The Canadian Microcap market is full of many interesting, earlier stage companies with novel technologies they are trying to commercialize. Robotics, Software, Pharmaceuticals, Medical Technology….the list goes on. They all have one thing in common – A great story. The art and science of investing in this space is to identify which stories have a chance of succeeding, and then investing at the right time and price to maximize profit and minimize risk.

Which brings me to Plurilock (TSXV: PLUR). From Plurilock’s most recent Investor Presentation:

Plurilock™ provides identity-centric cybersecurity solutions for workforces. We operate two divisions:

TECHNOLOGY DIVISION: We build and market patented AI cybersecurity software to defend workforces from cyber threats and enable compliance with regulatory standards, while reducing end-user friction.
SOLUTIONS DIVISION: We seek to grow our distribution by acquiring IT and cybersecurity solutions providers.

In a nutshell, Plurilock has created software that helps organizations increase security by improving the management of user access and identity, by incorporating AI and machine based learning with biometric measurement processes. Their goal is to sell this software to big customers. A lot of it.

They’ve also taken to growing their business by acquiring other, smaller businesses where there may be a synergistic fit. ie. Those businesses’ customers may be good targets for the software. They purchased Aurora – a ‘Cybersecurity solutions provider’ – earlier in 2021.

Now, there is a lot going on at this company, They are executing, and it is impressive. For a detailed view, have a peek at their investment presentation located on their website at: https://plurilock.com/company/investors/

I’ve spent some time trying to gain a basic understanding of the utility and applicability of their products, as well as reviewing their financial statements, news, developments, management interviews, management bios, capital structure and insider trading. Here are my thoughts.

• Strong, credible Management and Board are in place
• Good Capital Structure – Shares OS, Balance sheet.
• Good Cash Management, albeit the path to cash flow positive is hazy
• Market Communications are professional and well managed
• I scored the company at 66% based on my merit screens, which is actually quite high for a nanocap with no real margins or earnings.

So we have an impressive, earlier stage software developer with strong management, in a great sector with fantastic growth prospects.

Concerns I have around the company are based on its strategy. Writing software and developing software products are one thing, but commercializing them is a totally different animal. The best case scenario is that their products are so good, the big guys beat a path to their door and buy hundreds of thousands of licences, or the company itself. That doesn’t seem to be happening in this case.

Plurilock’s strategy is to acquire distribution as a way of gaining access to / traction with US government agencies. That could work. But, the devil is in the details.

Their March 2021 acquisition, Aurora, is a consulting firm that appears to derive most of its revenue from what looks like hardware sales (hopefully cybersecurity related), but makes no margin and loses money consistently on those sales. Fortunately, the price they paid for the company (and its impressive sounding 28 million dollars of sales) was negligible (up to 1.5 million dollars of cash and shares).

This deal adds top line revenue to Plurilock, which looks good, but does not help the bottom line. Importantly, it gives Plurilock access to a client base who are good targets for their high margin software products. And this is where the battle will be won or lost.

Being a businessperson – as well as an investor – I’ve seen acquisitions like this done for the right reasons but never bear fruit. And I’ve seen them done for optical purposes only. The acquisition of Aurora makes sense in some ways, but still feels a bit janky. Despite its impressive top line, from a GM and staffing perspective Aurora is a very small business. Something to think about.

In summary, I think Plurilock has a lot of potential, and if the wind blows right, and software sales with significant customers emerge, the Share Price could go up 50-100% from its current level of 0.45 cents (CAD) on January 4. There is the opportunity for a bigger win here as well, should the company land a major contract or licensing deal, and demonstrate the ability to move to cash flow positive sooner rather than later. On the flip side, I’m not convinced their ‘go to market’ strategy is a great one. There is real risk to the downside based on their very light balance sheet and burn rate.

I’m rooting for these guys, I have opened up a small position to enable me to keep a close eye on the story, and I’ll certainly be buying more if the company executes.

GLTA!