01 Quantum Inc. (DFK0.F) Earnings Call Transcript & Summary

Let's get started. Good morning, everybody, and welcome to our 2025 third quarter results and business update. This is the first time we presented it as 01 Quantum, as you all know, formerly 01 Communique. And we're really excited with this quarter. I'm Brian Stringer. I'm the Chief Financial Officer. And with me on the call is Andrew Cheung, our President and CEO and Founder. As part of this presentation, I draw your attention to our forward-looking statements. Please take a few minutes to read them. And the agenda today will be -- I'll turn it over to Andrew. He's going to take us through our results and an outlook for the future with the recent partnerships that we've signed and the future that's in front of us. That will follow with Q&A. And I think by now, we all know how to use Zoom and use the chat buttons at the bottom, submit your questions and we'll get to them at the end of the presentation. And now Andrew, over to you.

Thank you, Brian. How everyone doing? I'm Andrew Cheung, President and CEO of 01 -- well, 01 Quantum, still using that same old name. So this is actually a very good important chapter for me in my career life because as Brian mentioned earlier, this is the first presentation in the new name, 01 Quantum. So now I am going to not focus in talking about what quantum computers are because people already know about it. And I will be focusing on, first of all, about our value. So basically, quantum computers with their excessive computing power has created an unprecedented cybersecurity threat for the world or AKA Q-Day, which is the day when the bad guys are using quantum computers to do the dirty works, doing the hackings. So everything will be vulnerable on and after Q-Day, whether you are using e-mail or financials or cryptocurrencies or AI, you name it, everything under the sun would become vulnerable. So the $1 trillion market here is to convert everything needed to be protected against the quantum computers. So what sets 01 Quantum aside from our competitors is fairly simple. First, we have 4 patents, like 2 granted and 2 patent pending. And our cryptographies are all endorsed also by NIST, the semi government agencies in the U.S. And most importantly, we have about 3 years ahead of our competitors in terms of the actual end-user SaaS product. I'm not talking about engine. Everyone has the engine. We are actually -- we have already set forward using our engine to have created end user product that people can come to our website, commercially available, download, use it and pay for it, okay? So timing is everything. We are becoming a little bit more visible in the market because we have started to tell the world about what we do. And the reason why the best timing is because we -- at least we have crossed into the revenue or profit generation in the 2025 or actually later part of 2025. We also have a very cost-effective go-to-market strategy with our global partnership, which I will go into details. So I think everyone has the $1 trillion dollar question about when exactly Q-Day would hit. So while there's no definitive answer, there are a lot of very clear writings on the wall that you can read. So what are these writings on the wall started like Google 9 months ago, they had a breakthrough in creating quiet Qubit in December 2024. And then 2 months later, Microsoft has announced their topological core Majorana 1 technology that would allow squeezing up to 1 million qubits into one single chip. So combining the Microsoft and Google announcement earlier this year was a game changer and setting the world on notice a very high alarm club about quantum computer is here already. And also Honeywell, not long after that, a few months ago, has announced the latest road map. They are calling to deliver later this year -- they haven't done it yet, they said later this year, they would deliver the newer version of quantum computer that is going to be 1 billion times, not a typo, it's 1 billion times faster than the predecessors. And obviously, IBM are not falling behind. About 2 months, 3 months ago, they announced their latest road map calling for delivery of Loon in later this year and then followed by Kookaburra next year and then finally culminated in a full fraud-tolerant quantum computer by 2029. So what does it mean? It means that following IBM's road map alone, the Q-Day would not stretch beyond 2029. So if anyone here, whether you are Honeywell or Microsoft or Google or D-Wave or IonQ or whoever, that managed to beat IBM, it will just move the needle earlier, all right? And don't forget, all these things are just the writings on the wall from the open world vendors. And there's another closed world like Russia and China, and those vendors, they don't release the road map. So I am fully expecting that somehow there will be a kind of like a DeepSeek alike event that someone coming out and suddenly on the most unexpected day, here's our quantum computer beating everyone. So if you are not prepared on that date, you toast it, okay? So if these are -- these writings are not enough for you, all right, then don't listen to me, okay? Listen to what the government says. So what the government says here is very simple. First of all, the Executive Office of the U.S. President, okay, says in 2022, actually some years ago, he says, be very mindful about a famous attack called HNDL, Harvest Now, Decrypt Later, whereby the hackers are getting hold of your data today, and then they will hold on to it, okay? They cannot decrypt today, but they hold on to it until they have a quantum computer tomorrow and then decrypt. So the problem is not a tomorrow problem. It is actually today or yesterday problem already. I keep saying using that word about like yesterday is gone. Today is the day, tomorrow is too late already. So no wonder why Howard Lutnick, the U.S. Secretary of Commerce says in the CNBC interview several months ago, he says the worldwide cybersecurity will be totally broken by quantum computer if you don't act immediately. The last but not least is also our own government, the Kani government has also announced Quantum technology as a priority topic in the latest G7 meeting. Now [indiscernible] from the ink is still wet. It's only a few days ago, Starmer and Trump has signed a Quantum Computing Act designed to counter China's aggressive attempts, which is kind of marry up to what I believe the closed world never announced the role. They won't give you a call before they make the announcement, all right? So it is a problem of today or yesterday, not tomorrow problem. So now we are being very pragmatic. We do not believe that even with all our technology, we don't believe the world's largest companies or agencies or the central bank would trust us being a small Canadian public company to help them doing the conversion. So 2, 3 years ago, we started to sign up partnership. We believe the best way is to sign up with a big name so that we being the SME, subject matter expert, would help them and their customers to do the conversion. So the more notable ones are the CGI in our backyard, Thales in France, PwC in Asia and Hitachi in Japan. So we have defined basically 2 revenue streams or we call revenue generators. The first revenue generators are what we call the lower-hanging fruit, which is using this network of partnerships, global partnerships to generate revenue by helping them and/or their customers to do the conversion, all right? So the typical revenue model is that we are receiving a onetime fee plus some kind of revenue royalty share of the final product. So the sector that we can help is very broad, whether it is the cryptocurrencies, VPN, remote control, digital identity, you name it, everything that we can help. So the second revenue generator is what I mentioned a little bit earlier before that sets us apart from our competitors is the way that we have actually gone one step further in creating our own quantum-safe SaaS product that customer can come to our site, download it, use it and pay $10 a month to use. So the typical one is e-mail security and remote access, which are already commercially available on our site. And the third one, which I will elaborate more, is an AI marketplace. It's not commercially ready until about Q2 of 2026. And this is actually what we have been doing in the most of 2024 and early part of 2025 this year was that a crossover. We have created a crossover between AI and quantum safety, which I will talk a little bit more in the slides to come. So it doesn't take a rocket scientist to figure that these markets we are going into are huge. Just using some example in the first revenue generators. Again, as I said, the typical revenue model is a onetime engineering fee plus some percentage of ongoing revenue sharing, we call royalty, right? So the typical example we have already started some contractual revenue rolling in is we signed Hitachi in June, and we signed qLABS, which is a crypto foundation in August. And so these revenue are already starting to roll in and their marketing activities would begin in Q1 or Q2 in 2026. So with our SaaS product, it is a no-brainer, like e-mail, why do we pay e-mail is very simple. There are 730 million global business e-mail addresses. And if only 10% of them are serious and wanting quantum safety paying $2 a month, that's $1.5 billion per year of potential recurring revenue to be grabbed, okay? And AI marketplace is even more humongous, like $3.6 trillion market, and we have found a crossover between AI and quantum safety, which we haven't announced anything yet, but we will be doing that very soon. And we'll talk a little bit more in the slides to come also. All right. So it's time to -- let me give you some example of the partners' activities. Now first of all, obviously, it is Hitachi, that we signed the agreement in June. In fact, we talked to them about these quantum safety things for like more than 2 years already. And they were kind of like many other people, yes, we understand quantum safety. Let's see what happened. Let's see what other people are doing. And then until these writings on the wall becomes obvious, Google made the announcement, Microsoft made the announcement. And then suddenly, the discussion was accelerated. And we signed the agreement in June. And just like anything else, we took more than 2 years to sign a deal and then they only -- they want everything yesterday. So they only gave us 6 months to complete the project. So we have until the end of December to deliver and then they can start the marketing this first remote access with quantum safety in Japan, right? The second one is about the crypto. As we saw very recently in the last -- early last month, we signed an agreement helping qLABS Foundation to create the world's first quantum-safe token for them. Now crypto is kind of like a, I call it a perfect storm for Q-Day threat because cryptocurrencies are all based on elliptic curve encryption, which is 100% Quantum vulnerable. So whether you are using Bitcoin or Ethereum or Solana, they're all Quantum vulnerable. So what we have created is basically what we announced yesterday a Quantum Crypto Wrappers, which is a technology -- is a patent pending technology that we are giving to our partners in exchange for onetime development fee plus revenue sharing of the token sale and the percentage of founders token. So this huge total $3.8 trillion market of cryptocurrencies has to be protected before Q-Day. So that's a huge and humongous market we are tapping into. Now obviously, the -- in our backyard, you know CGI is a Canadian global giant in the system integration and their head office is in Montreal, René-Lévesque. So if you go to the head office, the top floor, there is an innovation center there, which is displaying all the future technologies. And one of the section is displaying Quantum Technology, and they are demonstrating IronCAP product there at the innovation center. Next one is PwC, and we have co-authored 2 thought leadership paper for PwC. And obviously, as being the SME, subject matter expert, these 2 papers are typically labeled as the PwC paper, but actually, they were 100% word by word written by us, okay? So that's what we did for PwC. And then next one is we also have helped a relatively small company in Hong Kong. So if you go to the Cyberport in Hong Kong, you will see this machine. This is a cryptocurrencies ATM machine. If you look closer, you'll see a logo there because they were using our technology to protect the communication. So last but not least, a couple of weeks ago, we also had signed a new partner called Turnium, which is a Network-as-a-Service software-based platform for the SD-WAN router machines. So this partnership has 2 stages. The first is that they are -- they sign up as a reseller of our IronCAP quantum-safe end-to-end e-mail security system. And secondly, they will also integrate IronCAP technology to their software-based SD-WAN product. So these are all the not-to-go partners' activities. But as I said, I would -- I promise to give you more information about our own SaaS product. So first of all, obviously, is our e-mail security. The reason why we picked e-mail is very simple. E-mail is probably the most widely used business tool in the world, but yet they are 100% Quantum vulnerable. And they are also 91% the source of ransomware attack, okay? So what we have done for that is we have created a plug-in for Outlook, which is turning all the Outlook e-mail to become quantum-safe encrypted so that when Peter wants to send a message through e-mail to Mary, the message will be end-to-end encrypted at Peter's outlook and then send over encrypted to Mary without being decrypted anywhere along the channel. So even the authority like FBI or CIA get hold of the message, there's no chance, zero chance that they can read the message because they don't have the private key that only Mary possess in her PC, even not us as a provider, we cannot even provide anything. So if the government agency come to me and put a gun in my head and said, I don't have the key. Sorry, I couldn't help, right? So we made quantum safety in end-to-end e-mail, and this market is humongous. As I briefly mentioned before, there are 730 million business e-mail addresses in the world. If only 10% of them are serious and wanting quantum safety, paying $2 a month, and this is $1.5 billion of SaaS recurring revenue up for grab here, okay? So that's very exciting. Now next thing is I promised to give you a little bit more about the AI, what we have done. Now this -- we have not made a public announcement yet. We will be doing it in about a few weeks down the road. What we have created in 2024 and early part of 2025 is that crossover between AI and quantum safety. So let me give you a very quick example what exactly what we have done. So if everyone talks about AI the general myth is they were talking about LLM, large language model like ChatGPT and DeepSeek alike. But the larger part of AI market is in special purpose AI model. Now what is special purpose AI model? I'll give you an example, like credit card fraud detection, for example. So you will expect to feed credit card information into ChatGPT and then expect ChatGPT to give you a prediction whether this transaction is likely a fraud or valid, right? That is the job of special purpose credit card fraud detection, AI model. But this kind of business never fly because it doesn't matter whether it is the credit card fraud detection, almost all other special purpose AI model like the facial recognition, medical advice, network analysis, the user data are very highly confidential. There's basically no chance using credit card fraud detection as an example. There's no chance for Visa and Master to feed a credit card transaction into a third-party credit card fraud detection because of that reason. And then vice versa, the same thing. The vendor also do not want the end user to have access to an unencrypted model because they can copy just like that, just like exactly DeepSeek copying ChatGPT and build on top of it, right? So the end result is that we got to find a way to solve this $1 trillion market pain point. So what we have done was we have invented a method to encrypt the quantum-safe fashion to encrypt the model and encrypt the end user data before doing the AI query, right? And that's what we have done. And we are just about to make the announcement of our commercialization plan, which is already demonstratable internally. So we're going to make a demonstration and we're going to make an announcement very soon about this. So stay tuned for that. So with all these things, obviously, you see that we have committed to tell the world about we become more visible in the general market and financial market recently in the last several months. So let me turn over to Brian, our CFO, to give you more insight about the financial snapshot as of now, and then I will come back to give you a kind of like a summary of what's coming and my forecast about the next few quarters to come.

Okay. Thank you, Andrew. Now as you've heard with the recent partnerships, we're now -- we're at the crossroads. We're producing revenue. We're producing the development fees with our partners, both Hitachi and qLABS, they're paying development fees. These projects are profitable. They're generating positive cash flow for us. Now TTGI, they're marketing the e-mail application, as you've heard, IronCAP X. They have the benefit in an already developed commercial product. So it's ready to go. No development fees for this one. So for us, overall, there's no downside, just potential upside. We will recognize development fee revenue from Hitachi and qLABS. It's in our current fourth quarter and our first quarter next year, quarter ends October 31. Once the applications are complete and the products rolled out, then the royalties start, very simple. Now when I take a look at our adjusted P&L, you can see that we -- our cash burn, in other words, is $269,000. We've been looking at it as plus or minus $200,000 per quarter. It depends on the development expenses and revenue recognition. It's a timing issue. When we look at going forward in our fourth quarter, we've got the revenue coming in from these development fees, and they're good margins. We fully expect at this point in time that we're going to see positive cash flow for the fourth quarter and into the first quarter. When I look at what we've done with our expenses, yes, we've increased our expenses substantially. First, I'll take a look at SG&A. In the past, we've been relatively quiet with respect to marketing and Investor Relations. Why? Well, we focused on development. You got to have a product before you can market it. This has changed this year. Completed development, we're starting to roll it out. So we're now starting to spend more on promoting our company to raise awareness, not only in the financial markets, by the way, which benefits all of us on this call, but also the business markets. This has brought us increased exposure and attention throughout the business community. We're starting to get calls for starting to be recognized. We see this more as an investment than an expense. Okay. With respect to R&D, yes, we've increased our R&D. Now I should note that we spent over 5 years and $5 million developing our PQC technology. It wasn't a simple development project. It took time, took lots of money. Now that's behind us. The engine is done, as Andrew told you. We're now embedding that technology and applications, either for our own application like the AI platform or IronCAP X or for our partners as in qLABS or Hitachi. Now at this point, that's considered -- takes considerably less time and less money, but it does require some development costs. We're making good margins on these products, but it does require cost for the integration. So overall, we have $1 million in available cash to carry us forward, and we're feeling very comfortable for the next 2 quarters. Thank you, Andrew. I'll turn it back to you.

Yes. Thank you, Brian. So yes, that's a very good summary. So I think for me, before I take a quick pause for question and answer, I just want to make a summary that like we are in the inflection point, basically. A lot of people are saying that, yes, I wish I could have invested in AI 2 years ago. And yes, you couldn't roll back the clock, but this Quantum market is like AI 2 years ago. In fact, it is even larger than AI because to me, like AI is very slick software engineering work, but Quantum is actually one of the very few handful number of life-changing technology in the history of mankind, which I am very proud to be a major stakeholder in this new trend. So 01, again, has reached the revenue tipping point. And we are the world's first company with quantum-safe product to -- like for end users, not as a middleware for other people to utilize the technology, but something that anyone Mr. A, Mr. B on the street can come to our website, download it and use it, right? And more importantly, we have a very slick and cost-effective revenue generation model using as a subject matter expert with our global partners, which I have talked about before. So I'm going to take a quick pause here to allow more time for question and answer, which I'm sure you already know how to use the Zoom question-and-answer thing. So please post a question and Brian will -- as the moderator, will moderate your question and let me answer them one by one.

Okay. Thank you, Andrew. Yes, I had some come in, so please keep them coming. But I have some come in as your presentation. And the first one has to do with partnerships. So I'll read it. Is it safe to say that these partnerships, which are all in different market segments represent how you are attacking each of these vertical markets. You have qLABS with crypto, TTGI with e-mail, Hitachi with the Japanese market. Can you elaborate a bit more on how you're planning to attack, say, the AI market? And what are other verticals do you see in the near term as good opportunities?

Thank you. I think this is a good but loaded question. So first of all, I think let me reiterate a little bit about our first revenue generators, which I call the lower-hanging fruit that we are using these partnerships to generate revenue. The reason why it is lower-hanging fruit is because it doesn't cost us the sales and marketing dollars. It is totally marketed by our partners, and we are getting a percentage of the revenue sharing plus the onetime development fee. The onetime development fee would not make us rich. It would just like cut to the bottom line and things like that. However, what makes us rich is the percentage share of the product when they are doing the marketing. There's no downside for this because it's kind of like a let it right game, okay? And now on the AI side, it's a different thing. The AI side is our own market, which, as I said, I will not talk too much about it today because we are -- I'm going to save the thunder for a few weeks down the road that when I'm making an announcement of the commercialization project and a public demonstration, it is actually a crossover between AI and quantum safety, whereby we are providing a platform for these third-party special purpose AI model to be listed on and let them -- let the end user use it, okay? So it is a direct marketing from us, not from our partners. So our so-called partners in the AI marketplace is the vendor who would list the model on us and let the end user use it. We are kind of like a platform to achieve quantum safety privacy for these things. So yes, let's save the AI details in the very near future announcement from us.

Okay. Thanks, Andrew. The next one has to do with our R&D costs. And he wants to -- can you elaborate on the type of developers you have brought on board? And the second part of the question, do you have enough resources now to get the projects done that you're working on?

Yes. I think the short answer to that is, yes, we definitely have the necessary resource to get the things done. And don't forget, we are not a start-up. We're not building the team from scratch. I have more than 20 years' experience in building this end-user product. And I actually have a very, very wide network of contractor working for me in the last more than 20 years already. So it's a very cost-effective way to manage and very wide network that is helping in different kind of sectors. So yes, again, short answer, I have very, very good comfort in handling all the necessary sudden surge in requirement for R&D resources, and I'm very comfortable with that.

Okay. And there is a follow-on to that question with respect to the increase in the -- in our Investor Relations and promotional activities. And the question is, do you think it's paying off? And are you going to keep going at this level?

The short answer is it is. Apparently, it is paying off. IR is expensive item. So that's the reason why we keep ourselves very quiet in the last few years because we thought, hey, we don't have a lot of resources, almost like you got one shot and you have to hit. So we have been then decided to wait until we have some solid partnership revenue generation activities to show to the market. And the market is ready. Once we see these 2 things happen, let's press the button to spend IR money to tell the world and expose ourselves a little bit more. So we saw this opportunity coming in 2025, not even early 2025, but actually the second part of 2025, starting a few months ago. So we have solid agreements with revenue generation to show, and we have the market ready for Quantum. So that's why we have increased the IR activities. And yes, so far, it's paying off.

Okay. I'm just reading this one. The next one has to do with our financial position going forward. Can you tell me a bit more about how you think Q4 will unfold financially?

I would say, as I briefly mentioned and also briefly mentioned by Brian, we expect the revenue will rise into Q4. So Q4 would likely be hovering around the breakeven position or maybe even -- depends on the detail, but it will be hovering plus or minus around the breakeven position. So I am very confident in the upcoming Q4 and Q1 and Q2 of 2026.

Okay. Perfect. And this cognizant of time, so the last question has to do with our Quantum Crypto Wrapper. And question sounds very technical and complicated. So can you give me a better description of it in simple terms?

That is -- you're right. First of all, it is very complicated. And let me try to see if I -- how I can use a minute or 2 to kind of interpret in everyday English. The technology we have been working on for a while is like -- we all know that blockchain or cryptocurrency is protected by the digital signature, okay? And because of that, they are Quantum vulnerable. And the high-level thing is to change that into a quantum-safe signature, but then the quantum-safe signature is too big to fit into the existing blockchain. So what we have ended up doing was using a very new -- which is vetted by software engineers around the world, it's called zero-knowledge proof technology, using zero-knowledge proof, which is a very complicated way of doing things to squeeze down the signature and the public key into the existing structure of blockchain. So the concept is kind of like you want to prove something, okay? In the past, you are using the public key to prove the signature signed by the private key. But now using zero-knowledge proof, you are actually preapproving that at the beginning, okay? And then putting the proof in the transaction and let them just verifying the proof. It's kind of like -- the everyday concept is kind of like you have a lawyer looking at something that you trust and saying, hey, I look at it already, and this is my chop, okay? And then later on, the third party down the road never see the thing, but they see the chop of this lawyer say, okay, I trust it, okay? This guy has looked at it already. So that's basically the concept of the technology. And this is what we call the Quantum Crypto Wrapper technology.

Okay. Thanks, Andrew. And I'm cognizant of time. So that's it. If there's any questions or a couple outstanding, please feel free to give me a call or Andrew a call in the office or e-mail. Thank you very much, and now I'll turn it back to Andrew.

Yes. Thank you again for attending. And as I said at the beginning, this is a very important chapter or we turn to a new chapter as 01 Quantum. So I'm -- as probably you can hear from me that I am very confident in the future of the company. Everything is culminated to this point. So thank you for joining. I cannot wait for the presentation in the next few quarters down the road. So please stay tuned. And again, thank you for attending this update.