01 Quantum Inc. (ONE) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to 01 Communique's Conference Call for 2022 second quarter results and an update from our CEO, Andrew Cheung. I have to apologize upfront and having some troubles with my video, so I have a black screen. Andrew, if you could turn the page, please. The agenda today, Andrew will give a presentation on the results, and that will follow with Q&A. And I think everybody in these days is used to Zoom, so you can see the Q&A, you feel free to send me a message, and we'll deal with it at the end of the presentation. Now as we get started, before I turn it over to Andrew, if you would take a moment here to take a look at our forward-looking statements, which are incorporated as part of this presentation. And now I'd like to turn it over to Andrew, our President and CEO. Andrew, over to you.

Thank you, Brian. Welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. Welcome to our 2022 second quarter financial results and corporate update. Now we are moving at high speed. Everything is moving at high speed. I remember, I used to spend a lot of slides having to explain what is quantum computing and how they would affect just about everything in our everyday life. Nowadays, we never need to go through that kind of explanation anymore, because it's already an accepted fact that quantum computing would affect the cybersecurity that we depend on, on our everyday life. And the question people now asking is about when is Q-Day, not if? And this is a trillion dollar question. It is like -- kind of like I keep using that analogy, like hearing the tsunami siren, but you're not seeing it yet. And Q-Day prediction is all over the place, and some say 3 years, some say 5 years or even 7 years away, but many industry experts believe it has indeed arrived, but in a quiet fashion under the radar. So all I can say is that for those who are denying it, will pay a huge price very soon. The writing is already on the wall. History has taught us that the most advanced weapons are often kept in secret until it is forced to be revealed at the time of the war. And we are unfortunately in such a situation now. And the only difference this time is that the secret weapon is not the nuke but quantum computers. Joseph Steinberg an expert witness and the author of the best seller Cybersecurity for Dummies posted many analysis that arrive into a similar conclusion. The government often possess with technology used to help the public without announcing, just to keep the edge going. The example from many years ago was the Enigma. If you still remember that, it has been cracked long before the cracking was known to the masses. In addition, the principal scientists at the NATO cybersecurity center says, securing NATO's communication for the quantum era is paramount to our ability to operate effectively without the fear of interception. And after all, the famous harvest now and crack later means any data that meant to last for years must be protected not just for now, but yesterday. So I repeat again, Q-Day has already arrived regardless of how you want to believe. It is also very likely that national network is already processing the weapon today. And people who are burying the heads in the sands are just hoping that it will take longer for quantum computers to fall into the hands of a regular hacker. In other words, the world must prepare for quantum safety, and I cannot be more specific about that. Now other than the equity market, I cannot be happier with the development of the company. Carrying on the momentum from the last 2 quarters, we continue the development in the right direction. Our achievement in the second quarter mainly come from the following: Number one, as I presented before, just a few weeks ago at our AGM, we have appointed a new Board member, Mr. Tyson Macaulay. And number two, our development for Thales, the global leader in military grade cybersecurity machine, is proceeding as planned. Number three, our development project for Talent Summit in the quantum-safe Token is also proceeding very well. Last but not least, we have filed another major invention, major innovation called quantum-safe steganography. So I will give a little bit more details about all these 4 items. First of all, Mr. Tyson Macaulay, is a well-known name in the global cybersecurity industry. Tyson is currently the CSO and VP of Rockport Network, and he has held many C-level positions at places like Fortinet, InfoSec, McAfee as well as the Board member of the Canadian Internet Registration Authority, the CIRA. Tyson possesses a very rare combination of technical understanding plus the sales-oriented mentality. This is very much in line with our corporate belief that having just the post-quantum engine is just one component to the picture. The real money lies in providing practical end-to-end user applications. And this is reflected in how we have spent a lot of R&D efforts to create the world's first quantum-safe, end-to-end e-mail security product and also our latest project in helping to create the world's first quantum-safe token is another example of this fundamental belief. Needless to say, converting our own remote access product to become quantum-safe is a natural step too. So the addition of Tyson helps further strengthening our business model. Another positive development is our project with Thales, as I just mentioned. Thales again, might not be a household name. But everything we use in our everyday life basically depends on their military grade product for cybersecurity. Their customers are all the major enterprises like the banks, central banks, government, national defense, et cetera, et cetera. And they have more than 80,000 staff worldwide with over EUR 20 billion in revenue. So for a company of that size, they won't even answer our call if we don't have what they need. These partnerships require us to create an IronCAP functional module, they call FM for their LUNA-HSM machine, which is what I mentioned, the military-grade hardware security module. This way, their customer can easily purchase without changing the machine and purchase an IronCAP FM to upgrade their infrastructure to become quantum-safe. Now this Thales LUNA-HSM are already approved by virtually all the security-sensitive organizations. It is basically a shortcut for us to reach the highly sensitive end user customers. The development here is very smooth and is approaching completion. A joint press release and co-marketing activities are expected to follow day after. Another great milestone is our proof-of-concept development for Talent Summit. We believe talk is cheap. So we are the first in the world again, who has dug deep and getting our hands dirty diving into the Token world to create the world's first quantum-safe version of it. And the initial stage of our proof-of-concept is based on the chain called Solana and it's coming to the wrap-up stage at this point. And we have successfully -- basically, this proof of concept have allowed us to successfully prove that we can integrate IronCAP technology in the Solana chain, making it quantum safe while not sacrificing its ultrafast transaction per second, which is kind of head-to-head with those -- the credit cards are providing. Technically, we have built a Layer 2 technology on top of the original layer 1, Solana, so that the modification can be kept on a minimum level. In addition, the most important conclusion that this PoC gave us is that the mechanism we have built can be applied to just about any private or public blockchain such as bitcoin or Ethereum or any permission-based blockchain or permissionless blockchain. And this puts us in basically a leading position that we can help just about any blockchain, private or public, to become quantum-safe. And last but not least, briefly mentioned in our AGM just about several weeks ago. We have just filed for another innovation technology, and we are calling this quantum-safe steganography technology. I bet most of us have watched the movie Da Vinci Code about how secret messages can be hidden in a public media. And we have basically brought this ancient technology into the post-quantum world by using our patent-protected cryptographic technology, using it to add good stuffs as errors into any media such as photos, audio and video clips. This essentially allows the overhauling of the digital wallet industry. I guess if you -- anyone here has used a digital wallet before, you would notice that the single most controversial point about digital wallet is the use of the 24 words paper to back up the private key. Meaning losing that paper, you will lose the money in the wallet. And using quantum-safe steganography, you can hide the private key inside of a normal-looking family photo, so users can keep multiple copy of it without worrying losing it people can steal your money, because you cannot extract those hidden private key with our pin. And this essentially will revolutionize the digital wallet industry. As a result, we have a very strong patent portfolio for the post-quantum cybersecurity industry. And using the Goppa code patent-protected technology granted just earlier this year as an anchor, we have 4 related patent-pending technologies covering the areas of e-mail security, post quantum, cryptographic, blockchain and digital wallets and I cannot be happier about that. Looking forward to the remaining of 2022 and beyond. We expect our strong partner, Hitachi continue to roll out new versions we have just built and delivered to them weeks ago, and generate additional recurring revenue for us as the -- because the norm of working from home continues and accelerating in Japan. In addition to that, our IronCAP X business version is expected to be available around Q3, which is very soon, and timing cannot be better, because only weeks ago, a paper coauthored with PricewaterhouseCoopers has been released about how we can resolve the infamous email fishing problem. This is important, because 91% keep coming using that statistic, about 91% of Ransomware are starting from this simple e-mail fishing. So blocking e-mail fishing basically solves 91% of ransomware. And again, we also expect IronCAP FM for Thales LUNA-HSM to be delivered around Q3 and followed by a co-press release and co-marketing with Thales. And in fact, on July 14, which is about a month from now, we are invited to participate as a panelist in a global cybersecurity event hosted by Thales and PricewaterhouseCoopers together. And these kind of co-marketing activities can only be accelerated. And similar activities are actually also staging with CGI as a partner in their innovation center. Last but not least, Talent Summit will decide how they are going to market the world's first quantum-safe token after the delivery of the final PoC proof-of-concept in Q3. So with all of these positive development, I just mentioned, right, I bet you can expect them being reflected somewhat in the quarter results, and they do. The Q2 numbers are reflecting the situation. While revenue was up 20% from last year, cash burn, which is even more important, was only about $12,000. Operating loss remained under $50,000. And most importantly, we are achieving all these with the backdrop of increased R&D investments. So with this trajectory at $0 debt -- debt-free, we are comfortable with our cash position of almost $900,000. So please let me summarize. I am very happy with the achievement in 2022 so far. It has exceeded basically our plan and the strategy we made from 5 years ago was proven to be bang on and is beginning to bear fruit. This is also dovetailing perfectly into our expectation of a massive revenue and profitability growth between now and the next few years. So I guess I don't want to take up too much time in the presentation, because I think many of you have questions. So I will take a pause from here to allow more time for question and answer. So as mentioned by Brian a little earlier before my presentation, you can use the question and answer using the Q&A button of Zoom. If you have questions, type in your question, and Brian will moderate your question. So here it goes.

[Operator Instructions] There were a couple that came in Andrew, throughout the presentation. Let's get started with those. And the first one has to do with the crypto downturn. And the question is, do you think the crypto downturn that's going on right now will affect your project with Talent Summit. And the second part of that question was, who is Talent Summit?

This is a loaded question, but nevertheless, it's a good one. So let me answer them in part by part. I think the first part is about the down -- the crypto downturn. In fact, what we have seen so far is that the crypto downturn has basically elevated the importance of being quantum-safe for the Token. So it is actually helping our campaign here and that's how we saw it. I mean things are moving really fast. I mean, just 6 weeks ago, we hadn't seen this kind of downturn and so it happens. But so far, the reaction we've seen is that it is actually helping us to elevate the importance of being quantum-safe. And the second part of it is I actually hear a lot of people asking about who are Talent Summit. In fact, this cryptocurrency industry or Token industry is very interesting. Like if I ask you, who is Satoshi. No one knows Satoshi started bitcoin and no one know about who he is. And there's no organization, no company behind the chain. It will be in a similar situation. And all I can say is that the Talent Summit is formed by a consortium of some cryptocurrency -- very successful cryptocurrency players, and they are kind of related to the Solana, FTX circle. And at the end of the day, after starting the chain, the new quantum-safe chain it will just be a foundation, just like bitcoin foundation, Ethereum foundation, it doesn't own by certain company. And -- but it is starting -- like it started by a group of entrepreneurs in that industry. So I guess this is the kind of thing that we have to live with in the Token industry. So yes, so I'm taking it kind of like a long-winded answer to answer this question, I think there are 2 parts that I answered them.

Okay. And the next one, Andrew, is, are you able to convert other cryptocurrencies into a quantum-safe product such as Bitcoin and Ethereum?

I think I mentioned about that in my slides. Yes, and the short answer is yes. And this is, again, very important that we are the first one -- I keep saying talk is cheap. We are the first one in the world who really gets our hands dirty and dug deep into the blockchain or token codes to find out where are the sweet spot, stones, wall that we have to remove. So in the last 3 to 4 months, we have actually found out and successfully proven that the technology can be applied. I mean, the technology of integrating quantum safety into the blockchain can be applied to just about any kind of blockchain, whether it's the private blockchain, public blockchain, meaning the permission-based blockchain or permissionless blockchain is applicable, it's universal. So we are very happy about that. So the short answer, yes, it can be applied to just about any tokens, bitcoin, Ethereum, anyone can be -- is applicable.

Okay. That's good. Now next one has to do more with shareholder value. And Andrew, in the last quarter, we signed up into an agreement with Hybrid Financial for Investor Relations. And the question is, how happy are you with the progress they're making so far, given the fact that our stock like everybody else' has kind of gone down in the last month or so?

I think as I mentioned earlier, other than the equity market, I cannot be more happy with the development. And unfortunately, this is totally outside our control. Things that within our control would be to deliver technology and deliver product for our customers, so they can generate revenue for us. And short answer is, again, I'm definitely not happy with the market happen so far. And the -- basically, the market has given us basically 0 value of everything that we have done. So I'm definitely not happy about that. And this is a little bit insane about the value that the market cap that we are right now. But I cannot make prediction on market, and this is totally outside my control. So yes, the market is not good.

I'd just like to add one comment there. While we're not getting what we feel is true value for our shareholders, what we can control is our cash burn, and I think we're doing a very good job on that. We look at it every quarter. And given where we sit with cash, given our cash burn, we're quite comfortable that going forward, we got enough cash to keep us going and do the things that we have planned.

Yes, we have survived many downturns. Given the history of the company, we have witnessed and went through numerous market turmoil in the last 20-plus years. So yes, I'm not worried about going through these things. We are experienced in going through turmoils.

And Andrew, that about wraps up the questions. I'll now turn it over to you for your final comments.

All right. Great. Thank you, Brian. So once again, I thank you for joining our 2022 Q2 business update and quarterly results. We are completely prepared, again, to capitalize on Q-Day. So stay tuned and hope to see you again in about 3 months. Yes, I couldn't be happier coming into the new era. Thank you very much again, and bye for now.