Remember this????
Reverse Split
Stuart reiterated INTK would not initiate a reverse split while the stock is listed on the OTC markets which includes OTC Pink, OTCQB, or OTCQX. However, if INTK is trying to uplist to the NYSE and needs to meet the minimum share price requirement, which is currently $4.00 per share, a reverse split is likely, but it will be a minimum of two years down the road. Why two years? Because a company must demonstrate it has annual adjusted pre-tax income of $2 million or more for two consecutive fiscal years before it can be uplisted to the NYSE or NASDAQ. In my opinion this stock has a tremendous amount of upside in the next two years, and it's premature for shareholders to be worrying about a reverse split.
Share Buyback
Stuart mentioned a share buyback as one of the tools INTK has in its arsenal to address the number of shares it has outstanding. Let's explore that a bit.
Let's start with two different assumptions for 2022; 1) INTK reaches $50 million in revenue or 2) INTK reaches $75 million in revenue
Revenue $50,000,000 | $75,000,000
COGS $(12,500,000) | $(18,750,000)
Gross Profit $37,500,000 | $56,250,000
Looking at INTKs financial disclosures for 2019-2020 I see their cost of goods sold (COGS) is, on average, around 25%. I used this figure in my calculations above to determine the gross profit.
Liabilities
Professional/Consulting $(1,647,100) | $(2,470,650)
Payroll Expenses $(1,500,000) | $(1,500,000)
General & Admin. $(2,586,200) | $(3,879,300)
Sales and Marketing $(1,500,000) | $(2,000,000)
Total Expenses $(7,233,300) | $(9,849,950)
I made some fairly outrageous assumptions on the liabilities.
Professional/Consulting: I multiplied the expenses found on the 2020 financial disclosure by 50 and 75 for the 2 scenarios respectively.
Payroll Expenses: I assume INTK will start paying its employees. I plugged in 10 employees with average salaries and expenses of $150,000 per employee.
General & Admin.: I multiplied the expenses found on the 2020 financial disclosure by 50 and 75 for the 2 scenarios respectively.
Sales and Marketing: INTK entered into a multi-million dollar agreement with the marketing company so let's call it $1.5 million if revenue reaches $50 million, and I threw in a $500,000 kicker if revenue reaches $75 million.
Gross Profit $37,500,000 | $56,250,000
Total Expenses $(7,233,300) | $(9,849,950)
Net Income $30,266,700 | $46,400,050
So, for the purposes of this exercise, let's assume net income is equal to net cash flow (FYI they're usually different due to depreciation, amortization, etc.). At $50 million in revenue I'm estimating INTK ends up with just over $30 million in cash at the end of the year. At $75 million in revenue I'm estimating INTK ends up with $46.5 million in cash at the end of the year.
INTK has roughly 2.9 billion shares outstanding. Using a share price of $0.019 that gives the company a market cap of around $55.1 million.
Here are the number of shares, and associated cost to purchase those shares, for various quantities at a share price of $0.019.
SHARES | COST
1,000,000 | $19,000
10,000,000 | $190,000
100,000,000 | $1,900,000
500,000,000 | $9,500,000
1,000,000,000 | $19,000,000
Buying 100 million shares might seem like a lot, but in reality it barely moves the needle. And keep in mind, the company is going to add several hundred million shares to its outstanding share count as a result of the previously announced dividend, and with the $1 million in capital it plans to raise, so the share count will likely be closer to 3.3 billion when it's all said and done. To have any meaningful impact, INTK would need to purchase a minimum of 500 million shares which, for this example, would cost $9.5 million, but really we'd need them to purchase a billion plus shares.
If INTK ends 2022 with between $30 million and $46.4 million in cash, is it reasonable to think they'd use $9.5 million to buyback shares? Probably not, however if, by the end of 2023, we're projecting the company will have $60 million to $92 million in cash on hand, I don't think it's unreasonable at all to expect the company to buyback a few hundred million shares over the course of the next few years. Could they even buyback a billion shares? Maybe. It all depends on their expansion plans, the cost of R&D to add to their pipeline of products, increasing payroll expenses, etc.
In general, buybacks are viewed as a positive by investors. Buybacks increase the companies earnings per share (since there's fewer shares outstanding), thereby decreasing the companies price-to-earnings (P/E) ratio (current share price divided by earnings per share). If a company is buying back shares it is also usually a signal to investors that management believes it will continue to generate sufficient revenue in the future to fund any expansion, additional R&D, etc.
Uplisting
I suspect the first goal for INTK will be to uplist from OTC Pink to OTCQX. OTCQX is the top tier of the three OTC markets. Companies that trade on OTCQX must meet high financial standards, be current in their disclosures, and have a sponsorship from a third party advisor. Companies listed here report to a U.S. regulator; either the SEC or the FDIC, and are subject to SEC regulations. Quite a few blue chip stocks from Europe, Canada and South America trade on this platform. Moving to OTCQX is an important first step in the uplisting process as it will expose INTK to a broader investor pool. OTCQX stocks are available through all brokers, whereas some brokers will not allow investors to trade stocks on OTC Pink.
Stuart has indicated they'll target uplisting to the NYSE some time in 2023. In my opinion that is overly optimistic, but let's assume that's correct. To uplist to the NYSE a stock must have a minimum share price of $4.00 per share. Is there any way that INTK gets to $4.00 per share in 2 years on its own (i.e. without a reverse split)?
Let's assume the company has 3.3 billion shares outstanding after issuing the all stock dividend and issuing shares to raise capital.
Let's also assume the following:
- The company has revenue of $50 million (net income of $30 million) in 2022
- The company has revenue of $100 million (net income of $62 million) in 2023
- The company projects revenue of $125 million in 2024
- The company has uplisted to OTCQX by the end of 2022
- The company buys back 1 billion shares over the course of two years (2022 and 2023).
In this example, at the end of 2023 INTK would have 2.3 billion shares outstanding. With projected 2023 net income of $62 million, the earnings per share would be roughly $0.028.
Let's use the P/E ratio as a means of determining what the share price might be. A P/E ratio under 20 typically indicates a company is a buy. If we give INTK a P/E ratio of 15 that would give us a stock price of $0.42 per share ($0.42 divided by $0.028 = 15 (P/E)).
On the flip side, a share price of $0.42 would give INTK a market cap of $966 million, which is 7.7x 2024 projected revenue, which is on the high side.
Even so, at best we get to a share price of between $0.40 and $0.50 by the end of 2023, and if we want to be more conservative maybe we cut that in half to between $0.20 and $0.25.
So, would a reverse split be necessary to get to $4 per share? Absolutely. At $0.20 per share you'd be looking at a minimum of a 1 for 20 reverse split. At $0.25 per share you'd be looking at a minimum of a 1 for 16 reverse split.
Is there a ton of potential upside between now and whenever the company uplists to the NYSE? In my opinion yes. If the company hits its revenue projections, and if the company uplists to OTCQX by the end of 2022 (I know, those are big if's, but I'm an optimist) then we could see the share price appreciate considerably by the middle/end of 2023. There may be some bumps along the way, after all, we're talking about a company that typically has revenue of a few hundred thousand dollars per year jumping up to close to a hundred million a year, but I will gladly accumulate shares at these levels and worry about a reverse split/uplisting to NYSE in 12-18 months.
News 
Market Data 
Discover 
AI
