. There is no large strategic holder absorbing dilution ahead of the public. So 512,436 warrants represent dilution of about 19.6% against the current share count, directly against the tradable public float.
The closing sentence of the immediate report matters too: chairman Naor Eliyahu, or his nominee, may join the loan on similar terms, subject to the required approvals. So even after this package, the documents leave the door open to thickening the same layer again, using the same economic logic.
Conclusion
Erech Finance’s public shareholders are not facing a future deal directly. They are facing an interim layer first. On one side sits short-term debt that can be called. On another sits insider support that is recorded as debt rather than equity. On top of that, February 2026 added a convertible bridge with 512,436 warrants.
So the real question is not only whether a new business enters the shell. It is in what condition that business would arrive. If the interim period continues to be financed through private loans, deferred compensation, and option packages, the public will reach the next deal only after passing through a layer of claims and dilution. That is the difference between a shell that merely buys time and a shell that preserves value for the public.
The main bottleneck is not the lack of a future transaction idea. It is the quality of the money buying time until that transaction can happen. As long as that bridge remains short-dated, private, and dilution-linked, the public sits behind it, not alongside it.
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